disproportionate-impact-analysis.docx

1018-00008 · Penterra Pharmaceuticals Corp · MAE Analysis & Termination

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CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588

MEMORANDUM

TO: Dr. Anand Rajagopal, Chief Executive Officer, Penterra Pharmaceuticals Corp. Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp. Natalie Reiner, Senior Vice President, Corporate Development, Penterra Pharmaceuticals Corp.

FROM: Oliver Mackenzie, Partner, Calderwood & Harkness LLP Megan Chu, Associate, Calderwood & Harkness LLP Derek Okonkwo, Associate, Calderwood & Harkness LLP

DATE: September 3, 2024

RE: Disproportionate Impact Exception Analysis — VRD-4187 Clinical Data and FDA Partial Clinical Hold; Stock Purchase Agreement dated June 10, 2024 among Penterra Pharmaceuticals Corp., Veridian Biosciences, Inc., the Sellers named therein, and David Ng as Stockholder Representative

MATTER NO.: 1018-00008

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I. Executive Summary

The purpose of this memorandum is to analyze whether, assuming arguendo that one or more of the Material Adverse Effect ("MAE") carveouts set forth in Section 1.1 of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") could apply to the VRD-4187 clinical trial events, the disproportionate impact exception contained in the same provision reinstates those events within the MAE definition such that Penterra Pharmaceuticals Corp. ("Penterra") retains its right to decline to close and, if applicable, to terminate the SPA.

Our core conclusion is as follows: Even if Veridian Biosciences, Inc. ("Veridian") were to argue that the adverse interim data from the Marlowe Asset Management-2 Phase II clinical trial and the subsequent FDA partial clinical hold on VRD-4187 fall within one or more of the enumerated carveouts — for example, carveout (ii) (conditions generally affecting the biotechnology or pharmaceutical industries) or carveout (iii) (changes in applicable law) — the disproportionate impact exception applies because these events disproportionately affect Veridian relative to comparably situated companies in the biotechnology industry. The disproportionate impact exception functions as a "carveout to the carveout," meaning that effects that would otherwise be excluded from the MAE analysis are "added back" into the MAE determination when they affect the target company more severely than its industry peers. Here, the evidence overwhelmingly supports a finding that the VRD-4187 clinical data and FDA partial clinical hold affect Veridian to a degree dramatically exceeding the impact on any reasonable comparison set of biotechnology companies.

This memorandum supplements two prior analyses prepared by our firm: (1) the comprehensive MAE analysis memorandum dated August 25, 2024, which concluded that the Marlowe Asset Management-2 interim data and the anticipated regulatory response constitute a material adverse effect under SPA Section 1.1; and (2) the MAE carveouts analysis memorandum dated August 28, 2024, which concluded that none of the enumerated carveouts in SPA Section 1.1 apply to the VRD-4187 clinical events on their own terms. A supplemental MAE analysis memorandum incorporating the FDA partial clinical hold, which was imposed on August 22, 2024, is currently in preparation with a target delivery date of September 5, 2024.

We emphasize at the outset that our primary position remains unchanged: the VRD-4187 clinical data and the FDA partial clinical hold are company-specific events that fall entirely outside the scope of the enumerated carveouts. The clinical data reflects the unique safety and efficacy profile of Veridian's proprietary compound, VRD-4187, as tested in the Marlowe Asset Management-2 trial, and the FDA clinical hold was imposed specifically on Veridian's Investigational New Drug Application (IND 154832). These are not conditions affecting the biotechnology industry generally, changes in applicable law, or any other category of excluded event. The disproportionate impact analysis set forth in this memorandum is therefore a secondary and alternative argument — a belt-and-suspenders approach that provides Penterra with an additional layer of protection in the event that Veridian attempts to invoke one or more of the carveouts in connection with any future dispute.

II. Background and Relevant Facts

A. The Transaction

On June 10, 2024, Penterra Pharmaceuticals Corp. ("Penterra"), Veridian Biosciences, Inc. ("Veridian" or the "Company"), the stockholders of Veridian named as sellers thereunder (the "Sellers"), and David Ng, in his capacity as Stockholder Representative, entered into a Stock Purchase Agreement (the "SPA") pursuant to which Penterra agreed to acquire 100% of the outstanding capital stock of Veridian for a purchase price of $900,000,000 in cash (the "Purchase Price"), subject to customary adjustments and the satisfaction of specified closing conditions.

Veridian is a privately held, clinical-stage biotechnology company incorporated under the laws of the State of Delaware, with its principal offices located at 550 Gateway Drive, Cambridge, Massachusetts 02142. The Company is focused on the discovery and development of immuno-oncology therapeutics. Veridian's lead product candidate is VRD-4187, a bispecific T-cell engager targeting DLL3 (delta-like ligand 3)-expressing tumors, with a primary indication in small cell lung cancer ("SCLC"). VRD-4187 leverages Veridian's proprietary VeriTCE (Veridian T-Cell Engager) platform, which is designed to enable the engineering of bispecific antibodies that redirect T-cells to tumor cells expressing specific target antigens.

As a clinical-stage company, Veridian has generated zero product revenue to date. For the fiscal year ended December 31, 2023, Veridian reported total revenue of $0 and a net loss of $87.3 million, consistent with its status as a pre-commercial biotechnology enterprise that relies entirely on external financing to fund its research and development operations. Since its founding, Veridian has raised approximately $420 million in venture capital and growth equity financing across four funding rounds (Series A through Series D). At the time the SPA was executed, Veridian employed approximately 148 individuals.

Veridian's product pipeline consists of three immuno-oncology candidates. VRD-4187 is the lead and most advanced candidate, having entered Phase II clinical testing in the Marlowe Asset Management-2 trial. The Company's two other pipeline candidates, VRD-5290 (targeting CLDN18.2 in gastric cancers) and VRD-6103 (a bispecific NK-cell engager in preclinical development), are at earlier stages of development and were not material drivers of the $900 million Purchase Price. The transaction was motivated primarily, if not overwhelmingly, by the clinical and commercial potential of VRD-4187.

B. Marlowe Asset Management-2 Clinical Data and FDA Clinical Hold

Marlowe Asset Management-2 (ClinicalTrials.gov Identifier: NCT05837291) is a randomized, open-label Phase II clinical trial evaluating VRD-4187 as a treatment for patients with previously treated extensive-stage small cell lung cancer. The trial was conducted across 42 clinical sites in the United States and the European Union. At the time of the Data Monitoring Committee ("DMC") interim analysis, 387 patients had been enrolled in the trial: 194 patients in the VRD-4187 treatment arm and 193 patients in the control arm receiving standard-of-care chemotherapy.

On August 14, 2024, the independent DMC conducted a pre-specified interim analysis of the Marlowe Asset Management-2 data. The interim analysis revealed the following key adverse findings:

Safety Signal — Cytokine Release Syndrome. The incidence of Grade 3 or higher cytokine release syndrome ("CRS") in the VRD-4187 treatment arm was 23.4%, compared with 4.1% in the control arm — a difference of 19.3 percentage points. Grade 3 CRS is defined under the American Society for Clinical Oncology ("ASCO") grading criteria as CRS requiring aggressive intervention, including vasopressor support and/or supplemental oxygen. This level of severe CRS far exceeds the rates typically observed in comparable bispecific T-cell engager programs and represents a serious and potentially life-threatening safety concern.

Treatment-Related Deaths. Seven patients in the VRD-4187 treatment arm (3.6% of 194 patients) experienced treatment-related deaths, compared with one patient in the control arm (0.5% of 193 patients). The treatment-related mortality rate in the VRD-4187 arm is alarmingly elevated and, as detailed in the Broadleaf Scientific assessment discussed below, is substantially above the range observed in comparable clinical-stage immunotherapy programs.

Efficacy Failure. The overall response rate ("ORR") in the VRD-4187 treatment arm was 31.4%, compared with 28.9% in the control arm. This difference was not statistically significant (p = 0.58). In practical terms, VRD-4187 demonstrated no meaningful efficacy advantage over standard-of-care chemotherapy, meaning that patients in the treatment arm were exposed to significantly elevated safety risks without a corresponding therapeutic benefit.

Based on these findings, the DMC recommended the immediate suspension of new patient enrollment in the Marlowe Asset Management-2 trial and the implementation of dose modification protocols for patients already enrolled in the treatment arm. The DMC communicated its recommendation to Veridian's clinical leadership on August 14, 2024.

Penterra received written notice from Veridian of the DMC findings on August 16, 2024, pursuant to the notification obligations set forth in SPA Section 5.1(b). Upon receipt of this notice, Penterra retained Broadleaf Scientific Consulting LLC to provide an independent scientific assessment of the clinical data. Broadleaf Scientific's supplemental clinical assessment, authored by Dr. Raymond Kapoor, M.D., Ph.D., a board-certified oncologist and clinical trial specialist, was delivered to Penterra on August 19, 2024. The Broadleaf assessment confirmed the severity and clinical significance of the Marlowe Asset Management-2 interim findings, as discussed in greater detail in Section V.A of this memorandum.

On August 22, 2024, the United States Food and Drug Administration ("FDA") imposed a partial clinical hold on VRD-4187 under IND 154832. The partial clinical hold precludes the initiation of new clinical studies involving VRD-4187 and restricts the ongoing Marlowe Asset Management-2 trial to the modified dosing regimen. The hold will remain in effect until Veridian submits a complete clinical hold response to the FDA and the FDA determines that the identified safety concerns have been adequately addressed.

In response to the DMC recommendation and the FDA partial clinical hold, Veridian implemented a Protocol v4.0 amendment to the Marlowe Asset Management-2 trial on August 28, 2024. The key elements of the Protocol v4.0 amendment include: (a) mandatory tocilizumab prophylaxis for all patients receiving VRD-4187 (tocilizumab is an interleukin-6 receptor antagonist used to treat CRS); and (b) a dose reduction for VRD-4187 from 1.5 mg/kg to 0.75 mg/kg — a 50% reduction in the administered dose. The efficacy of VRD-4187 at the reduced dose level has not been established and is entirely unknown. Moreover, the mandatory co-administration of tocilizumab introduces additional complexity, cost, and potential drug-drug interaction risks into the treatment protocol.

C. MAE Definition and Carveout Structure (SPA § 1.1)

Section 1.1 of the SPA defines "Material Adverse Effect" as follows:

"Material Adverse Effect" means any event, change, development, occurrence, condition, or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, results of operations, financial condition, or assets of the Company, taken as a whole, or (b) the ability of the Sellers to consummate the Transactions contemplated by this Agreement.

The definition then enumerates seven categories of events, changes, or effects that are excluded from the MAE determination (the "Carveouts"). As relevant here, the Carveouts exclude changes arising from or relating to:

(i) general economic or political conditions;

(ii) conditions affecting the biotechnology or pharmaceutical industries generally;

(iii) changes in applicable law (including rules and regulations) or in United States generally accepted accounting principles ("GAAP");

(iv) pandemics, epidemics, or disease outbreaks (including COVID-19 and any similar public health emergencies);

(v) natural disasters, acts of war, armed hostilities, sabotage, or terrorism;

(vi) changes in financial, banking, or securities markets generally (including any disruption thereof and any decline in the price of any security or any market index); and

(vii) the announcement or pendency of the Transactions contemplated by this Agreement.

Critically, the SPA provides that Carveouts (i) through (vi) are subject to a disproportionate impact exception. Specifically, Section 1.1 states:

"provided, however, that with respect to clauses (i) through (vi), such events, changes, developments, occurrences, conditions, or effects shall be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such events, changes, developments, occurrences, conditions, or effects disproportionately affect the Company relative to comparably situated companies in the biotechnology industry."

The disproportionate impact exception does not apply to Carveout (vii) (announcement or pendency of the Transactions), which is not relevant to the present analysis.

This memorandum focuses exclusively on the disproportionate impact exception and its application to the carveouts that Veridian is most likely to invoke in connection with the VRD-4187 clinical data and the FDA partial clinical hold. The threshold question of whether the carveouts apply in the first instance was addressed in our August 28, 2024 memorandum.

III. Legal Framework: The Disproportionate Impact Exception Under Delaware Law

A. Purpose and Function of the Exception

The disproportionate impact exception operates as a "carveout to the carveout" — a contractual mechanism that reinstates otherwise excluded effects into the MAE analysis when the target company has been affected by those events more severely than its peers in the relevant industry. The exception serves a critical allocative function in the MAE framework: it ensures that the enumerated carveouts, which are designed to protect sellers from bearing the risk of broad-based market or industry conditions beyond their control, do not become a shield against accountability for events that, despite having some industry-wide dimension, have devastated the target company to a unique and disproportionate degree.

The underlying logic of the disproportionate impact exception is one of fundamental fairness and accurate risk allocation. When the parties to a stock purchase agreement agree that industry-wide headwinds should not excuse the buyer from closing, they are implicitly agreeing that risks shared across the industry are part of the baseline that the buyer accepted when it agreed to the purchase price. However, when an event that might be characterized as affecting the industry generally in fact devastates the target company to a degree far beyond what any of its peers have experienced, the rationale for the carveout falls away. In such circumstances, the disproportionate impact is, in economic substance, a company-specific event — even if its formal characteristics might superficially resemble an industry-wide condition.

The standard formulation of the disproportionate impact exception, which is substantially similar to the language used in SPA Section 1.1, provides that the relevant carveout does not apply "to the extent" such events "disproportionately affect" the Company relative to "comparably situated companies" in the relevant industry. Two elements of this formulation warrant emphasis. First, the phrase "to the extent" indicates that the exception operates on a sliding scale: if an industry-wide event affects the target company partially in a manner common to the industry and partially in a manner unique to the target, only the disproportionate component is added back into the MAE analysis. Second, the reference to "comparably situated companies" requires the construction of an appropriate comparison set — a task we address in Section III.C below.

B. Delaware Case Law on Disproportionate Impact

The MAE doctrine is predominantly governed by Delaware law, and the Delaware Court of Chancery and the Delaware Supreme Court have developed a substantial body of jurisprudence addressing the interpretation and application of MAE clauses and their associated carveouts and exceptions.

Burden of Proof. The allocation of the burden of proof in MAE disputes is well established under Delaware law. The buyer bears the initial burden of demonstrating that a material adverse effect has occurred within the meaning of the contractual definition. However, once the seller invokes one of the enumerated carveouts to exclude specific events from the MAE analysis, the burden effectively shifts: the buyer may invoke the disproportionate impact exception, and it is the buyer who bears the burden of demonstrating that the events at issue disproportionately affected the target company relative to its comparably situated peers. This burden allocation is consistent with the general principle that the party seeking to benefit from an exception bears the burden of establishing its applicability. In practice, both the carveout and the disproportionate impact exception are typically litigated together, and the court evaluates the totality of the evidence in determining whether the net effect of the events constitutes an MAE.

Relevant Delaware Authorities. The foundational decision in the modern MAE jurisprudence is Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018). In Akorn, Vice Chancellor Laster conducted an exhaustive analysis of the MAE definition and its carveouts in the context of a pharmaceutical acquisition, and the Delaware Supreme Court affirmed in a per curiam opinion. While Akorn did not turn on the disproportionate impact exception (because the court found that the target's problems were company-specific and did not fall within any carveout), the decision established several principles that are directly relevant to the disproportionate impact analysis:

First, the court confirmed that the MAE analysis is inherently comparative: the question is whether the target company has suffered a material adverse change relative to its own pre-transaction baseline and relative to what a reasonable acquirer would have expected. This comparative framework extends naturally to the disproportionate impact analysis, which requires a comparison between the target and its industry peers.

Second, the court emphasized the importance of both quantitative and qualitative evidence in the MAE analysis. Financial metrics such as revenue declines, earnings deterioration, and loss of business are relevant, but so are qualitative factors such as regulatory actions, loss of key assets, and destruction of the target's business model. This principle applies with equal force to the disproportionate impact analysis, which considers both the quantitative magnitude of the impact on the target and the qualitative nature of the events that gave rise to the impact.

Third, the court confirmed that the MAE analysis considers the durational significance of the alleged adverse effects — that is, whether the effects are temporary, cyclical, or permanent. An event that causes a temporary disruption may not constitute an MAE, whereas an event that permanently impairs the target's business prospects is more likely to qualify. In the disproportionate impact context, this principle means that the duration and permanence of the disproportionate impact are relevant considerations.

Subsequent decisions have further refined the analysis. In Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005), the Court of Chancery addressed the meaning of "comparably situated" in the context of an MAE carveout, noting that the comparison set must consist of companies that share relevant characteristics with the target — not simply all companies in the same broadly defined industry. The court observed that a meaningful comparison requires attention to factors such as company size, business model, geographic concentration, and market segment.

In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008), the Court of Chancery declined to find an MAE but emphasized that the disproportionate impact exception is designed to ensure that carveouts do not insulate the target from the consequences of events that, while they may have some industry-wide dimension, have affected the target to a degree that fundamentally alters the bargain. The court noted that the exception is particularly important in industries — like pharmaceuticals and biotechnology — where events such as regulatory actions or clinical trial outcomes may have superficial similarities to industry-wide trends but are, in substance, company-specific.

More recently, practitioners and commentators have noted the growing importance of the disproportionate impact exception in the wake of Akorn. The heightened attention to MAE clauses in post-pandemic dealmaking has led to more sophisticated drafting of carveouts and exceptions, and courts are expected to scrutinize disproportionate impact arguments with rigor. The key principles that emerge from the case law may be summarized as follows:

(a) The comparison set must be "comparably situated." The analysis does not compare the target to all companies in the industry, but rather to companies that share relevant characteristics with the target, including stage of development, therapeutic focus, business model, and size. The comparison set should be tailored to the specific circumstances of the target.

(b) The analysis is relative, not absolute. The question is whether the target was affected more severely than its peers — not whether the target was affected in some absolute sense. A company that suffers a 50% decline in value when its peers suffer a 10% decline is disproportionately affected, even though the 50% decline might be explained in part by industry-wide conditions.

(c) Courts consider both quantitative and qualitative evidence. Financial data (revenue declines, valuation impairment, loss of contracts) is important, but so are qualitative factors (regulatory actions, clinical trial failures, loss of key assets). The disproportionate impact analysis is holistic.

(d) The duration and nature of the impact are relevant. A temporary, cyclical impact may be less likely to be considered disproportionate than a permanent or structural one. Where the disproportionate impact threatens the fundamental viability of the target's business, the case for applying the exception is strongest.

C. Identifying the Comparison Set: "Comparably Situated Companies in the Biotechnology Industry"

The SPA specifies that the disproportionate impact exception is measured against "comparably situated companies in the biotechnology industry." The construction of an appropriate comparison set is therefore a critical step in the analysis. The comparison set must be sufficiently specific to provide a meaningful benchmark, but not so narrow as to be analytically unhelpful. Based on the principles articulated by the Delaware courts and the specific characteristics of Veridian, we propose the following criteria for identifying comparably situated companies:

Stage of Development. Veridian is a clinical-stage biotechnology company with no marketed products and no product revenue. The comparison set should consist primarily of clinical-stage biotechnology companies — not large-cap, diversified pharmaceutical companies with multiple marketed products and significant revenue streams. The risk profile, valuation drivers, and vulnerability to individual clinical trial outcomes of a pre-revenue, clinical-stage company are fundamentally different from those of a commercial-stage enterprise.

Therapeutic Focus. Veridian is focused on immuno-oncology therapeutics. The comparison set should include companies operating in the oncology and immuno-oncology space, as these companies face similar regulatory pathways, clinical trial design considerations, and competitive dynamics.

Technology Platform. VRD-4187 is a bispecific T-cell engager. Companies developing bispecific T-cell engagers or related immunotherapy platforms (e.g., bispecific antibodies, antibody-drug conjugates targeting similar antigens, CAR-T therapies) are the most directly comparable. These companies share VRD-4187's exposure to CRS risk and face similar FDA scrutiny.

Clinical Trial Stage. VRD-4187 was in Phase II clinical trials at the time of the adverse events. Companies with lead candidates in Phase I through Phase III clinical trials are appropriate comparators, as they are at similar stages of the clinical development pathway and face similar binary risk profiles (i.e., the success or failure of their lead candidate has an outsized impact on enterprise value).

Size and Capital Structure. Veridian employed approximately 148 individuals and had raised approximately $420 million in total financing. Comparably situated companies should be of similar size, whether measured by employee count, total capital raised, or (for publicly traded comparators) market capitalization.

Revenue Profile. As a pre-revenue company, Veridian's enterprise value is almost entirely driven by the expected future value of its pipeline, principally VRD-4187. The comparison set should consist predominantly of pre-revenue or minimal-revenue clinical-stage companies, though companies with small commercial operations in addition to their clinical-stage pipelines may also be relevant.

Ownership Structure. Veridian is privately held. While publicly traded clinical-stage comparators are also relevant (and indeed provide more readily available data), the comparison set should not be limited to publicly traded companies, as many comparably situated biotech companies remain private.

Based on these criteria, we propose a comparison set consisting of clinical-stage biotechnology companies with immuno-oncology lead candidates in Phase I through Phase III clinical trials. This comparison set is broad enough to capture a meaningful number of companies while being specific enough to ensure that the comparison is analytically rigorous. We emphasize that the comparison set need not consist of companies that are identical to Veridian in every respect. The question is one of directional disproportionality: whether the events at issue affected Veridian to a degree materially exceeding the impact on its comparably situated peers. As discussed in Section IV below, the evidence on this point is overwhelming.

IV. Analysis of Potentially Applicable Carveouts and Disproportionate Impact

A. Carveout (ii): Conditions Affecting the Biotechnology or Pharmaceutical Industries Generally

1. Veridian's Likely Argument

Of the six carveouts subject to the disproportionate impact exception, Carveout (ii) — conditions affecting the biotechnology or pharmaceutical industries generally — is the one that Veridian is most likely to invoke. We anticipate that Veridian will advance some combination of the following arguments:

First, Veridian may argue that clinical trial failures and safety signals are endemic to the biotechnology industry and are a general industry risk that all clinical-stage companies accept when they pursue drug development. According to this argument, the failure of a drug candidate in a clinical trial is not a company-specific event but rather a manifestation of the inherent uncertainty of the drug development process — a risk that pervades the biotechnology industry as a whole. Veridian may cite published statistics showing that the overwhelming majority of drug candidates that enter Phase II clinical trials never achieve FDA approval, and that safety-related clinical trial setbacks are among the most common reasons for drug development failures.

Second, Veridian may attempt to characterize the FDA partial clinical hold as a regulatory action of the type that affects drug developers generally, rather than a company-specific enforcement action. Clinical holds are a standard regulatory tool employed by the FDA across the pharmaceutical and biotechnology industries, and Veridian may argue that the imposition of a clinical hold on VRD-4187 is simply an instance of the FDA exercising its general regulatory authority over clinical trials — an authority that applies to all companies subject to FDA oversight.

Third, Veridian may argue that CRS is a known, class-wide risk for bispecific T-cell engagers and that the safety concerns identified in the Marlowe Asset Management-2 trial are not specific to VRD-4187 but rather reflect a broader challenge facing the entire class of T-cell engager therapeutics. According to this argument, the elevated CRS rates observed in the Marlowe Asset Management-2 trial are a condition affecting the biotechnology industry generally — specifically, the segment of the industry developing bispecific T-cell engagers.

2. Why the Carveout Does Not Apply (Primary Position)

As a threshold matter, and as set forth in our August 28, 2024 carveouts analysis memorandum, we maintain that Carveout (ii) does not apply to the VRD-4187 clinical data and FDA partial clinical hold on their own terms, without reaching the disproportionate impact exception. The Marlowe Asset Management-2 interim data reflects the specific safety and efficacy profile of Veridian's proprietary compound, VRD-4187, as administered at a specific dose (1.5 mg/kg) in a specific patient population (previously treated extensive-stage SCLC) in a specific clinical trial (Marlowe Asset Management-2). These are company-specific, compound-specific events — they are not "conditions affecting the biotechnology or pharmaceutical industries generally" within any reasonable interpretation of Carveout (ii).

The FDA partial clinical hold was imposed specifically on IND 154832, which covers VRD-4187 and no other compound. The FDA did not issue a class-wide clinical hold on bispecific T-cell engagers, nor did it issue any guidance or policy statement suggesting that the safety concerns identified in Marlowe Asset Management-2 implicate the broader class of T-cell engager therapeutics. The hold was a targeted regulatory action directed at Veridian's compound based on Veridian's clinical trial data. We incorporate by reference the full analysis set forth in our August 28, 2024 memorandum.

3. Even If Carveout (ii) Applied: Disproportionate Impact Exception

Assuming arguendo that Veridian could establish that the Marlowe Asset Management-2 data and/or the FDA partial clinical hold fall within Carveout (ii) — a characterization we strongly dispute — the disproportionate impact exception would reinstate these events into the MAE analysis. The evidence of disproportionate impact is compelling across multiple dimensions.

Quantitative Comparison: Safety signals. No other comparably situated clinical-stage biotechnology company experienced the same or similar adverse clinical trial results during the relevant period (June 10, 2024 to September 2024). Specifically:

The Grade 3 or higher CRS incidence of 23.4% reported in the VRD-4187 treatment arm is dramatically elevated relative to the safety profiles of other bispecific T-cell engager programs in Phase II clinical trials. Published data and interim reports from comparable programs during this period indicate that typical Grade 3 or higher CRS rates for next-generation bispecific T-cell engagers range from approximately 3% to 8%. The 23.4% rate observed with VRD-4187 is approximately three to eight times higher than the rates reported by peer companies, representing a statistically and clinically significant outlier.

The treatment-related mortality rate of 3.6% (7 of 194 patients) in the VRD-4187 treatment arm is markedly higher than the safety profiles reported by comparable clinical-stage T-cell engager programs. While treatment-related deaths do occur in oncology clinical trials, a mortality rate of this magnitude in a Phase II trial is exceptional and significantly exceeds the rates observed in comparably situated programs, which typically report treatment-related mortality in the range of 0.5% to 1.5%.

Efficacy Failure Is Compound-Specific. The overall response rate of 31.4% in the VRD-4187 treatment arm compared with 28.9% in the control arm (p = 0.58) is a result that is unique to VRD-4187 as a molecule. The failure to demonstrate a statistically significant efficacy advantage over standard-of-care chemotherapy is a compound-specific outcome that reflects the particular pharmacological properties of VRD-4187, not an industry-wide trend. No other bispecific T-cell engager in Phase II clinical trials during the relevant period simultaneously exhibited both (a) a dramatically elevated safety signal (23.4% Grade ≥3 CRS, 3.6% treatment-related mortality) and (b) a complete failure to demonstrate efficacy benefit. The combination of a severe safety profile and the absence of a corresponding efficacy advantage is a uniquely devastating result that distinguishes VRD-4187 from all comparably situated programs.

FDA Partial Clinical Hold Is Company-Specific. No comparable FDA partial clinical hold was imposed on any other bispecific T-cell engager or DLL3-targeting therapy during the relevant period. A review of FDA enforcement actions during June through September 2024 confirms that the partial clinical hold on IND 154832 was specific to Veridian's program. No other clinical-stage biotechnology company developing bispecific T-cell engagers received a similar regulatory action during this period. The hold is a direct consequence of VRD-4187's compound-specific safety data and does not reflect any industry-wide regulatory trend or policy change.

Impact on Enterprise Value and Concentration Risk. Perhaps the most compelling dimension of the disproportionate impact analysis is the devastating effect of the Marlowe Asset Management-2 data and FDA clinical hold on Veridian's enterprise value relative to the impact that any industry-wide condition could have on a comparably situated company.

Veridian is a single-product, clinical-stage company whose enterprise value — as reflected in the $900 million Purchase Price — was overwhelmingly driven by VRD-4187. The Company has zero product revenue, no marketed products, and a pipeline consisting of only three candidates, of which VRD-4187 was the only asset in Phase II clinical testing. The other two candidates — VRD-5290 (Phase I) and VRD-6103 (preclinical) — are at substantially earlier stages of development and contributed only a modest fraction of Veridian's total implied enterprise value. Conservative valuation methodologies, including risk-adjusted net present value ("rNPV") and probability-weighted analysis, would attribute the vast majority of Veridian's $900 million implied value — plausibly 75% to 90% or more — to VRD-4187 and its expected path to regulatory approval and commercialization.

The loss of VRD-4187 or the significant impairment of its clinical viability therefore destroys a substantially greater proportion of Veridian's enterprise value than any general industry trend or condition could do to a diversified clinical-stage biotechnology peer. A comparably situated company with multiple clinical-stage assets, a diversified pipeline, or even a single asset that had not suffered a comparable clinical setback would retain significant residual value. Veridian, by contrast, faces the prospect of a near-total destruction of its enterprise value if VRD-4187 cannot be rescued through the modified dosing protocol — an outcome that is, at best, uncertain.

To illustrate the concentration risk more concretely: a clinical-stage biotechnology company with three candidates in Phase II, one of which experienced a clinical setback, might lose approximately one-third of its implied pipeline value. A company with a single Phase II candidate (Veridian's position) that experiences a comparable setback loses substantially all of its pipeline value. This is the essence of disproportionate impact — the same type of event (a clinical trial setback) affects Veridian to a vastly greater degree because of the concentration of Veridian's value in a single compound.

Conclusion. The VRD-4187 clinical data and FDA partial clinical hold disproportionately affect Veridian relative to comparably situated companies in the biotechnology industry. Whether measured by the severity of the safety signal, the magnitude of the efficacy failure, the uniqueness of the FDA enforcement action, or the catastrophic impact on enterprise value, Veridian has been affected by these events to a degree that far exceeds the experience of any reasonable comparison set of biotechnology companies during the relevant period. Carveout (ii) cannot shield these events from the MAE analysis.

B. Carveout (iii): Changes in Applicable Law or GAAP

1. Veridian's Potential Argument

Veridian could argue that the FDA partial clinical hold constitutes an application or enforcement of existing regulatory authority — that is, the exercise of a power conferred by the Federal Food, Drug, and Cosmetic Act ("FDCA") and the FDA's implementing regulations (21 C.F.R. Part 312) — and that this regulatory action therefore falls within Carveout (iii) as a change in, or application of, "applicable law." Under this theory, Veridian would characterize the FDA's clinical hold authority as a pre-existing legal framework that applies to all companies engaged in clinical drug development, and the imposition of the hold as simply the application of that existing legal authority to Veridian's IND.

We note at the outset that this argument is weak on its face. Carveout (iii) refers to "changes in applicable law" — not to the routine enforcement or application of existing law against a specific company. The imposition of a clinical hold on a single IND is not a "change" in law; it is an enforcement action taken pursuant to existing law. Nonetheless, we address the disproportionate impact exception as an alternative ground for excluding this argument.

2. Disproportionate Impact Analysis

Even if the FDA partial clinical hold were characterized as an application of existing regulatory authority falling within Carveout (iii), the disproportionate impact exception would clearly apply. The analysis is straightforward:

The FDA partial clinical hold was imposed specifically and solely on VRD-4187 under IND 154832. It was not a change in FDA regulations, guidance, or policy that would affect the biotechnology industry broadly. No new rule was promulgated, no new guidance was issued, and no industry-wide regulatory initiative was announced that would affect bispecific T-cell engager programs or clinical-stage biotechnology companies generally. The hold was a targeted enforcement action directed at a single compound developed by a single company, based on clinical data that is unique to that compound.

No comparably situated biotechnology company received a similar FDA clinical hold during the relevant period. A comprehensive review of FDA clinical hold actions during June through September 2024, based on publicly available information and regulatory databases, reveals no other partial or full clinical hold imposed on any DLL3-targeting therapy, any bispecific T-cell engager, or any comparably situated clinical-stage immuno-oncology company. The regulatory action is specific to Veridian and to VRD-4187.

The impact of the clinical hold on Veridian is disproportionate by definition: the hold applies only to Veridian's compound and only to Veridian's IND. No other company in the biotechnology industry was affected by this particular regulatory action. While other companies are subject to the same general regulatory framework (the FDCA, the FDA's clinical hold authority under 21 C.F.R. § 312.42), the specific application of that authority to VRD-4187 affected Veridian alone. This is the paradigmatic case of a disproportionate impact — an event that, even if it could be characterized as arising from a general legal or regulatory framework, in practice affects only the target company.

Conclusion. The disproportionate impact exception clearly applies to Carveout (iii). The FDA partial clinical hold is a company-specific regulatory action that affects only Veridian and has no comparable parallel among the target's industry peers during the relevant period.

C. Carveout (iv): Pandemics

1. Analysis. Carveout (iv) excludes from the MAE definition events arising from or relating to pandemics, epidemics, or disease outbreaks, including COVID-19 and any similar public health emergencies. No pandemic-related event contributed to the VRD-4187 clinical data or the FDA clinical hold, and Veridian is unlikely to invoke this carveout. However, in the interest of completeness, we address the possibility that Veridian might argue that residual effects of the COVID-19 pandemic impacted Marlowe Asset Management-2 clinical trial operations in a manner that contributed to the adverse interim findings.

Any such argument would fail on multiple grounds. As an initial matter, the Marlowe Asset Management-2 clinical trial data reflects compound-specific safety and efficacy outcomes — the 23.4% Grade ≥3 CRS incidence, the seven treatment-related deaths, and the failure to demonstrate efficacy are all attributable to the pharmacological properties of VRD-4187 as a molecule, not to any operational disruption caused by a public health emergency. CRS is a known pharmacological effect of bispecific T-cell engagers that is mediated by T-cell activation and cytokine release; it is not caused by pandemic-related factors.

Moreover, any residual pandemic-related operational challenges — such as site staffing disruptions, patient enrollment delays, or supply chain issues — would have affected both the treatment arm and the control arm of the randomized trial equally, and would therefore not explain the differential outcomes between the two arms. The dramatic difference in CRS rates (23.4% vs. 4.1%), treatment-related deaths (3.6% vs. 0.5%), and the failure of VRD-4187 to outperform the control arm on efficacy are all attributable to the specific effects of VRD-4187, not to any external factor.

Even if Veridian could somehow connect the adverse clinical data to pandemic-related conditions, the disproportionate impact exception would apply because pandemic conditions did not cause the specific safety and efficacy outcomes observed in the Marlowe Asset Management-2 trial for VRD-4187. No other comparably situated company experienced a comparable clinical trial outcome as a result of pandemic-related factors during the relevant period.

Conclusion. The pandemic carveout is inapplicable on its face and, if somehow invoked, the disproportionate impact exception eliminates it from consideration.

D. Carveout (i): General Economic or Political Conditions and Carveout (vi): Changes in Financial Markets Generally

1. Analysis. Carveouts (i) and (vi) exclude from the MAE definition events arising from or relating to general economic or political conditions and changes in financial, banking, or securities markets generally. These carveouts are plainly inapplicable to the VRD-4187 clinical data and the FDA partial clinical hold, and we address them here only for the sake of completeness.

The adverse Marlowe Asset Management-2 interim results and the FDA partial clinical hold have no connection whatsoever to macroeconomic conditions, political events, or financial market fluctuations. The 23.4% Grade ≥3 CRS incidence, the seven treatment-related deaths, and the failure to demonstrate efficacy are pharmacological and clinical outcomes that are entirely independent of the performance of the broader economy or financial markets. No reasonable argument can be made that these events "arise from or relate to" general economic or political conditions or changes in financial markets.

To the extent Veridian might argue, as an attenuated theory, that broader economic conditions affected biotechnology sector valuations or investor sentiment in a manner that contributed to the overall impact of the Marlowe Asset Management-2 data on Veridian's prospects, the disproportionate impact exception would apply with overwhelming force. The specific Marlowe Asset Management-2 clinical data is a company-specific event, and the disproportionate impact on Veridian — which derives substantially all of its enterprise value from VRD-4187 — would far exceed any impact on comparably situated companies from general economic or market conditions. While a general decline in biotechnology sector valuations might reduce the implied value of clinical-stage companies by, say, 10% to 20%, the clinical failure of Veridian's lead (and effectively sole material) candidate threatens to destroy the vast majority of Veridian's enterprise value — a magnitude of impact that bears no proportional relationship to any macroeconomic headwind.

Conclusion. Carveouts (i) and (vi) are facially inapplicable. To the extent they are invoked, the disproportionate impact exception applies.

V. Evidentiary Support for Disproportionate Impact

A. Broadleaf Scientific Consulting Assessment

As noted in Section II.B above, Penterra retained Broadleaf Scientific Consulting LLC to provide an independent clinical assessment of the Marlowe Asset Management-2 interim data. The supplemental clinical assessment, authored by Dr. Raymond Kapoor, M.D., Ph.D., was delivered to Penterra on August 19, 2024. Dr. Kapoor is a board-certified medical oncologist with over twenty years of experience in clinical trial design and oversight for immuno-oncology therapeutics, and has served as a principal investigator or clinical advisor on more than thirty Phase I through Phase III clinical trials involving bispecific antibodies, CAR-T therapies, and immune checkpoint inhibitors.

The Broadleaf assessment is directly relevant to the disproportionate impact analysis in several respects:

First, Dr. Kapoor confirmed that the safety signal from the Marlowe Asset Management-2 trial is specific to VRD-4187's mechanism of action, dosing profile, and patient population, and is not reflective of a class-wide phenomenon affecting bispecific T-cell engagers generally. The assessment noted that VRD-4187's CRS profile is anomalous relative to the broader class of T-cell engagers, and that the elevated CRS rates are likely attributable to specific features of VRD-4187's molecular design and its interaction with DLL3-expressing tumors in the SCLC patient population.

Second, Dr. Kapoor identified specific comparable T-cell engager programs that reported materially lower CRS rates during the relevant period. The assessment cited publicly available clinical data from four comparably situated bispecific T-cell engager programs in Phase I and Phase II clinical trials, all of which reported Grade 3 or higher CRS rates in the range of 2.8% to 7.6% — well below the 23.4% rate observed with VRD-4187. This data directly supports the conclusion that VRD-4187's safety profile is an outlier relative to the drug class.

Third, Dr. Kapoor noted that the combination of an elevated safety signal and a failure to demonstrate efficacy benefit is particularly devastating from a clinical development perspective, as it eliminates the risk-benefit justification for continued development at the current dose. The assessment concluded that the Marlowe Asset Management-2 data raises fundamental questions about VRD-4187's clinical viability that are not present for other T-cell engager programs with more favorable safety-efficacy profiles.

The Broadleaf assessment provides strong scientific and clinical support for the conclusion that the VRD-4187 clinical events are compound-specific and disproportionately affect Veridian relative to its industry peers.

B. Public Market and Industry Data

In addition to the Broadleaf assessment, publicly available clinical trial results and regulatory data from other bispecific T-cell engager developers during the relevant period (June through September 2024) further support the disproportionate impact analysis.

Our review of ClinicalTrials.gov, FDA public databases, SEC filings (for publicly traded comparators), and published clinical trial data confirms the following:

No comparably situated biotechnology company developing a bispecific T-cell engager reported a combination of (a) Grade ≥3 CRS rates exceeding 10%, (b) treatment-related mortality exceeding 2%, and (c) a failure to demonstrate efficacy benefit relative to the control arm during the June through September 2024 period. VRD-4187's profile is, to our knowledge, unique among its comparators in exhibiting all three of these adverse characteristics simultaneously.

No FDA partial or full clinical hold was imposed on any DLL3-targeting therapy or bispecific T-cell engager program during this period, other than the hold on IND 154832 (VRD-4187). The FDA's clinical hold database and public communications confirm the absence of any comparable regulatory action directed at Veridian's peer companies.

Several publicly traded clinical-stage biotechnology companies with bispecific T-cell engager or related immunotherapy programs reported positive or stable clinical trial data during the same period, further underscoring the divergence between VRD-4187's clinical trajectory and those of its comparators. While the specific details of these companies' results are beyond the scope of this memorandum, the general trend in the T-cell engager class during this period was one of continued clinical progress — not the type of industry-wide safety crisis that Carveout (ii) is designed to address.

This publicly available data confirms that the VRD-4187 clinical events are anomalous relative to the broader biotechnology industry and to the specific subset of companies developing bispecific T-cell engagers, and that the disproportionate impact on Veridian is not reflective of any general industry condition.

C. Valuation Impact

The disproportionate impact on Veridian is starkly apparent when viewed through the lens of enterprise valuation.

As discussed in Section IV.A.3 above, VRD-4187 represented the overwhelming majority of Veridian's implied enterprise value. The $900 million Purchase Price was driven primarily by the clinical and commercial potential of VRD-4187 as a treatment for SCLC and, potentially, other DLL3-expressing tumors. Standard valuation methodologies for clinical-stage biotechnology companies — including risk-adjusted net present value and probability-weighted expected return analyses — would attribute the vast majority of Veridian's implied value to VRD-4187, with the Company's two earlier-stage pipeline candidates contributing only a modest residual value.

With VRD-4187 now on a partial clinical hold, subject to a mandatory 50% dose reduction (from 1.5 mg/kg to 0.75 mg/kg), requiring mandatory tocilizumab prophylaxis, and having demonstrated no efficacy advantage over standard of care at the original dose, the clinical and commercial prospects for VRD-4187 have been fundamentally impaired. The efficacy of the compound at the reduced dose has not been established and is entirely speculative. Even under optimistic assumptions, the path to regulatory approval has been materially delayed and the probability of success has been substantially reduced. Under realistic assumptions, the value of VRD-4187 as a clinical asset has been diminished by a magnitude that dwarfs any impact that a general industry condition could have on a comparably situated company.

To quantify this impact in relative terms: Veridian has $0 in revenue, no marketed products, and effectively one material clinical-stage asset. The impairment of that asset threatens the fundamental viability of the entire enterprise. By contrast, a comparably situated clinical-stage biotechnology company with, for example, two or three Phase II assets would retain significant residual value from its unaffected pipeline candidates in the event that one candidate experienced a clinical setback. The proportional impact on Veridian is therefore dramatically greater than the impact on a more diversified peer.

This concentration risk is not merely a theoretical concern — it is the defining characteristic of Veridian's risk profile, and it is precisely the type of company-specific vulnerability that the disproportionate impact exception is designed to address. The exception ensures that a company whose value is concentrated in a single asset cannot invoke industry-wide carveouts to shield that asset's failure from the MAE analysis.

VI. Anticipated Counterarguments from Veridian and Rebuttal

We anticipate that Veridian and the Stockholder Representative may advance several counterarguments in response to the disproportionate impact analysis. We address the three most likely counterarguments below.

A. "The Comparison Set Should Be Broader"

Anticipated Argument. Veridian may argue that the comparison set proposed by Penterra is improperly narrow and that the appropriate comparison set should include all biotechnology companies — or, at a minimum, all clinical-stage biotechnology companies — rather than the more targeted group of clinical-stage immuno-oncology companies with T-cell engager platforms. Under this broader framing, Veridian might argue that clinical trial setbacks are commonplace across the biotechnology industry and that Veridian is not disproportionately affected when viewed against the full universe of biotech companies experiencing clinical trial failures.

Rebuttal. The SPA language refers to "comparably situated companies," which requires meaningful comparability — not merely membership in the same broadly defined industry. As the Delaware Court of Chancery recognized in Frontier Oil and its progeny, the comparison set must consist of companies that share relevant characteristics with the target, including stage of development, therapeutic focus, business model, and size. A comparison set that lumps together large-cap diversified pharmaceutical companies, commercial-stage biotechnology companies with marketed products, and early-stage preclinical companies would be analytically meaningless because these companies have fundamentally different risk profiles, valuation drivers, and vulnerabilities to clinical trial outcomes.

The SPA's use of the phrase "comparably situated" is a deliberate choice that constrains the comparison to companies that share Veridian's relevant characteristics. A comparison to Ashbury Industries, Roche, or Penrose & Co. — large-cap pharmaceutical companies with dozens of marketed products and tens of billions of dollars in annual revenue — would be facially inappropriate. Even a comparison to mid-cap commercial-stage biotechnology companies with diversified portfolios would fail to capture the unique vulnerability of a pre-revenue, single-product clinical-stage company like Veridian.

Moreover, even under a broader comparison set, the disproportionate impact analysis yields the same result. The VRD-4187 clinical data is compound-specific — it reflects the safety and efficacy profile of a single molecule, tested in a single trial, administered by a single company. No other company in the broader biotechnology industry experienced the same clinical events during the relevant period. The compound-specific nature of the data means that Veridian is, by definition, disproportionately affected regardless of how broadly or narrowly the comparison set is defined.

B. "Clinical Trial Failures Are Common; Veridian Is Not Uniquely Affected"

Anticipated Argument. Veridian may argue that clinical trial setbacks are a routine and expected feature of the biotechnology industry, that the failure rates for drug candidates in Phase II clinical trials exceed 70%, and that Veridian is therefore not uniquely or disproportionately affected by the Marlowe Asset Management-2 data because many companies experience similar disappointments in their clinical development programs.

Rebuttal. This argument fundamentally misconstrues the disproportionate impact analysis. The relevant question is not whether clinical trial failures are common in the abstract or whether a statistical probability of failure existed ex ante. The relevant question is whether the specific events at issue — the Marlowe Asset Management-2 interim data (23.4% Grade ≥3 CRS, seven treatment-related deaths, no efficacy benefit) and the FDA partial clinical hold on IND 154832 — affected Veridian disproportionately relative to comparably situated companies during the relevant time period. And they did, because these events impacted only Veridian's program, only Veridian's compound, and only Veridian's IND. No other comparably situated company experienced these events or anything comparable during the relevant period.

The fact that clinical trial failures are statistically common does not mean that any particular failure is an "industry-wide condition." When Veridian's lead compound fails in a clinical trial, it is Veridian that bears the consequences — not the industry as a whole. The carveouts are designed to allocate the risk of truly industry-wide events (e.g., a new FDA policy that changes the approval pathway for all drugs in a therapeutic class, a macroeconomic downturn that reduces investor appetite for biotechnology risk, a pandemic that disrupts clinical trial operations across the industry). They are not designed to protect sellers from the risk that their own company's lead product fails in a clinical trial.

Moreover, even if one were to accept the premise that clinical trial failures are an "industry-wide condition," the disproportionate impact on Veridian would be apparent. A clinical trial failure that destroys 75% to 90% of the enterprise value of a single-product company affects that company to a dramatically greater degree than a clinical trial failure that destroys, say, 20% to 30% of the enterprise value of a multi-asset company. The concentration risk inherent in Veridian's single-product business model is precisely the type of company-specific vulnerability that the disproportionate impact exception captures.

C. "Protocol v4.0 Amendment Mitigates the Impact"

Anticipated Argument. Veridian may argue that its implementation of the Protocol v4.0 amendment on August 28, 2024 — which introduced mandatory tocilizumab prophylaxis and a 50% dose reduction for VRD-4187 — mitigates the disproportionate impact of the Marlowe Asset Management-2 data and the FDA clinical hold. Under this argument, Veridian would contend that the amended protocol addresses the sa

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT This memorandum is a privileged and confidential attorney-client communication and attorney work product. It is intended solely for the use of the addressees and authorized members of the Calderwood & Harkness LLP deal team. This memorandum should not be disclosed, copied, or distributed to any third party without the prior written consent of Calderwood & Harkness LLP. Disclosure to any third party may result in a waiver of the attorney-client privilege and/or work product protection.
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
MEMORANDUM
TO: Dr. Anand Rajagopal, Chief Executive Officer, Penterra Pharmaceuticals Corp. Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp. Natalie Reiner, Senior Vice President, Corporate Development, Penterra Pharmaceuticals Corp.
FROM: Oliver Mackenzie, Partner, Calderwood & Harkness LLP Megan Chu, Associate, Calderwood & Harkness LLP Derek Okonkwo, Associate, Calderwood & Harkness LLP
DATE: September 3, 2024
RE: Disproportionate Impact Exception Analysis — VRD-4187 Clinical Data and FDA Partial Clinical Hold; Stock Purchase Agreement dated June 10, 2024 among Penterra Pharmaceuticals Corp., Veridian Biosciences, Inc., the Sellers named therein, and David Ng as Stockholder Representative
MATTER NO.: 1018-00008
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I. Executive Summary
The purpose of this memorandum is to analyze whether, assuming arguendo that one or more of the Material Adverse Effect ("MAE") carveouts set forth in Section 1.1 of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") could apply to the VRD-4187 clinical trial events, the disproportionate impact exception contained in the same provision reinstates those events within the MAE definition such that Penterra Pharmaceuticals Corp. ("Penterra") retains its right to decline to close and, if applicable, to terminate the SPA.
Our core conclusion is as follows: Even if Veridian Biosciences, Inc. ("Veridian") were to argue that the adverse interim data from the Marlowe Asset Management-2 Phase II clinical trial and the subsequent FDA partial clinical hold on VRD-4187 fall within one or more of the enumerated carveouts — for example, carveout (ii) (conditions generally affecting the biotechnology or pharmaceutical industries) or carveout (iii) (changes in applicable law) — the disproportionate impact exception applies because these events disproportionately affect Veridian relative to comparably situated companies in the biotechnology industry. The disproportionate impact exception functions as a "carveout to the carveout," meaning that effects that would otherwise be excluded from the MAE analysis are "added back" into the MAE determination when they affect the target company more severely than its industry peers. Here, the evidence overwhelmingly supports a finding that the VRD-4187 clinical data and FDA partial clinical hold affect Veridian to a degree dramatically exceeding the impact on any reasonable comparison set of biotechnology companies.
This memorandum supplements two prior analyses prepared by our firm: (1) the comprehensive MAE analysis memorandum dated August 25, 2024, which concluded that the Marlowe Asset Management-2 interim data and the anticipated regulatory response constitute a material adverse effect under SPA Section 1.1; and (2) the MAE carveouts analysis memorandum dated August 28, 2024, which concluded that none of the enumerated carveouts in SPA Section 1.1 apply to the VRD-4187 clinical events on their own terms. A supplemental MAE analysis memorandum incorporating the FDA partial clinical hold, which was imposed on August 22, 2024, is currently in preparation with a target delivery date of September 5, 2024.
We emphasize at the outset that our primary position remains unchanged: the VRD-4187 clinical data and the FDA partial clinical hold are company-specific events that fall entirely outside the scope of the enumerated carveouts. The clinical data reflects the unique safety and efficacy profile of Veridian's proprietary compound, VRD-4187, as tested in the Marlowe Asset Management-2 trial, and the FDA clinical hold was imposed specifically on Veridian's Investigational New Drug Application (IND 154832). These are not conditions affecting the biotechnology industry generally, changes in applicable law, or any other category of excluded event. The disproportionate impact analysis set forth in this memorandum is therefore a secondary and alternative argument — a belt-and-suspenders approach that provides Penterra with an additional layer of protection in the event that Veridian attempts to invoke one or more of the carveouts in connection with any future dispute.
II. Background and Relevant Facts
A. The Transaction
On June 10, 2024, Penterra Pharmaceuticals Corp. ("Penterra"), Veridian Biosciences, Inc. ("Veridian" or the "Company"), the stockholders of Veridian named as sellers thereunder (the "Sellers"), and David Ng, in his capacity as Stockholder Representative, entered into a Stock Purchase Agreement (the "SPA") pursuant to which Penterra agreed to acquire 100% of the outstanding capital stock of Veridian for a purchase price of $900,000,000 in cash (the "Purchase Price"), subject to customary adjustments and the satisfaction of specified closing conditions.
Veridian is a privately held, clinical-stage biotechnology company incorporated under the laws of the State of Delaware, with its principal offices located at 550 Gateway Drive, Cambridge, Massachusetts 02142. The Company is focused on the discovery and development of immuno-oncology therapeutics. Veridian's lead product candidate is VRD-4187, a bispecific T-cell engager targeting DLL3 (delta-like ligand 3)-expressing tumors, with a primary indication in small cell lung cancer ("SCLC"). VRD-4187 leverages Veridian's proprietary VeriTCE (Veridian T-Cell Engager) platform, which is designed to enable the engineering of bispecific antibodies that redirect T-cells to tumor cells expressing specific target antigens.
As a clinical-stage company, Veridian has generated zero product revenue to date. For the fiscal year ended December 31, 2023, Veridian reported total revenue of $0 and a net loss of $87.3 million, consistent with its status as a pre-commercial biotechnology enterprise that relies entirely on external financing to fund its research and development operations. Since its founding, Veridian has raised approximately $420 million in venture capital and growth equity financing across four funding rounds (Series A through Series D). At the time the SPA was executed, Veridian employed approximately 148 individuals.
Veridian's product pipeline consists of three immuno-oncology candidates. VRD-4187 is the lead and most advanced candidate, having entered Phase II clinical testing in the Marlowe Asset Management-2 trial. The Company's two other pipeline candidates, VRD-5290 (targeting CLDN18.2 in gastric cancers) and VRD-6103 (a bispecific NK-cell engager in preclinical development), are at earlier stages of development and were not material drivers of the $900 million Purchase Price. The transaction was motivated primarily, if not overwhelmingly, by the clinical and commercial potential of VRD-4187.
B. Marlowe Asset Management-2 Clinical Data and FDA Clinical Hold
Marlowe Asset Management-2 (ClinicalTrials.gov Identifier: NCT05837291) is a randomized, open-label Phase II clinical trial evaluating VRD-4187 as a treatment for patients with previously treated extensive-stage small cell lung cancer. The trial was conducted across 42 clinical sites in the United States and the European Union. At the time of the Data Monitoring Committee ("DMC") interim analysis, 387 patients had been enrolled in the trial: 194 patients in the VRD-4187 treatment arm and 193 patients in the control arm receiving standard-of-care chemotherapy.
On August 14, 2024, the independent DMC conducted a pre-specified interim analysis of the Marlowe Asset Management-2 data. The interim analysis revealed the following key adverse findings:
Safety Signal — Cytokine Release Syndrome. The incidence of Grade 3 or higher cytokine release syndrome ("CRS") in the VRD-4187 treatment arm was 23.4%, compared with 4.1% in the control arm — a difference of 19.3 percentage points. Grade 3 CRS is defined under the American Society for Clinical Oncology ("ASCO") grading criteria as CRS requiring aggressive intervention, including vasopressor support and/or supplemental oxygen. This level of severe CRS far exceeds the rates typically observed in comparable bispecific T-cell engager programs and represents a serious and potentially life-threatening safety concern.
Treatment-Related Deaths. Seven patients in the VRD-4187 treatment arm (3.6% of 194 patients) experienced treatment-related deaths, compared with one patient in the control arm (0.5% of 193 patients). The treatment-related mortality rate in the VRD-4187 arm is alarmingly elevated and, as detailed in the Broadleaf Scientific assessment discussed below, is substantially above the range observed in comparable clinical-stage immunotherapy programs.
Efficacy Failure. The overall response rate ("ORR") in the VRD-4187 treatment arm was 31.4%, compared with 28.9% in the control arm. This difference was not statistically significant (p = 0.58). In practical terms, VRD-4187 demonstrated no meaningful efficacy advantage over standard-of-care chemotherapy, meaning that patients in the treatment arm were exposed to significantly elevated safety risks without a corresponding therapeutic benefit.
Based on these findings, the DMC recommended the immediate suspension of new patient enrollment in the Marlowe Asset Management-2 trial and the implementation of dose modification protocols for patients already enrolled in the treatment arm. The DMC communicated its recommendation to Veridian's clinical leadership on August 14, 2024.
Penterra received written notice from Veridian of the DMC findings on August 16, 2024, pursuant to the notification obligations set forth in SPA Section 5.1(b). Upon receipt of this notice, Penterra retained Broadleaf Scientific Consulting LLC to provide an independent scientific assessment of the clinical data. Broadleaf Scientific's supplemental clinical assessment, authored by Dr. Raymond Kapoor, M.D., Ph.D., a board-certified oncologist and clinical trial specialist, was delivered to Penterra on August 19, 2024. The Broadleaf assessment confirmed the severity and clinical significance of the Marlowe Asset Management-2 interim findings, as discussed in greater detail in Section V.A of this memorandum.
On August 22, 2024, the United States Food and Drug Administration ("FDA") imposed a partial clinical hold on VRD-4187 under IND 154832. The partial clinical hold precludes the initiation of new clinical studies involving VRD-4187 and restricts the ongoing Marlowe Asset Management-2 trial to the modified dosing regimen. The hold will remain in effect until Veridian submits a complete clinical hold response to the FDA and the FDA determines that the identified safety concerns have been adequately addressed.
In response to the DMC recommendation and the FDA partial clinical hold, Veridian implemented a Protocol v4.0 amendment to the Marlowe Asset Management-2 trial on August 28, 2024. The key elements of the Protocol v4.0 amendment include: (a) mandatory tocilizumab prophylaxis for all patients receiving VRD-4187 (tocilizumab is an interleukin-6 receptor antagonist used to treat CRS); and (b) a dose reduction for VRD-4187 from 1.5 mg/kg to 0.75 mg/kg — a 50% reduction in the administered dose. The efficacy of VRD-4187 at the reduced dose level has not been established and is entirely unknown. Moreover, the mandatory co-administration of tocilizumab introduces additional complexity, cost, and potential drug-drug interaction risks into the treatment protocol.
C. MAE Definition and Carveout Structure (SPA § 1.1)
Section 1.1 of the SPA defines "Material Adverse Effect" as follows:
"Material Adverse Effect" means any event, change, development, occurrence, condition, or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, results of operations, financial condition, or assets of the Company, taken as a whole, or (b) the ability of the Sellers to consummate the Transactions contemplated by this Agreement.
The definition then enumerates seven categories of events, changes, or effects that are excluded from the MAE determination (the "Carveouts"). As relevant here, the Carveouts exclude changes arising from or relating to:
(i) general economic or political conditions;
(ii) conditions affecting the biotechnology or pharmaceutical industries generally;
(iii) changes in applicable law (including rules and regulations) or in United States generally accepted accounting principles ("GAAP");
(iv) pandemics, epidemics, or disease outbreaks (including COVID-19 and any similar public health emergencies);
(v) natural disasters, acts of war, armed hostilities, sabotage, or terrorism;
(vi) changes in financial, banking, or securities markets generally (including any disruption thereof and any decline in the price of any security or any market index); and
(vii) the announcement or pendency of the Transactions contemplated by this Agreement.
Critically, the SPA provides that Carveouts (i) through (vi) are subject to a disproportionate impact exception. Specifically, Section 1.1 states:
"provided, however, that with respect to clauses (i) through (vi), such events, changes, developments, occurrences, conditions, or effects shall be taken into account in determining whether a Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such events, changes, developments, occurrences, conditions, or effects disproportionately affect the Company relative to comparably situated companies in the biotechnology industry."
The disproportionate impact exception does not apply to Carveout (vii) (announcement or pendency of the Transactions), which is not relevant to the present analysis.
This memorandum focuses exclusively on the disproportionate impact exception and its application to the carveouts that Veridian is most likely to invoke in connection with the VRD-4187 clinical data and the FDA partial clinical hold. The threshold question of whether the carveouts apply in the first instance was addressed in our August 28, 2024 memorandum.
III. Legal Framework: The Disproportionate Impact Exception Under Delaware Law
A. Purpose and Function of the Exception
The disproportionate impact exception operates as a "carveout to the carveout" — a contractual mechanism that reinstates otherwise excluded effects into the MAE analysis when the target company has been affected by those events more severely than its peers in the relevant industry. The exception serves a critical allocative function in the MAE framework: it ensures that the enumerated carveouts, which are designed to protect sellers from bearing the risk of broad-based market or industry conditions beyond their control, do not become a shield against accountability for events that, despite having some industry-wide dimension, have devastated the target company to a unique and disproportionate degree.
The underlying logic of the disproportionate impact exception is one of fundamental fairness and accurate risk allocation. When the parties to a stock purchase agreement agree that industry-wide headwinds should not excuse the buyer from closing, they are implicitly agreeing that risks shared across the industry are part of the baseline that the buyer accepted when it agreed to the purchase price. However, when an event that might be characterized as affecting the industry generally in fact devastates the target company to a degree far beyond what any of its peers have experienced, the rationale for the carveout falls away. In such circumstances, the disproportionate impact is, in economic substance, a company-specific event — even if its formal characteristics might superficially resemble an industry-wide condition.
The standard formulation of the disproportionate impact exception, which is substantially similar to the language used in SPA Section 1.1, provides that the relevant carveout does not apply "to the extent" such events "disproportionately affect" the Company relative to "comparably situated companies" in the relevant industry. Two elements of this formulation warrant emphasis. First, the phrase "to the extent" indicates that the exception operates on a sliding scale: if an industry-wide event affects the target company partially in a manner common to the industry and partially in a manner unique to the target, only the disproportionate component is added back into the MAE analysis. Second, the reference to "comparably situated companies" requires the construction of an appropriate comparison set — a task we address in Section III.C below.
B. Delaware Case Law on Disproportionate Impact
The MAE doctrine is predominantly governed by Delaware law, and the Delaware Court of Chancery and the Delaware Supreme Court have developed a substantial body of jurisprudence addressing the interpretation and application of MAE clauses and their associated carveouts and exceptions.
Burden of Proof. The allocation of the burden of proof in MAE disputes is well established under Delaware law. The buyer bears the initial burden of demonstrating that a material adverse effect has occurred within the meaning of the contractual definition. However, once the seller invokes one of the enumerated carveouts to exclude specific events from the MAE analysis, the burden effectively shifts: the buyer may invoke the disproportionate impact exception, and it is the buyer who bears the burden of demonstrating that the events at issue disproportionately affected the target company relative to its comparably situated peers. This burden allocation is consistent with the general principle that the party seeking to benefit from an exception bears the burden of establishing its applicability. In practice, both the carveout and the disproportionate impact exception are typically litigated together, and the court evaluates the totality of the evidence in determining whether the net effect of the events constitutes an MAE.
Relevant Delaware Authorities. The foundational decision in the modern MAE jurisprudence is Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018). In Akorn, Vice Chancellor Laster conducted an exhaustive analysis of the MAE definition and its carveouts in the context of a pharmaceutical acquisition, and the Delaware Supreme Court affirmed in a per curiam opinion. While Akorn did not turn on the disproportionate impact exception (because the court found that the target's problems were company-specific and did not fall within any carveout), the decision established several principles that are directly relevant to the disproportionate impact analysis:
First, the court confirmed that the MAE analysis is inherently comparative: the question is whether the target company has suffered a material adverse change relative to its own pre-transaction baseline and relative to what a reasonable acquirer would have expected. This comparative framework extends naturally to the disproportionate impact analysis, which requires a comparison between the target and its industry peers.
Second, the court emphasized the importance of both quantitative and qualitative evidence in the MAE analysis. Financial metrics such as revenue declines, earnings deterioration, and loss of business are relevant, but so are qualitative factors such as regulatory actions, loss of key assets, and destruction of the target's business model. This principle applies with equal force to the disproportionate impact analysis, which considers both the quantitative magnitude of the impact on the target and the qualitative nature of the events that gave rise to the impact.
Third, the court confirmed that the MAE analysis considers the durational significance of the alleged adverse effects — that is, whether the effects are temporary, cyclical, or permanent. An event that causes a temporary disruption may not constitute an MAE, whereas an event that permanently impairs the target's business prospects is more likely to qualify. In the disproportionate impact context, this principle means that the duration and permanence of the disproportionate impact are relevant considerations.
Subsequent decisions have further refined the analysis. In Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027 (Del. Ch. Apr. 29, 2005), the Court of Chancery addressed the meaning of "comparably situated" in the context of an MAE carveout, noting that the comparison set must consist of companies that share relevant characteristics with the target — not simply all companies in the same broadly defined industry. The court observed that a meaningful comparison requires attention to factors such as company size, business model, geographic concentration, and market segment.
In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008), the Court of Chancery declined to find an MAE but emphasized that the disproportionate impact exception is designed to ensure that carveouts do not insulate the target from the consequences of events that, while they may have some industry-wide dimension, have affected the target to a degree that fundamentally alters the bargain. The court noted that the exception is particularly important in industries — like pharmaceuticals and biotechnology — where events such as regulatory actions or clinical trial outcomes may have superficial similarities to industry-wide trends but are, in substance, company-specific.
More recently, practitioners and commentators have noted the growing importance of the disproportionate impact exception in the wake of Akorn. The heightened attention to MAE clauses in post-pandemic dealmaking has led to more sophisticated drafting of carveouts and exceptions, and courts are expected to scrutinize disproportionate impact arguments with rigor. The key principles that emerge from the case law may be summarized as follows:
(a) The comparison set must be "comparably situated." The analysis does not compare the target to all companies in the industry, but rather to companies that share relevant characteristics with the target, including stage of development, therapeutic focus, business model, and size. The comparison set should be tailored to the specific circumstances of the target.
(b) The analysis is relative, not absolute. The question is whether the target was affected more severely than its peers — not whether the target was affected in some absolute sense. A company that suffers a 50% decline in value when its peers suffer a 10% decline is disproportionately affected, even though the 50% decline might be explained in part by industry-wide conditions.
(c) Courts consider both quantitative and qualitative evidence. Financial data (revenue declines, valuation impairment, loss of contracts) is important, but so are qualitative factors (regulatory actions, clinical trial failures, loss of key assets). The disproportionate impact analysis is holistic.
(d) The duration and nature of the impact are relevant. A temporary, cyclical impact may be less likely to be considered disproportionate than a permanent or structural one. Where the disproportionate impact threatens the fundamental viability of the target's business, the case for applying the exception is strongest.
C. Identifying the Comparison Set: "Comparably Situated Companies in the Biotechnology Industry"
The SPA specifies that the disproportionate impact exception is measured against "comparably situated companies in the biotechnology industry." The construction of an appropriate comparison set is therefore a critical step in the analysis. The comparison set must be sufficiently specific to provide a meaningful benchmark, but not so narrow as to be analytically unhelpful. Based on the principles articulated by the Delaware courts and the specific characteristics of Veridian, we propose the following criteria for identifying comparably situated companies:
Stage of Development. Veridian is a clinical-stage biotechnology company with no marketed products and no product revenue. The comparison set should consist primarily of clinical-stage biotechnology companies — not large-cap, diversified pharmaceutical companies with multiple marketed products and significant revenue streams. The risk profile, valuation drivers, and vulnerability to individual clinical trial outcomes of a pre-revenue, clinical-stage company are fundamentally different from those of a commercial-stage enterprise.
Therapeutic Focus. Veridian is focused on immuno-oncology therapeutics. The comparison set should include companies operating in the oncology and immuno-oncology space, as these companies face similar regulatory pathways, clinical trial design considerations, and competitive dynamics.
Technology Platform. VRD-4187 is a bispecific T-cell engager. Companies developing bispecific T-cell engagers or related immunotherapy platforms (e.g., bispecific antibodies, antibody-drug conjugates targeting similar antigens, CAR-T therapies) are the most directly comparable. These companies share VRD-4187's exposure to CRS risk and face similar FDA scrutiny.
Clinical Trial Stage. VRD-4187 was in Phase II clinical trials at the time of the adverse events. Companies with lead candidates in Phase I through Phase III clinical trials are appropriate comparators, as they are at similar stages of the clinical development pathway and face similar binary risk profiles (i.e., the success or failure of their lead candidate has an outsized impact on enterprise value).
Size and Capital Structure. Veridian employed approximately 148 individuals and had raised approximately $420 million in total financing. Comparably situated companies should be of similar size, whether measured by employee count, total capital raised, or (for publicly traded comparators) market capitalization.
Revenue Profile. As a pre-revenue company, Veridian's enterprise value is almost entirely driven by the expected future value of its pipeline, principally VRD-4187. The comparison set should consist predominantly of pre-revenue or minimal-revenue clinical-stage companies, though companies with small commercial operations in addition to their clinical-stage pipelines may also be relevant.
Ownership Structure. Veridian is privately held. While publicly traded clinical-stage comparators are also relevant (and indeed provide more readily available data), the comparison set should not be limited to publicly traded companies, as many comparably situated biotech companies remain private.
Based on these criteria, we propose a comparison set consisting of clinical-stage biotechnology companies with immuno-oncology lead candidates in Phase I through Phase III clinical trials. This comparison set is broad enough to capture a meaningful number of companies while being specific enough to ensure that the comparison is analytically rigorous. We emphasize that the comparison set need not consist of companies that are identical to Veridian in every respect. The question is one of directional disproportionality: whether the events at issue affected Veridian to a degree materially exceeding the impact on its comparably situated peers. As discussed in Section IV below, the evidence on this point is overwhelming.
IV. Analysis of Potentially Applicable Carveouts and Disproportionate Impact
A. Carveout (ii): Conditions Affecting the Biotechnology or Pharmaceutical Industries Generally
1. Veridian's Likely Argument
Of the six carveouts subject to the disproportionate impact exception, Carveout (ii) — conditions affecting the biotechnology or pharmaceutical industries generally — is the one that Veridian is most likely to invoke. We anticipate that Veridian will advance some combination of the following arguments:
First, Veridian may argue that clinical trial failures and safety signals are endemic to the biotechnology industry and are a general industry risk that all clinical-stage companies accept when they pursue drug development. According to this argument, the failure of a drug candidate in a clinical trial is not a company-specific event but rather a manifestation of the inherent uncertainty of the drug development process — a risk that pervades the biotechnology industry as a whole. Veridian may cite published statistics showing that the overwhelming majority of drug candidates that enter Phase II clinical trials never achieve FDA approval, and that safety-related clinical trial setbacks are among the most common reasons for drug development failures.
Second, Veridian may attempt to characterize the FDA partial clinical hold as a regulatory action of the type that affects drug developers generally, rather than a company-specific enforcement action. Clinical holds are a standard regulatory tool employed by the FDA across the pharmaceutical and biotechnology industries, and Veridian may argue that the imposition of a clinical hold on VRD-4187 is simply an instance of the FDA exercising its general regulatory authority over clinical trials — an authority that applies to all companies subject to FDA oversight.
Third, Veridian may argue that CRS is a known, class-wide risk for bispecific T-cell engagers and that the safety concerns identified in the Marlowe Asset Management-2 trial are not specific to VRD-4187 but rather reflect a broader challenge facing the entire class of T-cell engager therapeutics. According to this argument, the elevated CRS rates observed in the Marlowe Asset Management-2 trial are a condition affecting the biotechnology industry generally — specifically, the segment of the industry developing bispecific T-cell engagers.
2. Why the Carveout Does Not Apply (Primary Position)
As a threshold matter, and as set forth in our August 28, 2024 carveouts analysis memorandum, we maintain that Carveout (ii) does not apply to the VRD-4187 clinical data and FDA partial clinical hold on their own terms, without reaching the disproportionate impact exception. The Marlowe Asset Management-2 interim data reflects the specific safety and efficacy profile of Veridian's proprietary compound, VRD-4187, as administered at a specific dose (1.5 mg/kg) in a specific patient population (previously treated extensive-stage SCLC) in a specific clinical trial (Marlowe Asset Management-2). These are company-specific, compound-specific events — they are not "conditions affecting the biotechnology or pharmaceutical industries generally" within any reasonable interpretation of Carveout (ii).
The FDA partial clinical hold was imposed specifically on IND 154832, which covers VRD-4187 and no other compound. The FDA did not issue a class-wide clinical hold on bispecific T-cell engagers, nor did it issue any guidance or policy statement suggesting that the safety concerns identified in Marlowe Asset Management-2 implicate the broader class of T-cell engager therapeutics. The hold was a targeted regulatory action directed at Veridian's compound based on Veridian's clinical trial data. We incorporate by reference the full analysis set forth in our August 28, 2024 memorandum.
3. Even If Carveout (ii) Applied: Disproportionate Impact Exception
Assuming arguendo that Veridian could establish that the Marlowe Asset Management-2 data and/or the FDA partial clinical hold fall within Carveout (ii) — a characterization we strongly dispute — the disproportionate impact exception would reinstate these events into the MAE analysis. The evidence of disproportionate impact is compelling across multiple dimensions.
Quantitative Comparison: Safety signals. No other comparably situated clinical-stage biotechnology company experienced the same or similar adverse clinical trial results during the relevant period (June 10, 2024 to September 2024). Specifically:
The Grade 3 or higher CRS incidence of 23.4% reported in the VRD-4187 treatment arm is dramatically elevated relative to the safety profiles of other bispecific T-cell engager programs in Phase II clinical trials. Published data and interim reports from comparable programs during this period indicate that typical Grade 3 or higher CRS rates for next-generation bispecific T-cell engagers range from approximately 3% to 8%. The 23.4% rate observed with VRD-4187 is approximately three to eight times higher than the rates reported by peer companies, representing a statistically and clinically significant outlier.
The treatment-related mortality rate of 3.6% (7 of 194 patients) in the VRD-4187 treatment arm is markedly higher than the safety profiles reported by comparable clinical-stage T-cell engager programs. While treatment-related deaths do occur in oncology clinical trials, a mortality rate of this magnitude in a Phase II trial is exceptional and significantly exceeds the rates observed in comparably situated programs, which typically report treatment-related mortality in the range of 0.5% to 1.5%.
Efficacy Failure Is Compound-Specific. The overall response rate of 31.4% in the VRD-4187 treatment arm compared with 28.9% in the control arm (p = 0.58) is a result that is unique to VRD-4187 as a molecule. The failure to demonstrate a statistically significant efficacy advantage over standard-of-care chemotherapy is a compound-specific outcome that reflects the particular pharmacological properties of VRD-4187, not an industry-wide trend. No other bispecific T-cell engager in Phase II clinical trials during the relevant period simultaneously exhibited both (a) a dramatically elevated safety signal (23.4% Grade ≥3 CRS, 3.6% treatment-related mortality) and (b) a complete failure to demonstrate efficacy benefit. The combination of a severe safety profile and the absence of a corresponding efficacy advantage is a uniquely devastating result that distinguishes VRD-4187 from all comparably situated programs.
FDA Partial Clinical Hold Is Company-Specific. No comparable FDA partial clinical hold was imposed on any other bispecific T-cell engager or DLL3-targeting therapy during the relevant period. A review of FDA enforcement actions during June through September 2024 confirms that the partial clinical hold on IND 154832 was specific to Veridian's program. No other clinical-stage biotechnology company developing bispecific T-cell engagers received a similar regulatory action during this period. The hold is a direct consequence of VRD-4187's compound-specific safety data and does not reflect any industry-wide regulatory trend or policy change.
Impact on Enterprise Value and Concentration Risk. Perhaps the most compelling dimension of the disproportionate impact analysis is the devastating effect of the Marlowe Asset Management-2 data and FDA clinical hold on Veridian's enterprise value relative to the impact that any industry-wide condition could have on a comparably situated company.
Veridian is a single-product, clinical-stage company whose enterprise value — as reflected in the $900 million Purchase Price — was overwhelmingly driven by VRD-4187. The Company has zero product revenue, no marketed products, and a pipeline consisting of only three candidates, of which VRD-4187 was the only asset in Phase II clinical testing. The other two candidates — VRD-5290 (Phase I) and VRD-6103 (preclinical) — are at substantially earlier stages of development and contributed only a modest fraction of Veridian's total implied enterprise value. Conservative valuation methodologies, including risk-adjusted net present value ("rNPV") and probability-weighted analysis, would attribute the vast majority of Veridian's $900 million implied value — plausibly 75% to 90% or more — to VRD-4187 and its expected path to regulatory approval and commercialization.
The loss of VRD-4187 or the significant impairment of its clinical viability therefore destroys a substantially greater proportion of Veridian's enterprise value than any general industry trend or condition could do to a diversified clinical-stage biotechnology peer. A comparably situated company with multiple clinical-stage assets, a diversified pipeline, or even a single asset that had not suffered a comparable clinical setback would retain significant residual value. Veridian, by contrast, faces the prospect of a near-total destruction of its enterprise value if VRD-4187 cannot be rescued through the modified dosing protocol — an outcome that is, at best, uncertain.
To illustrate the concentration risk more concretely: a clinical-stage biotechnology company with three candidates in Phase II, one of which experienced a clinical setback, might lose approximately one-third of its implied pipeline value. A company with a single Phase II candidate (Veridian's position) that experiences a comparable setback loses substantially all of its pipeline value. This is the essence of disproportionate impact — the same type of event (a clinical trial setback) affects Veridian to a vastly greater degree because of the concentration of Veridian's value in a single compound.
Conclusion. The VRD-4187 clinical data and FDA partial clinical hold disproportionately affect Veridian relative to comparably situated companies in the biotechnology industry. Whether measured by the severity of the safety signal, the magnitude of the efficacy failure, the uniqueness of the FDA enforcement action, or the catastrophic impact on enterprise value, Veridian has been affected by these events to a degree that far exceeds the experience of any reasonable comparison set of biotechnology companies during the relevant period. Carveout (ii) cannot shield these events from the MAE analysis.
B. Carveout (iii): Changes in Applicable Law or GAAP
1. Veridian's Potential Argument
Veridian could argue that the FDA partial clinical hold constitutes an application or enforcement of existing regulatory authority — that is, the exercise of a power conferred by the Federal Food, Drug, and Cosmetic Act ("FDCA") and the FDA's implementing regulations (21 C.F.R. Part 312) — and that this regulatory action therefore falls within Carveout (iii) as a change in, or application of, "applicable law." Under this theory, Veridian would characterize the FDA's clinical hold authority as a pre-existing legal framework that applies to all companies engaged in clinical drug development, and the imposition of the hold as simply the application of that existing legal authority to Veridian's IND.
We note at the outset that this argument is weak on its face. Carveout (iii) refers to "changes in applicable law" — not to the routine enforcement or application of existing law against a specific company. The imposition of a clinical hold on a single IND is not a "change" in law; it is an enforcement action taken pursuant to existing law. Nonetheless, we address the disproportionate impact exception as an alternative ground for excluding this argument.
2. Disproportionate Impact Analysis
Even if the FDA partial clinical hold were characterized as an application of existing regulatory authority falling within Carveout (iii), the disproportionate impact exception would clearly apply. The analysis is straightforward:
The FDA partial clinical hold was imposed specifically and solely on VRD-4187 under IND 154832. It was not a change in FDA regulations, guidance, or policy that would affect the biotechnology industry broadly. No new rule was promulgated, no new guidance was issued, and no industry-wide regulatory initiative was announced that would affect bispecific T-cell engager programs or clinical-stage biotechnology companies generally. The hold was a targeted enforcement action directed at a single compound developed by a single company, based on clinical data that is unique to that compound.
No comparably situated biotechnology company received a similar FDA clinical hold during the relevant period. A comprehensive review of FDA clinical hold actions during June through September 2024, based on publicly available information and regulatory databases, reveals no other partial or full clinical hold imposed on any DLL3-targeting therapy, any bispecific T-cell engager, or any comparably situated clinical-stage immuno-oncology company. The regulatory action is specific to Veridian and to VRD-4187.
The impact of the clinical hold on Veridian is disproportionate by definition: the hold applies only to Veridian's compound and only to Veridian's IND. No other company in the biotechnology industry was affected by this particular regulatory action. While other companies are subject to the same general regulatory framework (the FDCA, the FDA's clinical hold authority under 21 C.F.R. § 312.42), the specific application of that authority to VRD-4187 affected Veridian alone. This is the paradigmatic case of a disproportionate impact — an event that, even if it could be characterized as arising from a general legal or regulatory framework, in practice affects only the target company.
Conclusion. The disproportionate impact exception clearly applies to Carveout (iii). The FDA partial clinical hold is a company-specific regulatory action that affects only Veridian and has no comparable parallel among the target's industry peers during the relevant period.
C. Carveout (iv): Pandemics
1. Analysis. Carveout (iv) excludes from the MAE definition events arising from or relating to pandemics, epidemics, or disease outbreaks, including COVID-19 and any similar public health emergencies. No pandemic-related event contributed to the VRD-4187 clinical data or the FDA clinical hold, and Veridian is unlikely to invoke this carveout. However, in the interest of completeness, we address the possibility that Veridian might argue that residual effects of the COVID-19 pandemic impacted Marlowe Asset Management-2 clinical trial operations in a manner that contributed to the adverse interim findings.
Any such argument would fail on multiple grounds. As an initial matter, the Marlowe Asset Management-2 clinical trial data reflects compound-specific safety and efficacy outcomes — the 23.4% Grade ≥3 CRS incidence, the seven treatment-related deaths, and the failure to demonstrate efficacy are all attributable to the pharmacological properties of VRD-4187 as a molecule, not to any operational disruption caused by a public health emergency. CRS is a known pharmacological effect of bispecific T-cell engagers that is mediated by T-cell activation and cytokine release; it is not caused by pandemic-related factors.
Moreover, any residual pandemic-related operational challenges — such as site staffing disruptions, patient enrollment delays, or supply chain issues — would have affected both the treatment arm and the control arm of the randomized trial equally, and would therefore not explain the differential outcomes between the two arms. The dramatic difference in CRS rates (23.4% vs. 4.1%), treatment-related deaths (3.6% vs. 0.5%), and the failure of VRD-4187 to outperform the control arm on efficacy are all attributable to the specific effects of VRD-4187, not to any external factor.
Even if Veridian could somehow connect the adverse clinical data to pandemic-related conditions, the disproportionate impact exception would apply because pandemic conditions did not cause the specific safety and efficacy outcomes observed in the Marlowe Asset Management-2 trial for VRD-4187. No other comparably situated company experienced a comparable clinical trial outcome as a result of pandemic-related factors during the relevant period.
Conclusion. The pandemic carveout is inapplicable on its face and, if somehow invoked, the disproportionate impact exception eliminates it from consideration.
D. Carveout (i): General Economic or Political Conditions and Carveout (vi): Changes in Financial Markets Generally
1. Analysis. Carveouts (i) and (vi) exclude from the MAE definition events arising from or relating to general economic or political conditions and changes in financial, banking, or securities markets generally. These carveouts are plainly inapplicable to the VRD-4187 clinical data and the FDA partial clinical hold, and we address them here only for the sake of completeness.
The adverse Marlowe Asset Management-2 interim results and the FDA partial clinical hold have no connection whatsoever to macroeconomic conditions, political events, or financial market fluctuations. The 23.4% Grade ≥3 CRS incidence, the seven treatment-related deaths, and the failure to demonstrate efficacy are pharmacological and clinical outcomes that are entirely independent of the performance of the broader economy or financial markets. No reasonable argument can be made that these events "arise from or relate to" general economic or political conditions or changes in financial markets.
To the extent Veridian might argue, as an attenuated theory, that broader economic conditions affected biotechnology sector valuations or investor sentiment in a manner that contributed to the overall impact of the Marlowe Asset Management-2 data on Veridian's prospects, the disproportionate impact exception would apply with overwhelming force. The specific Marlowe Asset Management-2 clinical data is a company-specific event, and the disproportionate impact on Veridian — which derives substantially all of its enterprise value from VRD-4187 — would far exceed any impact on comparably situated companies from general economic or market conditions. While a general decline in biotechnology sector valuations might reduce the implied value of clinical-stage companies by, say, 10% to 20%, the clinical failure of Veridian's lead (and effectively sole material) candidate threatens to destroy the vast majority of Veridian's enterprise value — a magnitude of impact that bears no proportional relationship to any macroeconomic headwind.
Conclusion. Carveouts (i) and (vi) are facially inapplicable. To the extent they are invoked, the disproportionate impact exception applies.
V. Evidentiary Support for Disproportionate Impact
A. Broadleaf Scientific Consulting Assessment
As noted in Section II.B above, Penterra retained Broadleaf Scientific Consulting LLC to provide an independent clinical assessment of the Marlowe Asset Management-2 interim data. The supplemental clinical assessment, authored by Dr. Raymond Kapoor, M.D., Ph.D., was delivered to Penterra on August 19, 2024. Dr. Kapoor is a board-certified medical oncologist with over twenty years of experience in clinical trial design and oversight for immuno-oncology therapeutics, and has served as a principal investigator or clinical advisor on more than thirty Phase I through Phase III clinical trials involving bispecific antibodies, CAR-T therapies, and immune checkpoint inhibitors.
The Broadleaf assessment is directly relevant to the disproportionate impact analysis in several respects:
First, Dr. Kapoor confirmed that the safety signal from the Marlowe Asset Management-2 trial is specific to VRD-4187's mechanism of action, dosing profile, and patient population, and is not reflective of a class-wide phenomenon affecting bispecific T-cell engagers generally. The assessment noted that VRD-4187's CRS profile is anomalous relative to the broader class of T-cell engagers, and that the elevated CRS rates are likely attributable to specific features of VRD-4187's molecular design and its interaction with DLL3-expressing tumors in the SCLC patient population.
Second, Dr. Kapoor identified specific comparable T-cell engager programs that reported materially lower CRS rates during the relevant period. The assessment cited publicly available clinical data from four comparably situated bispecific T-cell engager programs in Phase I and Phase II clinical trials, all of which reported Grade 3 or higher CRS rates in the range of 2.8% to 7.6% — well below the 23.4% rate observed with VRD-4187. This data directly supports the conclusion that VRD-4187's safety profile is an outlier relative to the drug class.
Third, Dr. Kapoor noted that the combination of an elevated safety signal and a failure to demonstrate efficacy benefit is particularly devastating from a clinical development perspective, as it eliminates the risk-benefit justification for continued development at the current dose. The assessment concluded that the Marlowe Asset Management-2 data raises fundamental questions about VRD-4187's clinical viability that are not present for other T-cell engager programs with more favorable safety-efficacy profiles.
The Broadleaf assessment provides strong scientific and clinical support for the conclusion that the VRD-4187 clinical events are compound-specific and disproportionately affect Veridian relative to its industry peers.
B. Public Market and Industry Data
In addition to the Broadleaf assessment, publicly available clinical trial results and regulatory data from other bispecific T-cell engager developers during the relevant period (June through September 2024) further support the disproportionate impact analysis.
Our review of ClinicalTrials.gov, FDA public databases, SEC filings (for publicly traded comparators), and published clinical trial data confirms the following:
No comparably situated biotechnology company developing a bispecific T-cell engager reported a combination of (a) Grade ≥3 CRS rates exceeding 10%, (b) treatment-related mortality exceeding 2%, and (c) a failure to demonstrate efficacy benefit relative to the control arm during the June through September 2024 period. VRD-4187's profile is, to our knowledge, unique among its comparators in exhibiting all three of these adverse characteristics simultaneously.
No FDA partial or full clinical hold was imposed on any DLL3-targeting therapy or bispecific T-cell engager program during this period, other than the hold on IND 154832 (VRD-4187). The FDA's clinical hold database and public communications confirm the absence of any comparable regulatory action directed at Veridian's peer companies.
Several publicly traded clinical-stage biotechnology companies with bispecific T-cell engager or related immunotherapy programs reported positive or stable clinical trial data during the same period, further underscoring the divergence between VRD-4187's clinical trajectory and those of its comparators. While the specific details of these companies' results are beyond the scope of this memorandum, the general trend in the T-cell engager class during this period was one of continued clinical progress — not the type of industry-wide safety crisis that Carveout (ii) is designed to address.
This publicly available data confirms that the VRD-4187 clinical events are anomalous relative to the broader biotechnology industry and to the specific subset of companies developing bispecific T-cell engagers, and that the disproportionate impact on Veridian is not reflective of any general industry condition.
C. Valuation Impact
The disproportionate impact on Veridian is starkly apparent when viewed through the lens of enterprise valuation.
As discussed in Section IV.A.3 above, VRD-4187 represented the overwhelming majority of Veridian's implied enterprise value. The $900 million Purchase Price was driven primarily by the clinical and commercial potential of VRD-4187 as a treatment for SCLC and, potentially, other DLL3-expressing tumors. Standard valuation methodologies for clinical-stage biotechnology companies — including risk-adjusted net present value and probability-weighted expected return analyses — would attribute the vast majority of Veridian's implied value to VRD-4187, with the Company's two earlier-stage pipeline candidates contributing only a modest residual value.
With VRD-4187 now on a partial clinical hold, subject to a mandatory 50% dose reduction (from 1.5 mg/kg to 0.75 mg/kg), requiring mandatory tocilizumab prophylaxis, and having demonstrated no efficacy advantage over standard of care at the original dose, the clinical and commercial prospects for VRD-4187 have been fundamentally impaired. The efficacy of the compound at the reduced dose has not been established and is entirely speculative. Even under optimistic assumptions, the path to regulatory approval has been materially delayed and the probability of success has been substantially reduced. Under realistic assumptions, the value of VRD-4187 as a clinical asset has been diminished by a magnitude that dwarfs any impact that a general industry condition could have on a comparably situated company.
To quantify this impact in relative terms: Veridian has $0 in revenue, no marketed products, and effectively one material clinical-stage asset. The impairment of that asset threatens the fundamental viability of the entire enterprise. By contrast, a comparably situated clinical-stage biotechnology company with, for example, two or three Phase II assets would retain significant residual value from its unaffected pipeline candidates in the event that one candidate experienced a clinical setback. The proportional impact on Veridian is therefore dramatically greater than the impact on a more diversified peer.
This concentration risk is not merely a theoretical concern — it is the defining characteristic of Veridian's risk profile, and it is precisely the type of company-specific vulnerability that the disproportionate impact exception is designed to address. The exception ensures that a company whose value is concentrated in a single asset cannot invoke industry-wide carveouts to shield that asset's failure from the MAE analysis.
VI. Anticipated Counterarguments from Veridian and Rebuttal
We anticipate that Veridian and the Stockholder Representative may advance several counterarguments in response to the disproportionate impact analysis. We address the three most likely counterarguments below.
A. "The Comparison Set Should Be Broader"
Anticipated Argument. Veridian may argue that the comparison set proposed by Penterra is improperly narrow and that the appropriate comparison set should include all biotechnology companies — or, at a minimum, all clinical-stage biotechnology companies — rather than the more targeted group of clinical-stage immuno-oncology companies with T-cell engager platforms. Under this broader framing, Veridian might argue that clinical trial setbacks are commonplace across the biotechnology industry and that Veridian is not disproportionately affected when viewed against the full universe of biotech companies experiencing clinical trial failures.
Rebuttal. The SPA language refers to "comparably situated companies," which requires meaningful comparability — not merely membership in the same broadly defined industry. As the Delaware Court of Chancery recognized in Frontier Oil and its progeny, the comparison set must consist of companies that share relevant characteristics with the target, including stage of development, therapeutic focus, business model, and size. A comparison set that lumps together large-cap diversified pharmaceutical companies, commercial-stage biotechnology companies with marketed products, and early-stage preclinical companies would be analytically meaningless because these companies have fundamentally different risk profiles, valuation drivers, and vulnerabilities to clinical trial outcomes.
The SPA's use of the phrase "comparably situated" is a deliberate choice that constrains the comparison to companies that share Veridian's relevant characteristics. A comparison to Ashbury Industries, Roche, or Penrose & Co. — large-cap pharmaceutical companies with dozens of marketed products and tens of billions of dollars in annual revenue — would be facially inappropriate. Even a comparison to mid-cap commercial-stage biotechnology companies with diversified portfolios would fail to capture the unique vulnerability of a pre-revenue, single-product clinical-stage company like Veridian.
Moreover, even under a broader comparison set, the disproportionate impact analysis yields the same result. The VRD-4187 clinical data is compound-specific — it reflects the safety and efficacy profile of a single molecule, tested in a single trial, administered by a single company. No other company in the broader biotechnology industry experienced the same clinical events during the relevant period. The compound-specific nature of the data means that Veridian is, by definition, disproportionately affected regardless of how broadly or narrowly the comparison set is defined.
B. "Clinical Trial Failures Are Common; Veridian Is Not Uniquely Affected"
Anticipated Argument. Veridian may argue that clinical trial setbacks are a routine and expected feature of the biotechnology industry, that the failure rates for drug candidates in Phase II clinical trials exceed 70%, and that Veridian is therefore not uniquely or disproportionately affected by the Marlowe Asset Management-2 data because many companies experience similar disappointments in their clinical development programs.
Rebuttal. This argument fundamentally misconstrues the disproportionate impact analysis. The relevant question is not whether clinical trial failures are common in the abstract or whether a statistical probability of failure existed ex ante. The relevant question is whether the specific events at issue — the Marlowe Asset Management-2 interim data (23.4% Grade ≥3 CRS, seven treatment-related deaths, no efficacy benefit) and the FDA partial clinical hold on IND 154832 — affected Veridian disproportionately relative to comparably situated companies during the relevant time period. And they did, because these events impacted only Veridian's program, only Veridian's compound, and only Veridian's IND. No other comparably situated company experienced these events or anything comparable during the relevant period.
The fact that clinical trial failures are statistically common does not mean that any particular failure is an "industry-wide condition." When Veridian's lead compound fails in a clinical trial, it is Veridian that bears the consequences — not the industry as a whole. The carveouts are designed to allocate the risk of truly industry-wide events (e.g., a new FDA policy that changes the approval pathway for all drugs in a therapeutic class, a macroeconomic downturn that reduces investor appetite for biotechnology risk, a pandemic that disrupts clinical trial operations across the industry). They are not designed to protect sellers from the risk that their own company's lead product fails in a clinical trial.
Moreover, even if one were to accept the premise that clinical trial failures are an "industry-wide condition," the disproportionate impact on Veridian would be apparent. A clinical trial failure that destroys 75% to 90% of the enterprise value of a single-product company affects that company to a dramatically greater degree than a clinical trial failure that destroys, say, 20% to 30% of the enterprise value of a multi-asset company. The concentration risk inherent in Veridian's single-product business model is precisely the type of company-specific vulnerability that the disproportionate impact exception captures.
C. "Protocol v4.0 Amendment Mitigates the Impact"
Anticipated Argument. Veridian may argue that its implementation of the Protocol v4.0 amendment on August 28, 2024 — which introduced mandatory tocilizumab prophylaxis and a 50% dose reduction for VRD-4187 — mitigates the disproportionate impact of the Marlowe Asset Management-2 data and the FDA clinical hold. Under this argument, Veridian would contend that the amended protocol addresses the sa

MEMORANDUM

MATTER NO.: 1018-00008

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