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1018-00008 · Penterra Pharmaceuticals Corp · Post-Termination & Litigation Prep

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CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166

MEMORANDUM

TO:

Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp.

Dr. Anand Rajagopal, Chief Executive Officer, Penterra Pharmaceuticals Corp.

Natalie Reiner, SVP, 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: October 18, 2024

RE: Analysis of Veridian Biosciences, Inc. Demand Letter Dated October 15, 2024 and Assessment of Litigation Threats

MATTER NO.: 1018-00008

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I. Executive Summary

On October 15, 2024, the law firm of Zalcourt Archer & Cole LLP, acting through its lead partner Rebecca Whitmore, delivered a formal demand letter to Penterra Pharmaceuticals Corp. ("Penterra" or the "Company") on behalf of Veridian Biosciences, Inc. ("Veridian") and the Stockholder Representative, David Ng of Crestline Ventures, LP. The demand letter asserts that Penterra's termination of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") on September 30, 2024 was wrongful and constitutes a breach of contract, giving rise to substantial claims for damages and equitable relief.

Veridian threatens to file a complaint in the Court of Chancery of the State of Delaware — the exclusive forum designated under SPA § 10.6 — on or about November 15, 2024. The complaint, as described in the demand letter, would seek (a) specific performance compelling Penterra to close the $900,000,000 stock purchase transaction on the terms set forth in the SPA, and (b) in the alternative, expectation damages for breach of contract, measured as the difference between the agreed purchase price and the current fair market value of Veridian's equity. Veridian also asserts that, at a minimum, Penterra owes a reverse termination fee of $45,000,000 under the SPA.

This memorandum provides a comprehensive analysis of each of Veridian's asserted claims and legal theories, evaluates the merits and risks associated with Penterra's position, identifies the key legal and factual issues that will determine the outcome of any litigation, and sets forth recommended defensive strategies for the Penterra legal team and Board of Directors.

Our overall assessment is as follows: Penterra holds a defensible but not risk-free position. The termination under SPA § 8.1(d) was justified by the occurrence of a material adverse effect ("MAE"), grounded in the catastrophic Marlowe Asset Management-2 Phase II interim safety data, the absence of any statistically significant efficacy benefit, and the FDA's imposition of a partial clinical hold on VRD-4187. However, Delaware courts apply a demanding standard to buyer MAE claims — historically, the burden on the buyer is heavy and few buyers have prevailed on MAE defenses. The sole successful precedent is Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and the factual circumstances here, while strong, are distinguishable in certain respects. Veridian will aggressively contest the MAE determination, and the outcome will depend heavily on the Chancery Court's assessment of the durational significance of the VRD-4187 clinical data and the weight given to the FDA partial clinical hold.

We estimate the probability that Penterra's MAE defense prevails at approximately 55–65%, representing a material improvement over the historical buyer baseline but still reflecting genuine uncertainty. The sections that follow elaborate on each dimension of the analysis.

II. Summary of Veridian's Demand Letter

A. Factual Allegations in the Demand Letter

The demand letter from Zalcourt Archer & Cole LLP provides a detailed factual narrative framed from Veridian's perspective. We summarize the principal factual allegations below, together with our initial observations regarding their accuracy and significance.

Transaction Overview. The demand letter recites that on June 10, 2024, Penterra and Veridian, together with the Stockholder Representative, entered into the SPA pursuant to which Penterra agreed to acquire 100% of the outstanding capital stock of Veridian for an aggregate purchase price of $900,000,000 in cash. The SPA was the product of an extensive negotiation process that began in March 2024 and involved multiple rounds of due diligence, including Penterra's review of VRD-4187 clinical data then available. These basic facts are accurate and not in dispute.

Stockholder Consent. Veridian states that the Veridian stockholder written consent was obtained on June 14, 2024, with greater than 90% approval by outstanding stockholders. The demand letter specifically identifies the principal stockholders who executed the written consent, including Crestline Ventures, LP (holding approximately 28.3% of outstanding shares), Boreal Health Partners Fund III, LP (holding approximately 19.7%), and Apex Growth Equity Fund II, LP (holding approximately 14.1%). The remaining consenting stockholders included a number of smaller institutional investors and individual founders. This factual representation is consistent with the stockholder consent documentation delivered to Penterra as a condition under the SPA and is not in dispute.

Regulatory Clearance. The demand letter notes that HSR early termination was granted on May 20, 2024, satisfying the regulatory condition set forth in SPA § 7.1(a). This fact is accurate. The Federal Trade Commission and the Department of Justice Antitrust Division raised no competitive concerns regarding the proposed acquisition, reflecting the complementary nature of the companies' respective pipelines and the absence of any product market overlap. The regulatory condition was fully satisfied well in advance of the anticipated closing date.

Pre-Closing Conditions. Veridian asserts that all pre-closing conditions within Veridian's control were satisfied or remained capable of being satisfied before the Outside Date of December 10, 2024. This assertion is contested. While certain ministerial and administrative conditions were satisfied or in the process of being satisfied, the critical conditions at issue in this dispute — the bring-down of Veridian's representations and warranties to an MAE-qualified standard under § 7.2(a), and the no-MAE condition under § 7.2(b) — are the very conditions that Penterra asserts have failed. Veridian's characterization of these conditions as "capable of being satisfied" is the central factual and legal dispute.

Marlowe Asset Management-2 Phase II Interim Data. The demand letter characterizes the Marlowe Asset Management-2 Phase II interim data, as analyzed by the Data Monitoring Committee ("DMC") on August 14, 2024, as "preliminary" and "subject to dose modification and protocol amendment." Veridian notes that Protocol v4.0 was implemented on August 28, 2024, incorporating a dose reduction from 1.5 mg/kg to 0.75 mg/kg and mandatory tocilizumab prophylaxis to address the cytokine release syndrome ("CRS") signal. Veridian characterizes these modifications as routine clinical trial management responses that are expected to resolve the safety concerns observed in the interim data. We address the substance of this characterization in detail in Section III.B below.

FDA Partial Clinical Hold. Veridian contends that the FDA's imposition of a partial clinical hold on VRD-4187 (IND 154832), effective August 22, 2024, is "a routine regulatory mechanism" that "does not permanently impair the VRD-4187 program." The demand letter emphasizes that partial clinical holds — as distinguished from full clinical holds — permit ongoing treatment of currently enrolled patients while pausing new enrollment, and that such holds are frequently resolved through the submission of a complete response to the FDA's clinical hold letter. Veridian characterizes the hold as a temporary and fully addressable regulatory step. We analyze this contention in Section III.B.3 below.

Deficiency Notice and Termination. The demand letter asserts that Penterra sent a "premature" Deficiency Notice on September 6, 2024 — just fifteen days after the implementation of Protocol v4.0 — and subsequently terminated the SPA on September 30, 2024. Veridian emphasizes that the termination occurred more than two months before the Outside Date of December 10, 2024, and contends that Penterra did not provide Veridian adequate time to cure the alleged deficiency, resolve the clinical hold, or demonstrate that the protocol amendment would address the safety signal. Veridian characterizes the termination as "precipitous" and motivated by "buyer's remorse" rather than a genuine failure of closing conditions.

B. Legal Claims Asserted

The demand letter articulates three principal legal claims that Veridian intends to assert in litigation:

1. Breach of Contract (SPA). Veridian's primary claim is that Penterra wrongfully terminated the SPA under § 8.1(d) because no material adverse effect occurred within the meaning of the SPA's MAE definition (§ 1.1). Veridian contends that the Buyer's closing conditions under §§ 7.2(a) and 7.2(b) remained satisfied or, at a minimum, remained capable of being satisfied prior to the Outside Date of December 10, 2024. By terminating the SPA in the absence of a valid termination right, Veridian asserts, Penterra breached its obligation to consummate the transaction contemplated by the SPA.

2. Specific Performance (SPA § 10.12). Veridian invokes SPA § 10.12, which expressly grants the Sellers the right to seek specific performance to compel the Buyer to consummate the closing of the transaction if all closing conditions have been satisfied or waived. Veridian argues that all closing conditions were in fact satisfied (or capable of satisfaction), and that the Court of Chancery should order Penterra to close the transaction at the $900,000,000 purchase price, fund the aggregate consideration, and take all actions necessary to consummate the closing.

3. Alternative: Expectation Damages. If specific performance is unavailable or impracticable, Veridian claims entitlement to expectation damages — measured as the difference between the $900,000,000 purchase price and the current fair market value of Veridian's equity. Veridian asserts that its equity value has been "substantially diminished" as a direct and proximate result of the failed transaction and the resulting market uncertainty, and reserves the right to retain expert witnesses to quantify its damages at trial. The demand letter does not specify a precise damages figure but implies that the magnitude of the claim could reach hundreds of millions of dollars.

C. Veridian's Specific Arguments

Beyond the broad legal claims, the demand letter advances several specific arguments that we anticipate will form the core of Veridian's litigation strategy. We summarize each below and provide our analysis in the substantive sections that follow.

No MAE Occurred. Veridian contends that the Marlowe Asset Management-2 clinical trial results are "interim" and "not final," and that the safety signal observed in the DMC analysis is "manageable through dose modification" — specifically, the dose reduction from 1.5 mg/kg to 0.75 mg/kg and the addition of mandatory tocilizumab prophylaxis as implemented in Protocol v4.0. Veridian further asserts that clinical-stage biotechnology companies "routinely encounter adverse safety data" during the course of clinical development without such data constituting a material adverse effect on the business of the company. Veridian characterizes Penterra's MAE determination as an overreaction to preliminary data that is subject to revision and improvement through standard clinical trial management.

MAE Carveouts Apply. Veridian asserts that the events cited by Penterra fall within the carveouts to the MAE definition set forth in § 1.1 of the SPA. Specifically, Veridian argues that the VRD-4187 safety data reflects "general conditions affecting the biotechnology industry" — on the theory that clinical trial risk is endemic and inherent to any clinical-stage biotech company — and that the MAE carveout for general industry conditions insulates these events from constituting an MAE. The demand letter also makes a passing reference to the pandemic carveout, though the nexus to the present facts is not articulated with specificity.

Durational Significance Not Met. Relying on the Delaware Chancery Court's framework for evaluating MAE claims, Veridian argues that the clinical hold and interim safety data do not threaten the "long-term viability" of VRD-4187 and do not represent a "durationally significant" impairment of Veridian's business. Veridian contends that the clinical hold is a temporary regulatory measure, that the protocol amendment is designed to address the safety concerns, and that the VRD-4187 program remains on a viable path to eventual regulatory approval, albeit with modifications to the development timeline.

Premature Termination. Veridian argues that Penterra's September 30, 2024 termination was premature in light of the December 10, 2024 Outside Date. The demand letter emphasizes that only fifteen days elapsed between the implementation of Protocol v4.0 (August 28, 2024) and Penterra's Deficiency Notice (September 6, 2024), and only approximately one month elapsed between the Deficiency Notice and the Termination Notice. Veridian contends that this was insufficient time for the protocol amendment to demonstrate its effectiveness in mitigating the CRS signal, and that Penterra should have been required to wait until at least the Outside Date before terminating.

Reverse Termination Fee Demanded. The demand letter appears to conflate the reverse termination fee provision with the breach scenario. Veridian asserts that, at a minimum, Penterra owes the reverse termination fee of $45,000,000 (calculated as 5% of the $900,000,000 purchase price). The demand letter does not clearly distinguish between the circumstances triggering the reverse termination fee (which, under the SPA, is limited to a financing failure scenario) and the circumstances of Penterra's MAE-based termination. We address the inapplicability of the reverse termination fee in Section VI below.

D. Relief Demanded

The demand letter sets forth the following demands:

Primary Relief: Specific Performance. Veridian demands that the Court of Chancery order Penterra to specifically perform its obligations under the SPA and consummate the closing of the transaction at the agreed purchase price of $900,000,000.

Alternative Relief: Expectation Damages. In the event that specific performance is unavailable or denied, Veridian demands expectation damages in an amount to be determined by expert valuation, representing the difference between the $900,000,000 purchase price and the current fair market value of Veridian's equity. Veridian reserves all rights to quantify damages at trial and to retain expert witnesses for this purpose.

Reverse Termination Fee. Veridian demands payment of the $45,000,000 reverse termination fee as a minimum recovery, apparently asserting that this amount is owed regardless of the outcome on the breach and MAE questions.

Attorney Fees and Costs. Veridian demands recovery of its attorney fees and costs incurred in connection with the demand letter and any ensuing litigation.

Threatened Filing Date. The demand letter states that if Penterra does not satisfy Veridian's demands by November 14, 2024, Veridian intends to file a complaint in the Court of Chancery of the State of Delaware on or about November 15, 2024.

III. Analysis of Veridian's Breach of Contract Claim

A. Framework: Penterra's Right to Terminate Under SPA § 8.1(d)

The threshold question in this dispute is whether Penterra validly exercised its right to terminate the SPA under § 8.1(d). The resolution of this question determines whether Penterra is liable for breach of contract or whether the termination was rightful and Penterra has no further obligations under the SPA.

Section 8.1(d) of the SPA provides, in relevant part:

This Agreement may be terminated by Buyer at any time prior to the Closing if (i) any of the conditions set forth in Section 7.2 shall have become incapable of being satisfied prior to the Outside Date, and (ii) the failure of such condition to be satisfied is not the result of a breach by Buyer of any representation, warranty, covenant, or agreement of Buyer set forth in this Agreement.

The conditions to Buyer's obligation to close are set forth in Article VII of the SPA. The two conditions relevant to Penterra's termination are:

Section 7.2(a) — Bring-Down of Representations and Warranties. The representations and warranties of the Sellers set forth in this Agreement shall be true and correct in all respects (without giving effect to any materiality or Material Adverse Effect qualifiers therein) as of the Closing Date as though made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 7.2(b) — No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Material Adverse Effect.

Penterra's termination letter, dated September 30, 2024 and delivered to Veridian and the Stockholder Representative by overnight courier, specifically invoked both § 7.2(a) and § 7.2(b). The letter stated that the occurrence of a Material Adverse Effect rendered both conditions incapable of being satisfied prior to the Outside Date and that Penterra was therefore terminating the SPA pursuant to § 8.1(d). The termination was authorized by the Penterra Board of Directors pursuant to a resolution adopted at a special meeting held on September 27, 2024.

Accordingly, Penterra's defense to Veridian's breach of contract claim rests on two essential elements: (1) a Material Adverse Effect occurred within the meaning of SPA § 1.1, and (2) Penterra was not in material breach of its own obligations under the SPA. We analyze each element in detail below.

B. Whether a Material Adverse Effect Occurred

The determination of whether a Material Adverse Effect has occurred is the central and dispositive issue in this dispute. If the Court of Chancery concludes that an MAE occurred, Penterra's termination was valid, and Veridian's breach of contract claim, specific performance claim, and damages claims all fail. If the court concludes that no MAE occurred, Penterra's termination was wrongful, and Penterra faces substantial liability.

1. The SPA Definition (§ 1.1). The MAE definition in § 1.1 of the SPA is a negotiated provision that largely follows market-standard formulations. It provides, in relevant part:

"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 hereby.

Several features of this definition merit emphasis:

First, the standard is both retrospective and prospective. The MAE definition encompasses events that have "had" a material adverse effect as well as events that "would reasonably be expected to have" such an effect. This dual formulation is critical because, as of the September 30 termination date, the full impact of the Marlowe Asset Management-2 data and the FDA partial clinical hold on Veridian's long-term business prospects may not yet have been fully realized. Penterra need not wait for the adverse consequences to fully materialize; it is sufficient that the events "would reasonably be expected to have" a material adverse effect on Veridian's business.

Second, the definition evaluates the impact on Veridian "taken as a whole." This formulation precludes a narrow focus on any single metric or program in isolation and instead requires an assessment of the overall business of the company. However, because Veridian is a clinical-stage company with no revenue, no marketed products, and a pipeline dominated by a single lead asset (VRD-4187), the practical effect of the "taken as a whole" qualifier is limited — a material impairment of VRD-4187 is, for all practical purposes, a material impairment of Veridian.

Third, the definition includes the standard carveouts for (i) general economic conditions, (ii) conditions affecting the biotechnology or pharmaceutical industries generally, (iii) changes in applicable law or GAAP, (iv) acts of war, terrorism, or natural disasters, (v) changes resulting from the announcement or pendency of the Transactions, and (vi) actions taken or omitted to be taken at the written request or with the written consent of Buyer. Each carveout is subject to a disproportionate impact exception, providing that the carveout does not apply to the extent that the relevant event or condition has a disproportionate effect on the Company relative to other companies operating in the biotechnology or pharmaceutical industries. The SPA also includes a specific carveout for pandemics, including COVID-19 and any similar public health emergencies. We analyze the applicability of the carveouts in Section III.C below.

2. Application of Marlowe Asset Management-2 Clinical Data. The clinical data from the Marlowe Asset Management-2 Phase II trial, as presented in the DMC analysis report dated August 14, 2024, constitute the factual foundation for Penterra's MAE determination. The data reveal the following:

Safety Profile — Cytokine Release Syndrome. Grade ≥3 cytokine release syndrome was observed in 23.4% of patients in the VRD-4187 treatment arm (n = 194), compared to 4.1% in the control arm (n = 193). This 19.3 percentage point difference is clinically alarming and represents a safety signal of substantial magnitude. Grade ≥3 CRS encompasses severe, life-threatening, and fatal adverse events, and an incidence rate of 23.4% is far outside the range that would be considered acceptable by regulators, clinicians, or payers for a drug in the therapeutic class under study. For context, the FDA has historically required CRS management protocols for therapies with Grade ≥3 CRS rates as low as 5–10%, and the observed rate here is more than double the typical threshold for heightened regulatory scrutiny.

Treatment-Related Deaths. Seven treatment-related deaths occurred in the VRD-4187 arm (representing 3.6% of the 194 patients enrolled), compared to one treatment-related death in the control arm (0.5% of 193 patients). This seven-fold increase in treatment-related mortality is a profound safety concern. Treatment-related deaths are the most serious category of adverse events in clinical trials, and their occurrence at this frequency creates substantial obstacles to regulatory approval, clinical adoption, and commercial viability. The FDA's issuance of a partial clinical hold in response to these deaths underscores the severity of the signal.

Efficacy — Overall Response Rate. The overall response rate ("ORR") in the VRD-4187 arm was 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58). A p-value of 0.58 is far above any conventional threshold for statistical significance (typically p ≤ 0.05) and indicates that the observed difference in ORR between the treatment and control arms is indistinguishable from random chance. In other words, the interim data provided no evidence that VRD-4187 delivers any meaningful efficacy benefit over the existing standard of care.

Totality of the Clinical Data. The combination of these findings — a materially worse safety profile coupled with no demonstrable efficacy advantage — fundamentally undermines the clinical rationale for VRD-4187's continued development. A drug that is substantially more dangerous than the existing standard of care, yet no more effective, faces enormous obstacles to regulatory approval, favorable labeling, market adoption, and payer reimbursement. Even if the safety signal could theoretically be mitigated through dose modification and prophylactic measures, the efficacy data provide no basis for optimism that such modifications would yield a product with a clinically meaningful benefit-risk profile.

Significance in Context of Veridian's Business. VRD-4187 is not merely one of several pipeline assets; it is the cornerstone of Veridian's entire business and the primary driver of the $900,000,000 enterprise value agreed upon in the SPA. Veridian is a clinical-stage company with $0 in revenue for the fiscal year ended December 31, 2023, and a net loss of $87.3 million for the same period. As of March 31, 2024, Veridian reported cash and cash equivalents of $112.4 million, sufficient to fund approximately 15–18 months of operations at the current burn rate. The Company's entire value proposition — and virtually the entire basis for the negotiated purchase price — rests on the clinical and commercial prospects of its pipeline, principally VRD-4187 in its lead indication. A fundamental impairment of VRD-4187's clinical trajectory is, in substance, a fundamental impairment of Veridian as a going concern.

3. FDA Partial Clinical Hold. The FDA's imposition of a partial clinical hold on VRD-4187 (IND 154832), effective August 22, 2024, is an independent and significant fact supporting Penterra's MAE determination. The hold was imposed in direct response to the seven treatment-related deaths observed in the Marlowe Asset Management-2 trial and the CRS safety signal.

Veridian's characterization of the partial clinical hold as a "routine regulatory mechanism" is misleading. While partial clinical holds are a recognized regulatory tool, they are not routine for promising drug candidates with favorable safety profiles. A partial clinical hold is imposed when the FDA determines that the clinical investigation presents an unreasonable and significant risk to the safety of trial participants. The issuance of a partial clinical hold following seven treatment-related deaths reflects a serious and substantive regulatory concern — not a ministerial or procedural step.

The clinical hold creates multiple layers of regulatory uncertainty, including: (a) whether the Marlowe Asset Management-2 trial can resume enrollment in its current form or at all; (b) whether the FDA will require additional Phase II safety data, a revised clinical protocol, or a new clinical study before permitting advancement to Phase III; (c) the timeline for resolution of the hold, which typically requires the sponsor to submit a complete response addressing the FDA's specific concerns and may involve multiple rounds of correspondence and meetings with the Agency; and (d) the potential impact on the overall regulatory timeline and the cost of any additional required studies. Each of these uncertainties contributes to the durationally significant impairment of Veridian's business prospects and supports the conclusion that an MAE has occurred.

It bears noting that, as of the date of this memorandum, the partial clinical hold remains in effect and Veridian has not publicly reported the submission of a complete response to the FDA's clinical hold letter. The longer the hold remains in effect without resolution, the stronger Penterra's position becomes.

4. Durational Significance Under Delaware Law. The concept of "durational significance" is central to the Delaware framework for evaluating MAE claims. Under the foundational case of Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and the extensive body of Chancery Court precedent that preceded it, a material adverse effect must be measured against the long-term earnings potential of the company, not merely its short-term performance. The relevant inquiry is whether the adverse event or condition substantially threatens the overall earnings potential of the target "in a durationally-significant manner," measured in "years rather than months." See also In re IBP, Inc. S'holders Litig., 789 A.2d 14, 68 (Del. Ch. 2001).

As noted in our prior analysis memoranda dated August 25, 2024 and September 2, 2024, the durational significance standard is demanding and has historically been the principal obstacle to buyer MAE claims. Courts have declined to find MAE where the adverse events were short-term financial underperformance, cyclical industry downturns, or temporary operational disruptions. The standard is designed to protect sellers from buyers who experience post-signing "buyer's remorse" and seek to escape a transaction on the basis of transitory setbacks.

Penterra's Strongest Argument. Penterra's case for durational significance rests not on a temporary financial downturn but on a fundamental impairment of the clinical and commercial trajectory of Veridian's lead asset — VRD-4187. The safety data and lack of efficacy signal are not cyclical or temporary conditions; they are objective clinical facts that permanently alter the risk-benefit calculus for VRD-4187. Specifically:

(a) The safety profile — 23.4% Grade ≥3 CRS and seven treatment-related deaths — is a permanent feature of the clinical record for VRD-4187 at the studied dose. Even if the dose reduction and tocilizumab prophylaxis implemented in Protocol v4.0 mitigate the CRS signal going forward, the historical data will remain part of the safety database and will be scrutinized by the FDA, the European Medicines Agency, and other regulators in any future marketing authorization application.

(b) The non-significant ORR (p = 0.58) means that, as of the last interim analysis, VRD-4187 has failed to demonstrate any meaningful efficacy advantage over the standard of care. If the drug does not work better than what is already available, its commercial prospects are severely limited even if the safety concerns are resolved.

(c) The combination of these factors means that VRD-4187's development timeline — even under an optimistic scenario — will be extended by multiple years. The clinical hold must be resolved, additional safety data must be generated at the revised dose, the protocol-amended cohort must be enrolled and followed, and the FDA may require a new Phase II study or a Phase II/III bridging study before permitting Phase III enrollment. This multi-year delay directly impacts Veridian's long-term earnings potential and is precisely the type of durationally significant impairment recognized by Delaware courts.

(d) There is a non-trivial possibility that VRD-4187 may ultimately prove unapprovable if the dose reduction eliminates or substantially reduces whatever efficacy the drug may have, or if the revised safety profile remains unacceptable to regulators.

Risk Assessment. We assess this as Penterra's strongest argument, and the one most likely to persuade the Chancery Court. The factual record here is substantially stronger than the typical buyer MAE claim, which usually relies on financial underperformance or market-driven conditions. The Marlowe Asset Management-2 data present a drug-specific, scientifically grounded basis for concluding that VRD-4187's commercial trajectory has been fundamentally and durably impaired.

However, we must candidly acknowledge the risks. The Delaware courts require a "very high threshold" for MAE findings, and the burden is squarely on the buyer. See Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027, at *34 (Del. Ch. Apr. 29, 2005). Veridian will argue that the dose reduction and prophylactic measures constitute a viable path forward, that the clinical hold is temporary and resolvable, and that Penterra has failed to demonstrate a permanent or durationally significant impairment. The court may credit expert testimony that the VRD-4187 program remains salvageable and that the interim data do not represent a definitive failure. Penterra must be prepared to present compelling scientific and clinical evidence — through expert testimony and documentary support — that the Marlowe Asset Management-2 data are not merely a temporary setback but a qualitative and durationally significant impairment of Veridian's business.

C. Analysis of Veridian's MAE Carveout Arguments

1. General Industry Conditions Carveout. Veridian's demand letter argues that the clinical trial results for VRD-4187 fall within the MAE carveout for "conditions affecting the biotechnology or pharmaceutical industries generally." The theory appears to be that clinical trial risk is inherent and endemic to the biotechnology industry, and that the failure of a clinical-stage compound to demonstrate an adequate safety or efficacy profile is simply a manifestation of the general risk environment in which all biotechnology companies operate.

Penterra's Counter-Argument. This argument is meritless. The general industry conditions carveout is designed to insulate sellers from MAE claims based on macroeconomic or industry-wide developments that affect all companies in the relevant sector — such as a general decline in biotechnology stock prices, a tightening of the FDA's regulatory posture across the industry, or a broad market downturn affecting biotech valuations. The carveout does not, and was never intended to, immunize a specific company's clinical trial results for a specific drug candidate from constituting a company-specific MAE.

The Marlowe Asset Management-2 data — including the 23.4% Grade ≥3 CRS rate, the seven treatment-related deaths, and the non-significant ORR — are clinical facts specific to VRD-4187 and specific to Veridian. They do not reflect any general condition affecting the biotechnology industry as a whole. A Phase II safety failure of a specific company's lead compound is the paradigmatic example of a company-specific event that is not covered by a general industry conditions carveout.

Assessment. This is a strong position for Penterra. Delaware courts have consistently interpreted general industry carveouts narrowly, and there is no precedent supporting the proposition that a company-specific clinical trial failure constitutes a "general industry condition." We are confident that this argument will not survive scrutiny.

2. Pandemic Carveout. The SPA includes a specific carveout for pandemics, including COVID-19 and any similar public health emergencies. The demand letter makes a passing reference to this carveout, but does not articulate any specific causal nexus between the COVID-19 pandemic (or any other pandemic or public health emergency) and the VRD-4187 safety data.

Assessment. The pandemic carveout is inapplicable to the present circumstances. The Marlowe Asset Management-2 trial was conducted during a period in which COVID-19 was no longer producing the types of systemic disruptions that the pandemic carveout was designed to address. More fundamentally, the safety data — CRS events, treatment-related deaths, and the lack of an efficacy signal — arose from the pharmacological effects of VRD-4187 itself, not from any pandemic or public health emergency. There is no factual basis for invoking the pandemic carveout, and we do not expect Veridian to press this argument in litigation.

3. Disproportionate Impact Exception. Even if Veridian could somehow bring the clinical data within one of the MAE carveouts — which, as discussed above, it cannot — the carveouts in the SPA are subject to a disproportionate impact exception. Specifically, carveouts (i) through (vi) do not apply to the extent that the relevant event, change, or condition "has had or would reasonably be expected to have a disproportionate effect on the Company relative to other companies operating in the biotechnology or pharmaceutical industries."

The VRD-4187 safety data is unique to Veridian. No other company in the biotechnology or pharmaceutical industry has experienced the same clinical trial failure; the data is attributable to the specific pharmacology, dosing, and patient population of the Marlowe Asset Management-2 trial. By definition, the disproportionate impact of these events on Veridian — relative to any comparably situated company — is absolute.

Assessment. The disproportionate impact exception provides an additional and independent basis for defeating Veridian's carveout arguments. Even under the most generous reading of the carveouts, the disproportionate impact exception ensures that Veridian cannot use the carveouts as a shield against an MAE determination based on company-specific clinical data.

D. Premature Termination Argument

Veridian's argument that Penterra's termination was premature — having occurred on September 30, 2024, more than two months before the Outside Date of December 10, 2024 — raises an important procedural and contractual question that merits careful analysis.

Contractual Framework. SPA § 8.1(d) permits termination when a closing condition has become "incapable of being satisfied" prior to the Outside Date. The operative question is not whether the condition is currently unsatisfied, but whether it is incapable of being satisfied. This is a forward-looking inquiry that requires an assessment of whether there is any reasonable prospect that the condition could be fulfilled before the Outside Date.

Penterra's Position. Penterra's position is that the occurrence of a material adverse effect is an objective historical fact that cannot be "cured" or reversed. The seven treatment-related deaths in the Marlowe Asset Management-2 trial occurred; the 23.4% Grade ≥3 CRS rate was observed; the ORR failed to achieve statistical significance. These events are permanent features of the clinical record. No amount of additional time — whether two months or twelve months — can undo these facts. The protocol amendments implemented in Protocol v4.0, while they may improve safety outcomes in future cohorts, do not retroactively eliminate the MAE that has already occurred. An MAE is an occurrence, not a condition that can be cured; the bell cannot be un-rung.

Furthermore, even if one were to evaluate whether the protocol amendments might restore the clinical program's viability by the Outside Date, the answer is plainly no. Generating sufficient safety and efficacy data from the revised protocol to demonstrate that the VRD-4187 program has recovered would require enrolling new patients under the amended protocol, treating them for a clinically meaningful period, collecting and analyzing the data, and submitting the results to the FDA as part of a complete response to the clinical hold. This process would take many months — likely well beyond the December 10, 2024 Outside Date — and even then, the results would be uncertain. The condition in § 7.2(b) — that no Material Adverse Effect shall have occurred — is a backward-looking condition that has already failed. No prospective developments can satisfy a condition that is defined by reference to events that have already occurred.

Risk Assessment. We assess this as a moderate risk area. Penterra's legal argument is well-supported: the MAE condition looks backward ("shall have occurred"), and subsequent remedial measures do not undo the occurrence of the MAE. However, Veridian will argue that the court should evaluate whether the totality of Veridian's business prospects — including the potential for the protocol amendment to succeed — warranted a determination that the MAE was not durationally significant. The court may consider the timing of the termination as relevant to the durational significance analysis, reasoning that a buyer who terminates quickly after adverse news may not have given sufficient time for the long-term implications to become clear.

To mitigate this risk, Penterra should emphasize that the Deficiency Notice of September 6, 2024 provided Veridian with notice of the alleged MAE and an opportunity to address the concerns, and that the termination on September 30, 2024 followed a 24-day period during which no material progress was made in resolving the clinical hold or generating data to support the viability of the protocol amendment. Penterra should also emphasize that the Board engaged in a thorough and deliberative process, receiving advice from scientific advisors and outside counsel, before authorizing the termination.

E. Penterra's Compliance with SPA — No Material Breach by Buyer

SPA § 8.1(d) conditions the Buyer's termination right on the requirement that "the failure of such condition to be satisfied is not the result of a breach by Buyer of any representation, warranty, covenant, or agreement of Buyer set forth in this Agreement." Veridian may attempt to argue that Penterra was itself in material breach of the SPA, thereby forfeiting its right to terminate.

Potential Veridian Arguments. Veridian could contend that Penterra failed to use "reasonable best efforts" to consummate the transaction, as required by SPA § 6.4, or that Penterra acted in bad faith by pursuing a termination strategy rather than working cooperatively to resolve the clinical hold and advance the closing. Veridian might also argue that Penterra's Deficiency Notice was deficient in form or substance, or that Penterra's communications with Veridian during the post-signing period demonstrated a lack of commitment to consummating the transaction.

Penterra's Position. Penterra fully complied with its covenants and obligations under the SPA at all times. Penterra cooperated with Veridian throughout the post-signing period, participated in joint integration planning, supported the HSR filing process, and maintained the committed financing necessary to fund the purchase price. The Deficiency Notice dated September 6, 2024 was delivered in proper form and in compliance with the notice provisions of SPA § 10.1. The Termination Notice of September 30, 2024 was authorized by the Penterra Board of Directors pursuant to a formal resolution adopted at a special meeting on September 27, 2024 and was delivered in accordance with the SPA's termination procedures. Penterra's decision to terminate was a good-faith exercise of its contractual right, taken in response to material developments that fundamentally impaired the value of the target company.

The "reasonable best efforts" covenant does not require the Buyer to close a transaction in circumstances where the Buyer's closing conditions have failed due to the occurrence of an MAE. A buyer's covenant to use reasonable best efforts to consummate the closing presupposes that the closing conditions will be satisfied; it does not obligate the buyer to waive failed conditions or to close notwithstanding an MAE.

Assessment. We assess the risk that the court will find Penterra in material breach of the SPA as low. Penterra's conduct throughout the post-signing period was consistent with its obligations, and the termination was a properly authorized exercise of a contractual right. There is no factual basis for a finding of bad faith or breach of the reasonable best efforts covenant.

IV. Analysis of Veridian's Specific Performance Claim

A. Contractual Right Under SPA § 10.12

Section 10.12 of the SPA provides a negotiated specific performance remedy for the Sellers. The relevant language reads:

The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Each party shall be entitled to seek specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, in addition to any other remedy to which such party may be entitled at law or in equity; provided, however, that the Sellers shall be entitled to specific performance to compel the Buyer to consummate the Closing if (i) all of the conditions set forth in Sections 7.1 and 7.2 have been satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing, each of which is capable of being satisfied at the Closing) and (ii) the Buyer fails to consummate the Closing within five (5) Business Days after the date on which the Closing should have occurred pursuant to Section 2.2.

The critical prerequisite to specific performance is set forth in clause (i): the Sellers' right to compel closing exists only "if all of the conditions set forth in Sections 7.1 and 7.2 have been satisfied or waived." This includes the conditions in §§ 7.2(a) and 7.2(b) — the bring-down of representations to an MAE-qualified standard and the no-MAE condition, respectively.

Penterra's Defense. Penterra's defense to specific performance is straightforward: the closing conditions in §§ 7.2(a) and 7.2(b) are not satisfied because a Material Adverse Effect has occurred. If the Buyer's closing conditions have not been satisfied, the contractual prerequisite for specific performance under § 10.12 has not been met, and the Sellers have no right to compel closing. Specific performance is an equitable remedy that requires the requesting party to demonstrate its entitlement to the relief sought, and here, Veridian's entitlement is contingent upon the satisfaction of the very conditions that Penterra asserts have failed.

B. Delaware Law on Specific Performance

Delaware courts have historically been receptive to specific performance claims in the M&A context. The Court of Chancery has recognized that acquisition transactions — particularly those involving unique assets such as operating businesses or, as here, pharmaceutical pipelines — are appropriate candidates for specific performance because monetary damages are inherently difficult to calculate and may not fully compensate the injured party. See, e.g., Genworth Fin., Inc. v. China Oceanwide Holdings Grp. Co., 2021 WL 4452338 (Del. Ch. Sept. 29, 2021); AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929 (Del. Ch. Nov. 30, 2020), aff'd, 268 A.3d 198 (Del. 2021).

However, specific performance is not automatic. The court will evaluate whether the plaintiff has satisfied the prerequisites for equitable relief, including demonstrating that all conditions precedent to the defendant's obligation have been met or waived. As the AB Stable court made clear, specific performance is available only where the closing conditions are satisfied; a buyer cannot be compelled to close a transaction where the buyer's closing conditions have legitimately failed.

Time Dimension. An additional practical consideration relates to the Outside Date. The SPA provides that the Outside Date for consummation of the closing is December 10, 2024. Under SPA § 8.1(b), either party may terminate the Agreement if the Closing has not occurred on or before the Outside Date, provided that the terminating party's breach did not cause the failure to close by the Outside Date. If Veridian files its complaint on or about November 15, 2024, and the Court of Chancery proceeds on an expedited basis, it is uncertain whether a trial and decision could be rendered before December 10, 2024. If the Outside Date passes without a closing, Penterra could independently terminate the SPA under § 8.1(b), potentially mooting the specific performance claim — unless the court enters an order enjoining Penterra from invoking the Outside Date termination or tolling the Outside Date pending resolution of the dispute.

Veridian is likely to seek such injunctive relief as part of its complaint or through a contemporaneous motion for a temporary restraining order or preliminary injunction. Calderwood & Harkness should be prepared to oppose any such motion, arguing that the court should not enjoin Penterra from exercising its contractual termination right under § 8.1(b) absent a clear showing that Penterra's prior termination under § 8.1(d) was wrongful.

C. Risk Assessment for Specific Performance

The risk assessment for specific performance flows directly from the MAE determination:

If the Court Concludes No MAE Occurred. If the Chancery Court determines that no Material Adverse Effect occurred, there is a high risk (estimated at 80% or greater) that the court will order specific performance compelling Penterra to close the $900,000,000 transaction. The transaction involves the acquisition of a unique asset — a clinical-stage pharmaceutical pipeline — that is not readily replaceable in the marketplace, and monetary damages would be inherently difficult to calculate with precision. Delaware courts in this scenario strongly favor specific performance as the appropriate remedy.

If the Court Concludes an MAE Occurred. If the Chancery Court determines that a Material Adverse Effect has occurred, specific performance will be denied because the contractual prerequisite — satisfaction of all closing conditions — has not been met. Penterra's termination will be validated, and the SPA will be at an end.

The Dispositive Issue. The entire case therefore turns on the MAE determination. The specific performance claim is not an independent cause of action with distinct elements; it is a remedy that becomes available or unavailable based on the resolution of the breach of contract claim. Calderwood & Harkness's litigation strategy should be structured accordingly, with the MAE defense as the central focus of all discovery, expert testimony, briefing, and trial presentation.

V. Analysis of Veridian's Expectation Damages Claim

A. Measure of Damages

In the alternative to specific performance, Veridian will seek expectation damages. Under Delaware law, expectation damages for breach of a stock purchase agreement are measured by the benefit of the bargain — i.e., the difference between the contract price and the fair market value of the seller's equity at the time of the breach. See, e.g., SARN Dev., LP v. Nat'l Holdings Corp., 2014 WL 6900041 (Del. Ch. Dec. 8, 2014).

Veridian will seek expectation damages equal to the difference between the $900,000,000 purchase price and the current fair market value of Veridian's equity following the termination of the SPA and the Marlowe Asset Management-2 clinical data. Veridian's FY2023 revenue was $0; its net loss was $87.3 million; its cash and cash equivalents were approximately $112.4 million as of March 31, 2024. As a clinical-stage company with no marketed products and a lead asset under a partial clinical hold, Veridian's post-termination fair market value is likely substantially below the $900,000,000 purchase price.

Establishing the current fair market value of Veridian will require expert valuation testimony. Veridian will likely retain a valuation expert who will seek to minimize the current fair market value in order to maximize the expectation damages claim. We anticipate that Veridian will argue that its current fair market value is in the range of $200–$400 million (based on the remaining cash, the value of earlier-stage pipeline assets such as VRD-6201 and VRD-3049, and a substantially impaired residual value for VRD-4187), yielding an expectation damages claim in the range of $500–$700 million.

Penterra's Primary Defense. If the court determines that an MAE occurred, Penterra is not liable for breach and no damages are owed. This is the threshold defense, and it eliminates the damages claim entirely if successful.

Penterra's Secondary Defenses. If the court were to determine that no MAE occurred and that Penterra breached the SPA, Penterra would challenge the damages calculation on multiple grounds. Penterra would retain its own valuation expert to contest Veridian's valuation methodology and assumptions, including challenging any attempt by Veridian to attribute value declines to the termination itself rather than to the underlying clinical data. Penterra would argue that Veridian's current fair market value should reflect the full impact of the VRD-4187 clinical data (regardless of the MAE determination), and that any premium attributable to the acquisition itself is not a compensable element of expectation damages.

B. Mitigation. Under Delaware law, a party seeking damages for breach of contract has a duty to take reasonable steps to mitigate its damages. See, e.g., Paul v. Morriven Ashford CPAs LLP & Touche, LLP, 974 A.2d 140, 147 (Del. 2009). Penterra may assert, as an affirmative defense, that Veridian failed to mitigate its damages by, among other things, failing to seek alternative acquirers or strategic partners, failing to pursue alternative financing sources, or failing to take other reasonable steps to preserve the value of its business following the termination.

Assessment. Mitigation is a valid affirmative defense, but its practical impact may be limited. The court will evaluate the reasonableness of Veridian's post-termination conduct, including whether Veridian conducted a post-termination market check, whether potential alternative acquirers were available at a price above Veridian's standalone value, and whether Veridian took reasonable steps to advance the VRD-4187 program (including resolution of the clinical hold). If Veridian can demonstrate that it took reasonable steps but was unable to find an alternative transaction at a comparable price — a likely scenario given the VRD-4187 data — the mitigation defense may have limited effect. Nonetheless, the defense should be pleaded and pursued in discovery to preserve Penterra's rights.

VI. Analysis of Reverse Termination Fee Demand ($45,000,000)

A. SPA Structure for Reverse Termination Fee

The SPA includes a reverse termination fee provision (§ 8.3(b)) pursuant to which Penterra, as Buyer, is obligated to pay a fee of $45,000,000 to the Stockholder Representative (for distribution to the Sellers) upon the occurrence of certain specified events. The reverse termination fee was calculated at 5% of the $900,000,000 purchase price, consistent with prevailing market practice for reverse termination fees in life sciences transactions.

The critical question is the scope of the triggering events. Under the SPA, the reverse termination fee is triggered only in the event of a financing failure — specifically, where the Buyer fails to consummate the Closing solely because the Buyer's committed debt financing is not funded by the lenders on the terms and conditions set forth in the Commitment Letter, and such failure is not the result of a failure of the conditions set forth in Sections 7.1 and 7.2 (other than the financing-related conditions). In other words, the reverse termination fee is a limited remedy designed to compensate the Sellers in the specific circumstance where the Buyer has the contractual obligation to close but cannot do so because its financing has fallen through — not in the circumstance where the Buyer terminates the SPA based on a legitimate failure of closing conditions.

B. Inapplicability to Present Circumstances

The reverse termination fee is plainly inapplicable to the present circumstances. Penterra's termination was based on the occurrence of a Material Adverse Effect and the resulting failure of Buyer's closing conditions under §§ 7.2(a) and 7.2(b), as provided by the termination right in § 8.1(d). The termination had nothing to do with financing.

Indeed, financing was never an issue. Penterra had in place a $500,000,000 committed term loan facility from Summit Ridge Capital Partners, LP and Ironclad Trust Company, N.A. (Commitment Letter Reference No. CL-2024-PPCA-0607), which remained available and fully committed at the time of termination. In addition, Penterra maintained approximately $2.1 billion in total cash and cash equivalents as of the end of Q2 2024, of which approximately $400,000,000 was designated for the cash portion of the acquisition funding. At no point during the post-signing period did Penterra experience or anticipate any financing shortfall, and at no point did Summit Ridge or Ironclad indicate any unwillingness to fund the committed facility.

Penterra separately notified Ironclad Trust Company, N.A. of the termination of the Commitment Letter by letter dated October 1, 2024, in accordance with the notice provisions of the Commitment Letter. This notification was a ministerial step following the valid termination of the SPA and does not give rise to any liability under the reverse termination fee provision.

As detailed in our analysis memorandum dated October 10, 2024 (Reverse Termination Fee — Inapplicability Analysis), the express language of § 8.3(b) limits the reverse termination fee to financing failure scenarios and does not extend to MAE-based terminations. Veridian's demand for the reverse termination fee conflates two entirely distinct contractual provisions and factual scenarios.

C. Assessment. We assess Penterra's position on the reverse termination fee demand as strong. The contractual language is clear and unambiguous: the reverse termination fee is triggered only by a financing failure, and no financing failure occurred. Veridian's demand for the $45,000,000 reverse termination fee is meritless on both the facts and the contractual language, and we are confident that it will not withstand judicial scrutiny.

We recommend that Penterra decline Veridian's demand for the reverse termination fee and, in any litigation, seek an early dispositive ruling on this issue to narrow the scope of the case and eliminate this distraction.

VII. Procedural Considerations

A. Forum and Governing Law

SPA § 10.6 designates the Court of Chancery of the State of Delaware as the exclusive forum for any action, suit, or proceeding arising out of or relating to the SPA or the transactions contemplated thereby. Section 10.5 provides that the SPA is governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts-of-law principles. Both parties have irrevocably submitted to the exclusive jurisdiction of the Court of Chancery and have waived any objection to venue.

The anticipated case caption is: Veridian Biosciences, Inc. v. Penterra Pharmaceuticals Corp., C.A. No. 2024-_ (Del. Ch.). We expect Veridian to file its complaint on or about November 15, 2024, consistent with the deadline stated in the demand letter.

Calderwood & Harkness maintains a well-established practice before the Court of Chancery and is prepared to handle all aspects of the litigation in that forum. We will associate local Delaware counsel as appropriate to comply with the Court of Chancery's rules regarding admission.

B. Expedited Proceedings

Given the time-sensitivity of this dispute — the Outside Date of December 10, 2024 is less than two months away — we anticipate that Veridian will move for expedited proceedings contemporaneously with the filing of its complaint or shortly thereafter. The Court of Chancery has well-established procedures for expedited proceedings in M&A disputes and has demonstrated a willingness to accommodate compressed schedules in cases involving pending or recently terminated transactions.

Veridian may also seek a preliminary injunction or temporary restraining order to prevent Penterra from invoking the Outside Date termination under § 8.1(b) or to toll the Outside Date pending resolution of the dispute. If suc

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege, the work product doctrine, and all other applicable privileges. It is intended solely for the use of the addressees identified herein and may not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
CALDERWOOD & HARKNESS LLP 200 Park Avenue, 42nd Floor New York, NY 10166
MEMORANDUM
TO:
Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp.
Dr. Anand Rajagopal, Chief Executive Officer, Penterra Pharmaceuticals Corp.
Natalie Reiner, SVP, 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: October 18, 2024
RE: Analysis of Veridian Biosciences, Inc. Demand Letter Dated October 15, 2024 and Assessment of Litigation Threats
MATTER NO.: 1018-00008
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I. Executive Summary
On October 15, 2024, the law firm of Zalcourt Archer & Cole LLP, acting through its lead partner Rebecca Whitmore, delivered a formal demand letter to Penterra Pharmaceuticals Corp. ("Penterra" or the "Company") on behalf of Veridian Biosciences, Inc. ("Veridian") and the Stockholder Representative, David Ng of Crestline Ventures, LP. The demand letter asserts that Penterra's termination of the Stock Purchase Agreement dated June 10, 2024 (the "SPA") on September 30, 2024 was wrongful and constitutes a breach of contract, giving rise to substantial claims for damages and equitable relief.
Veridian threatens to file a complaint in the Court of Chancery of the State of Delaware — the exclusive forum designated under SPA § 10.6 — on or about November 15, 2024. The complaint, as described in the demand letter, would seek (a) specific performance compelling Penterra to close the $900,000,000 stock purchase transaction on the terms set forth in the SPA, and (b) in the alternative, expectation damages for breach of contract, measured as the difference between the agreed purchase price and the current fair market value of Veridian's equity. Veridian also asserts that, at a minimum, Penterra owes a reverse termination fee of $45,000,000 under the SPA.
This memorandum provides a comprehensive analysis of each of Veridian's asserted claims and legal theories, evaluates the merits and risks associated with Penterra's position, identifies the key legal and factual issues that will determine the outcome of any litigation, and sets forth recommended defensive strategies for the Penterra legal team and Board of Directors.
Our overall assessment is as follows: Penterra holds a defensible but not risk-free position. The termination under SPA § 8.1(d) was justified by the occurrence of a material adverse effect ("MAE"), grounded in the catastrophic Marlowe Asset Management-2 Phase II interim safety data, the absence of any statistically significant efficacy benefit, and the FDA's imposition of a partial clinical hold on VRD-4187. However, Delaware courts apply a demanding standard to buyer MAE claims — historically, the burden on the buyer is heavy and few buyers have prevailed on MAE defenses. The sole successful precedent is Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and the factual circumstances here, while strong, are distinguishable in certain respects. Veridian will aggressively contest the MAE determination, and the outcome will depend heavily on the Chancery Court's assessment of the durational significance of the VRD-4187 clinical data and the weight given to the FDA partial clinical hold.
We estimate the probability that Penterra's MAE defense prevails at approximately 55–65%, representing a material improvement over the historical buyer baseline but still reflecting genuine uncertainty. The sections that follow elaborate on each dimension of the analysis.
II. Summary of Veridian's Demand Letter
A. Factual Allegations in the Demand Letter
The demand letter from Zalcourt Archer & Cole LLP provides a detailed factual narrative framed from Veridian's perspective. We summarize the principal factual allegations below, together with our initial observations regarding their accuracy and significance.
Transaction Overview. The demand letter recites that on June 10, 2024, Penterra and Veridian, together with the Stockholder Representative, entered into the SPA pursuant to which Penterra agreed to acquire 100% of the outstanding capital stock of Veridian for an aggregate purchase price of $900,000,000 in cash. The SPA was the product of an extensive negotiation process that began in March 2024 and involved multiple rounds of due diligence, including Penterra's review of VRD-4187 clinical data then available. These basic facts are accurate and not in dispute.
Stockholder Consent. Veridian states that the Veridian stockholder written consent was obtained on June 14, 2024, with greater than 90% approval by outstanding stockholders. The demand letter specifically identifies the principal stockholders who executed the written consent, including Crestline Ventures, LP (holding approximately 28.3% of outstanding shares), Boreal Health Partners Fund III, LP (holding approximately 19.7%), and Apex Growth Equity Fund II, LP (holding approximately 14.1%). The remaining consenting stockholders included a number of smaller institutional investors and individual founders. This factual representation is consistent with the stockholder consent documentation delivered to Penterra as a condition under the SPA and is not in dispute.
Regulatory Clearance. The demand letter notes that HSR early termination was granted on May 20, 2024, satisfying the regulatory condition set forth in SPA § 7.1(a). This fact is accurate. The Federal Trade Commission and the Department of Justice Antitrust Division raised no competitive concerns regarding the proposed acquisition, reflecting the complementary nature of the companies' respective pipelines and the absence of any product market overlap. The regulatory condition was fully satisfied well in advance of the anticipated closing date.
Pre-Closing Conditions. Veridian asserts that all pre-closing conditions within Veridian's control were satisfied or remained capable of being satisfied before the Outside Date of December 10, 2024. This assertion is contested. While certain ministerial and administrative conditions were satisfied or in the process of being satisfied, the critical conditions at issue in this dispute — the bring-down of Veridian's representations and warranties to an MAE-qualified standard under § 7.2(a), and the no-MAE condition under § 7.2(b) — are the very conditions that Penterra asserts have failed. Veridian's characterization of these conditions as "capable of being satisfied" is the central factual and legal dispute.
Marlowe Asset Management-2 Phase II Interim Data. The demand letter characterizes the Marlowe Asset Management-2 Phase II interim data, as analyzed by the Data Monitoring Committee ("DMC") on August 14, 2024, as "preliminary" and "subject to dose modification and protocol amendment." Veridian notes that Protocol v4.0 was implemented on August 28, 2024, incorporating a dose reduction from 1.5 mg/kg to 0.75 mg/kg and mandatory tocilizumab prophylaxis to address the cytokine release syndrome ("CRS") signal. Veridian characterizes these modifications as routine clinical trial management responses that are expected to resolve the safety concerns observed in the interim data. We address the substance of this characterization in detail in Section III.B below.
FDA Partial Clinical Hold. Veridian contends that the FDA's imposition of a partial clinical hold on VRD-4187 (IND 154832), effective August 22, 2024, is "a routine regulatory mechanism" that "does not permanently impair the VRD-4187 program." The demand letter emphasizes that partial clinical holds — as distinguished from full clinical holds — permit ongoing treatment of currently enrolled patients while pausing new enrollment, and that such holds are frequently resolved through the submission of a complete response to the FDA's clinical hold letter. Veridian characterizes the hold as a temporary and fully addressable regulatory step. We analyze this contention in Section III.B.3 below.
Deficiency Notice and Termination. The demand letter asserts that Penterra sent a "premature" Deficiency Notice on September 6, 2024 — just fifteen days after the implementation of Protocol v4.0 — and subsequently terminated the SPA on September 30, 2024. Veridian emphasizes that the termination occurred more than two months before the Outside Date of December 10, 2024, and contends that Penterra did not provide Veridian adequate time to cure the alleged deficiency, resolve the clinical hold, or demonstrate that the protocol amendment would address the safety signal. Veridian characterizes the termination as "precipitous" and motivated by "buyer's remorse" rather than a genuine failure of closing conditions.
B. Legal Claims Asserted
The demand letter articulates three principal legal claims that Veridian intends to assert in litigation:
1. Breach of Contract (SPA). Veridian's primary claim is that Penterra wrongfully terminated the SPA under § 8.1(d) because no material adverse effect occurred within the meaning of the SPA's MAE definition (§ 1.1). Veridian contends that the Buyer's closing conditions under §§ 7.2(a) and 7.2(b) remained satisfied or, at a minimum, remained capable of being satisfied prior to the Outside Date of December 10, 2024. By terminating the SPA in the absence of a valid termination right, Veridian asserts, Penterra breached its obligation to consummate the transaction contemplated by the SPA.
2. Specific Performance (SPA § 10.12). Veridian invokes SPA § 10.12, which expressly grants the Sellers the right to seek specific performance to compel the Buyer to consummate the closing of the transaction if all closing conditions have been satisfied or waived. Veridian argues that all closing conditions were in fact satisfied (or capable of satisfaction), and that the Court of Chancery should order Penterra to close the transaction at the $900,000,000 purchase price, fund the aggregate consideration, and take all actions necessary to consummate the closing.
3. Alternative: Expectation Damages. If specific performance is unavailable or impracticable, Veridian claims entitlement to expectation damages — measured as the difference between the $900,000,000 purchase price and the current fair market value of Veridian's equity. Veridian asserts that its equity value has been "substantially diminished" as a direct and proximate result of the failed transaction and the resulting market uncertainty, and reserves the right to retain expert witnesses to quantify its damages at trial. The demand letter does not specify a precise damages figure but implies that the magnitude of the claim could reach hundreds of millions of dollars.
C. Veridian's Specific Arguments
Beyond the broad legal claims, the demand letter advances several specific arguments that we anticipate will form the core of Veridian's litigation strategy. We summarize each below and provide our analysis in the substantive sections that follow.
No MAE Occurred. Veridian contends that the Marlowe Asset Management-2 clinical trial results are "interim" and "not final," and that the safety signal observed in the DMC analysis is "manageable through dose modification" — specifically, the dose reduction from 1.5 mg/kg to 0.75 mg/kg and the addition of mandatory tocilizumab prophylaxis as implemented in Protocol v4.0. Veridian further asserts that clinical-stage biotechnology companies "routinely encounter adverse safety data" during the course of clinical development without such data constituting a material adverse effect on the business of the company. Veridian characterizes Penterra's MAE determination as an overreaction to preliminary data that is subject to revision and improvement through standard clinical trial management.
MAE Carveouts Apply. Veridian asserts that the events cited by Penterra fall within the carveouts to the MAE definition set forth in § 1.1 of the SPA. Specifically, Veridian argues that the VRD-4187 safety data reflects "general conditions affecting the biotechnology industry" — on the theory that clinical trial risk is endemic and inherent to any clinical-stage biotech company — and that the MAE carveout for general industry conditions insulates these events from constituting an MAE. The demand letter also makes a passing reference to the pandemic carveout, though the nexus to the present facts is not articulated with specificity.
Durational Significance Not Met. Relying on the Delaware Chancery Court's framework for evaluating MAE claims, Veridian argues that the clinical hold and interim safety data do not threaten the "long-term viability" of VRD-4187 and do not represent a "durationally significant" impairment of Veridian's business. Veridian contends that the clinical hold is a temporary regulatory measure, that the protocol amendment is designed to address the safety concerns, and that the VRD-4187 program remains on a viable path to eventual regulatory approval, albeit with modifications to the development timeline.
Premature Termination. Veridian argues that Penterra's September 30, 2024 termination was premature in light of the December 10, 2024 Outside Date. The demand letter emphasizes that only fifteen days elapsed between the implementation of Protocol v4.0 (August 28, 2024) and Penterra's Deficiency Notice (September 6, 2024), and only approximately one month elapsed between the Deficiency Notice and the Termination Notice. Veridian contends that this was insufficient time for the protocol amendment to demonstrate its effectiveness in mitigating the CRS signal, and that Penterra should have been required to wait until at least the Outside Date before terminating.
Reverse Termination Fee Demanded. The demand letter appears to conflate the reverse termination fee provision with the breach scenario. Veridian asserts that, at a minimum, Penterra owes the reverse termination fee of $45,000,000 (calculated as 5% of the $900,000,000 purchase price). The demand letter does not clearly distinguish between the circumstances triggering the reverse termination fee (which, under the SPA, is limited to a financing failure scenario) and the circumstances of Penterra's MAE-based termination. We address the inapplicability of the reverse termination fee in Section VI below.
D. Relief Demanded
The demand letter sets forth the following demands:
Primary Relief: Specific Performance. Veridian demands that the Court of Chancery order Penterra to specifically perform its obligations under the SPA and consummate the closing of the transaction at the agreed purchase price of $900,000,000.
Alternative Relief: Expectation Damages. In the event that specific performance is unavailable or denied, Veridian demands expectation damages in an amount to be determined by expert valuation, representing the difference between the $900,000,000 purchase price and the current fair market value of Veridian's equity. Veridian reserves all rights to quantify damages at trial and to retain expert witnesses for this purpose.
Reverse Termination Fee. Veridian demands payment of the $45,000,000 reverse termination fee as a minimum recovery, apparently asserting that this amount is owed regardless of the outcome on the breach and MAE questions.
Attorney Fees and Costs. Veridian demands recovery of its attorney fees and costs incurred in connection with the demand letter and any ensuing litigation.
Threatened Filing Date. The demand letter states that if Penterra does not satisfy Veridian's demands by November 14, 2024, Veridian intends to file a complaint in the Court of Chancery of the State of Delaware on or about November 15, 2024.
III. Analysis of Veridian's Breach of Contract Claim
A. Framework: Penterra's Right to Terminate Under SPA § 8.1(d)
The threshold question in this dispute is whether Penterra validly exercised its right to terminate the SPA under § 8.1(d). The resolution of this question determines whether Penterra is liable for breach of contract or whether the termination was rightful and Penterra has no further obligations under the SPA.
Section 8.1(d) of the SPA provides, in relevant part:
This Agreement may be terminated by Buyer at any time prior to the Closing if (i) any of the conditions set forth in Section 7.2 shall have become incapable of being satisfied prior to the Outside Date, and (ii) the failure of such condition to be satisfied is not the result of a breach by Buyer of any representation, warranty, covenant, or agreement of Buyer set forth in this Agreement.
The conditions to Buyer's obligation to close are set forth in Article VII of the SPA. The two conditions relevant to Penterra's termination are:
Section 7.2(a) — Bring-Down of Representations and Warranties. The representations and warranties of the Sellers set forth in this Agreement shall be true and correct in all respects (without giving effect to any materiality or Material Adverse Effect qualifiers therein) as of the Closing Date as though made on and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 7.2(b) — No Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Material Adverse Effect.
Penterra's termination letter, dated September 30, 2024 and delivered to Veridian and the Stockholder Representative by overnight courier, specifically invoked both § 7.2(a) and § 7.2(b). The letter stated that the occurrence of a Material Adverse Effect rendered both conditions incapable of being satisfied prior to the Outside Date and that Penterra was therefore terminating the SPA pursuant to § 8.1(d). The termination was authorized by the Penterra Board of Directors pursuant to a resolution adopted at a special meeting held on September 27, 2024.
Accordingly, Penterra's defense to Veridian's breach of contract claim rests on two essential elements: (1) a Material Adverse Effect occurred within the meaning of SPA § 1.1, and (2) Penterra was not in material breach of its own obligations under the SPA. We analyze each element in detail below.
B. Whether a Material Adverse Effect Occurred
The determination of whether a Material Adverse Effect has occurred is the central and dispositive issue in this dispute. If the Court of Chancery concludes that an MAE occurred, Penterra's termination was valid, and Veridian's breach of contract claim, specific performance claim, and damages claims all fail. If the court concludes that no MAE occurred, Penterra's termination was wrongful, and Penterra faces substantial liability.
1. The SPA Definition (§ 1.1). The MAE definition in § 1.1 of the SPA is a negotiated provision that largely follows market-standard formulations. It provides, in relevant part:
"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 hereby.
Several features of this definition merit emphasis:
First, the standard is both retrospective and prospective. The MAE definition encompasses events that have "had" a material adverse effect as well as events that "would reasonably be expected to have" such an effect. This dual formulation is critical because, as of the September 30 termination date, the full impact of the Marlowe Asset Management-2 data and the FDA partial clinical hold on Veridian's long-term business prospects may not yet have been fully realized. Penterra need not wait for the adverse consequences to fully materialize; it is sufficient that the events "would reasonably be expected to have" a material adverse effect on Veridian's business.
Second, the definition evaluates the impact on Veridian "taken as a whole." This formulation precludes a narrow focus on any single metric or program in isolation and instead requires an assessment of the overall business of the company. However, because Veridian is a clinical-stage company with no revenue, no marketed products, and a pipeline dominated by a single lead asset (VRD-4187), the practical effect of the "taken as a whole" qualifier is limited — a material impairment of VRD-4187 is, for all practical purposes, a material impairment of Veridian.
Third, the definition includes the standard carveouts for (i) general economic conditions, (ii) conditions affecting the biotechnology or pharmaceutical industries generally, (iii) changes in applicable law or GAAP, (iv) acts of war, terrorism, or natural disasters, (v) changes resulting from the announcement or pendency of the Transactions, and (vi) actions taken or omitted to be taken at the written request or with the written consent of Buyer. Each carveout is subject to a disproportionate impact exception, providing that the carveout does not apply to the extent that the relevant event or condition has a disproportionate effect on the Company relative to other companies operating in the biotechnology or pharmaceutical industries. The SPA also includes a specific carveout for pandemics, including COVID-19 and any similar public health emergencies. We analyze the applicability of the carveouts in Section III.C below.
2. Application of Marlowe Asset Management-2 Clinical Data. The clinical data from the Marlowe Asset Management-2 Phase II trial, as presented in the DMC analysis report dated August 14, 2024, constitute the factual foundation for Penterra's MAE determination. The data reveal the following:
Safety Profile — Cytokine Release Syndrome. Grade ≥3 cytokine release syndrome was observed in 23.4% of patients in the VRD-4187 treatment arm (n = 194), compared to 4.1% in the control arm (n = 193). This 19.3 percentage point difference is clinically alarming and represents a safety signal of substantial magnitude. Grade ≥3 CRS encompasses severe, life-threatening, and fatal adverse events, and an incidence rate of 23.4% is far outside the range that would be considered acceptable by regulators, clinicians, or payers for a drug in the therapeutic class under study. For context, the FDA has historically required CRS management protocols for therapies with Grade ≥3 CRS rates as low as 5–10%, and the observed rate here is more than double the typical threshold for heightened regulatory scrutiny.
Treatment-Related Deaths. Seven treatment-related deaths occurred in the VRD-4187 arm (representing 3.6% of the 194 patients enrolled), compared to one treatment-related death in the control arm (0.5% of 193 patients). This seven-fold increase in treatment-related mortality is a profound safety concern. Treatment-related deaths are the most serious category of adverse events in clinical trials, and their occurrence at this frequency creates substantial obstacles to regulatory approval, clinical adoption, and commercial viability. The FDA's issuance of a partial clinical hold in response to these deaths underscores the severity of the signal.
Efficacy — Overall Response Rate. The overall response rate ("ORR") in the VRD-4187 arm was 31.4%, compared to 28.9% in the control arm. The difference was not statistically significant (p = 0.58). A p-value of 0.58 is far above any conventional threshold for statistical significance (typically p ≤ 0.05) and indicates that the observed difference in ORR between the treatment and control arms is indistinguishable from random chance. In other words, the interim data provided no evidence that VRD-4187 delivers any meaningful efficacy benefit over the existing standard of care.
Totality of the Clinical Data. The combination of these findings — a materially worse safety profile coupled with no demonstrable efficacy advantage — fundamentally undermines the clinical rationale for VRD-4187's continued development. A drug that is substantially more dangerous than the existing standard of care, yet no more effective, faces enormous obstacles to regulatory approval, favorable labeling, market adoption, and payer reimbursement. Even if the safety signal could theoretically be mitigated through dose modification and prophylactic measures, the efficacy data provide no basis for optimism that such modifications would yield a product with a clinically meaningful benefit-risk profile.
Significance in Context of Veridian's Business. VRD-4187 is not merely one of several pipeline assets; it is the cornerstone of Veridian's entire business and the primary driver of the $900,000,000 enterprise value agreed upon in the SPA. Veridian is a clinical-stage company with $0 in revenue for the fiscal year ended December 31, 2023, and a net loss of $87.3 million for the same period. As of March 31, 2024, Veridian reported cash and cash equivalents of $112.4 million, sufficient to fund approximately 15–18 months of operations at the current burn rate. The Company's entire value proposition — and virtually the entire basis for the negotiated purchase price — rests on the clinical and commercial prospects of its pipeline, principally VRD-4187 in its lead indication. A fundamental impairment of VRD-4187's clinical trajectory is, in substance, a fundamental impairment of Veridian as a going concern.
3. FDA Partial Clinical Hold. The FDA's imposition of a partial clinical hold on VRD-4187 (IND 154832), effective August 22, 2024, is an independent and significant fact supporting Penterra's MAE determination. The hold was imposed in direct response to the seven treatment-related deaths observed in the Marlowe Asset Management-2 trial and the CRS safety signal.
Veridian's characterization of the partial clinical hold as a "routine regulatory mechanism" is misleading. While partial clinical holds are a recognized regulatory tool, they are not routine for promising drug candidates with favorable safety profiles. A partial clinical hold is imposed when the FDA determines that the clinical investigation presents an unreasonable and significant risk to the safety of trial participants. The issuance of a partial clinical hold following seven treatment-related deaths reflects a serious and substantive regulatory concern — not a ministerial or procedural step.
The clinical hold creates multiple layers of regulatory uncertainty, including: (a) whether the Marlowe Asset Management-2 trial can resume enrollment in its current form or at all; (b) whether the FDA will require additional Phase II safety data, a revised clinical protocol, or a new clinical study before permitting advancement to Phase III; (c) the timeline for resolution of the hold, which typically requires the sponsor to submit a complete response addressing the FDA's specific concerns and may involve multiple rounds of correspondence and meetings with the Agency; and (d) the potential impact on the overall regulatory timeline and the cost of any additional required studies. Each of these uncertainties contributes to the durationally significant impairment of Veridian's business prospects and supports the conclusion that an MAE has occurred.
It bears noting that, as of the date of this memorandum, the partial clinical hold remains in effect and Veridian has not publicly reported the submission of a complete response to the FDA's clinical hold letter. The longer the hold remains in effect without resolution, the stronger Penterra's position becomes.
4. Durational Significance Under Delaware Law. The concept of "durational significance" is central to the Delaware framework for evaluating MAE claims. Under the foundational case of Akorn, Inc. v. Fresenius Kabi AG, 2018 WL 4719347 (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018), and the extensive body of Chancery Court precedent that preceded it, a material adverse effect must be measured against the long-term earnings potential of the company, not merely its short-term performance. The relevant inquiry is whether the adverse event or condition substantially threatens the overall earnings potential of the target "in a durationally-significant manner," measured in "years rather than months." See also In re IBP, Inc. S'holders Litig., 789 A.2d 14, 68 (Del. Ch. 2001).
As noted in our prior analysis memoranda dated August 25, 2024 and September 2, 2024, the durational significance standard is demanding and has historically been the principal obstacle to buyer MAE claims. Courts have declined to find MAE where the adverse events were short-term financial underperformance, cyclical industry downturns, or temporary operational disruptions. The standard is designed to protect sellers from buyers who experience post-signing "buyer's remorse" and seek to escape a transaction on the basis of transitory setbacks.
Penterra's Strongest Argument. Penterra's case for durational significance rests not on a temporary financial downturn but on a fundamental impairment of the clinical and commercial trajectory of Veridian's lead asset — VRD-4187. The safety data and lack of efficacy signal are not cyclical or temporary conditions; they are objective clinical facts that permanently alter the risk-benefit calculus for VRD-4187. Specifically:
(a) The safety profile — 23.4% Grade ≥3 CRS and seven treatment-related deaths — is a permanent feature of the clinical record for VRD-4187 at the studied dose. Even if the dose reduction and tocilizumab prophylaxis implemented in Protocol v4.0 mitigate the CRS signal going forward, the historical data will remain part of the safety database and will be scrutinized by the FDA, the European Medicines Agency, and other regulators in any future marketing authorization application.
(b) The non-significant ORR (p = 0.58) means that, as of the last interim analysis, VRD-4187 has failed to demonstrate any meaningful efficacy advantage over the standard of care. If the drug does not work better than what is already available, its commercial prospects are severely limited even if the safety concerns are resolved.
(c) The combination of these factors means that VRD-4187's development timeline — even under an optimistic scenario — will be extended by multiple years. The clinical hold must be resolved, additional safety data must be generated at the revised dose, the protocol-amended cohort must be enrolled and followed, and the FDA may require a new Phase II study or a Phase II/III bridging study before permitting Phase III enrollment. This multi-year delay directly impacts Veridian's long-term earnings potential and is precisely the type of durationally significant impairment recognized by Delaware courts.
(d) There is a non-trivial possibility that VRD-4187 may ultimately prove unapprovable if the dose reduction eliminates or substantially reduces whatever efficacy the drug may have, or if the revised safety profile remains unacceptable to regulators.
Risk Assessment. We assess this as Penterra's strongest argument, and the one most likely to persuade the Chancery Court. The factual record here is substantially stronger than the typical buyer MAE claim, which usually relies on financial underperformance or market-driven conditions. The Marlowe Asset Management-2 data present a drug-specific, scientifically grounded basis for concluding that VRD-4187's commercial trajectory has been fundamentally and durably impaired.
However, we must candidly acknowledge the risks. The Delaware courts require a "very high threshold" for MAE findings, and the burden is squarely on the buyer. See Frontier Oil Corp. v. Holly Corp., 2005 WL 1039027, at *34 (Del. Ch. Apr. 29, 2005). Veridian will argue that the dose reduction and prophylactic measures constitute a viable path forward, that the clinical hold is temporary and resolvable, and that Penterra has failed to demonstrate a permanent or durationally significant impairment. The court may credit expert testimony that the VRD-4187 program remains salvageable and that the interim data do not represent a definitive failure. Penterra must be prepared to present compelling scientific and clinical evidence — through expert testimony and documentary support — that the Marlowe Asset Management-2 data are not merely a temporary setback but a qualitative and durationally significant impairment of Veridian's business.
C. Analysis of Veridian's MAE Carveout Arguments
1. General Industry Conditions Carveout. Veridian's demand letter argues that the clinical trial results for VRD-4187 fall within the MAE carveout for "conditions affecting the biotechnology or pharmaceutical industries generally." The theory appears to be that clinical trial risk is inherent and endemic to the biotechnology industry, and that the failure of a clinical-stage compound to demonstrate an adequate safety or efficacy profile is simply a manifestation of the general risk environment in which all biotechnology companies operate.
Penterra's Counter-Argument. This argument is meritless. The general industry conditions carveout is designed to insulate sellers from MAE claims based on macroeconomic or industry-wide developments that affect all companies in the relevant sector — such as a general decline in biotechnology stock prices, a tightening of the FDA's regulatory posture across the industry, or a broad market downturn affecting biotech valuations. The carveout does not, and was never intended to, immunize a specific company's clinical trial results for a specific drug candidate from constituting a company-specific MAE.
The Marlowe Asset Management-2 data — including the 23.4% Grade ≥3 CRS rate, the seven treatment-related deaths, and the non-significant ORR — are clinical facts specific to VRD-4187 and specific to Veridian. They do not reflect any general condition affecting the biotechnology industry as a whole. A Phase II safety failure of a specific company's lead compound is the paradigmatic example of a company-specific event that is not covered by a general industry conditions carveout.
Assessment. This is a strong position for Penterra. Delaware courts have consistently interpreted general industry carveouts narrowly, and there is no precedent supporting the proposition that a company-specific clinical trial failure constitutes a "general industry condition." We are confident that this argument will not survive scrutiny.
2. Pandemic Carveout. The SPA includes a specific carveout for pandemics, including COVID-19 and any similar public health emergencies. The demand letter makes a passing reference to this carveout, but does not articulate any specific causal nexus between the COVID-19 pandemic (or any other pandemic or public health emergency) and the VRD-4187 safety data.
Assessment. The pandemic carveout is inapplicable to the present circumstances. The Marlowe Asset Management-2 trial was conducted during a period in which COVID-19 was no longer producing the types of systemic disruptions that the pandemic carveout was designed to address. More fundamentally, the safety data — CRS events, treatment-related deaths, and the lack of an efficacy signal — arose from the pharmacological effects of VRD-4187 itself, not from any pandemic or public health emergency. There is no factual basis for invoking the pandemic carveout, and we do not expect Veridian to press this argument in litigation.
3. Disproportionate Impact Exception. Even if Veridian could somehow bring the clinical data within one of the MAE carveouts — which, as discussed above, it cannot — the carveouts in the SPA are subject to a disproportionate impact exception. Specifically, carveouts (i) through (vi) do not apply to the extent that the relevant event, change, or condition "has had or would reasonably be expected to have a disproportionate effect on the Company relative to other companies operating in the biotechnology or pharmaceutical industries."
The VRD-4187 safety data is unique to Veridian. No other company in the biotechnology or pharmaceutical industry has experienced the same clinical trial failure; the data is attributable to the specific pharmacology, dosing, and patient population of the Marlowe Asset Management-2 trial. By definition, the disproportionate impact of these events on Veridian — relative to any comparably situated company — is absolute.
Assessment. The disproportionate impact exception provides an additional and independent basis for defeating Veridian's carveout arguments. Even under the most generous reading of the carveouts, the disproportionate impact exception ensures that Veridian cannot use the carveouts as a shield against an MAE determination based on company-specific clinical data.
D. Premature Termination Argument
Veridian's argument that Penterra's termination was premature — having occurred on September 30, 2024, more than two months before the Outside Date of December 10, 2024 — raises an important procedural and contractual question that merits careful analysis.
Contractual Framework. SPA § 8.1(d) permits termination when a closing condition has become "incapable of being satisfied" prior to the Outside Date. The operative question is not whether the condition is currently unsatisfied, but whether it is incapable of being satisfied. This is a forward-looking inquiry that requires an assessment of whether there is any reasonable prospect that the condition could be fulfilled before the Outside Date.
Penterra's Position. Penterra's position is that the occurrence of a material adverse effect is an objective historical fact that cannot be "cured" or reversed. The seven treatment-related deaths in the Marlowe Asset Management-2 trial occurred; the 23.4% Grade ≥3 CRS rate was observed; the ORR failed to achieve statistical significance. These events are permanent features of the clinical record. No amount of additional time — whether two months or twelve months — can undo these facts. The protocol amendments implemented in Protocol v4.0, while they may improve safety outcomes in future cohorts, do not retroactively eliminate the MAE that has already occurred. An MAE is an occurrence, not a condition that can be cured; the bell cannot be un-rung.
Furthermore, even if one were to evaluate whether the protocol amendments might restore the clinical program's viability by the Outside Date, the answer is plainly no. Generating sufficient safety and efficacy data from the revised protocol to demonstrate that the VRD-4187 program has recovered would require enrolling new patients under the amended protocol, treating them for a clinically meaningful period, collecting and analyzing the data, and submitting the results to the FDA as part of a complete response to the clinical hold. This process would take many months — likely well beyond the December 10, 2024 Outside Date — and even then, the results would be uncertain. The condition in § 7.2(b) — that no Material Adverse Effect shall have occurred — is a backward-looking condition that has already failed. No prospective developments can satisfy a condition that is defined by reference to events that have already occurred.
Risk Assessment. We assess this as a moderate risk area. Penterra's legal argument is well-supported: the MAE condition looks backward ("shall have occurred"), and subsequent remedial measures do not undo the occurrence of the MAE. However, Veridian will argue that the court should evaluate whether the totality of Veridian's business prospects — including the potential for the protocol amendment to succeed — warranted a determination that the MAE was not durationally significant. The court may consider the timing of the termination as relevant to the durational significance analysis, reasoning that a buyer who terminates quickly after adverse news may not have given sufficient time for the long-term implications to become clear.
To mitigate this risk, Penterra should emphasize that the Deficiency Notice of September 6, 2024 provided Veridian with notice of the alleged MAE and an opportunity to address the concerns, and that the termination on September 30, 2024 followed a 24-day period during which no material progress was made in resolving the clinical hold or generating data to support the viability of the protocol amendment. Penterra should also emphasize that the Board engaged in a thorough and deliberative process, receiving advice from scientific advisors and outside counsel, before authorizing the termination.
E. Penterra's Compliance with SPA — No Material Breach by Buyer
SPA § 8.1(d) conditions the Buyer's termination right on the requirement that "the failure of such condition to be satisfied is not the result of a breach by Buyer of any representation, warranty, covenant, or agreement of Buyer set forth in this Agreement." Veridian may attempt to argue that Penterra was itself in material breach of the SPA, thereby forfeiting its right to terminate.
Potential Veridian Arguments. Veridian could contend that Penterra failed to use "reasonable best efforts" to consummate the transaction, as required by SPA § 6.4, or that Penterra acted in bad faith by pursuing a termination strategy rather than working cooperatively to resolve the clinical hold and advance the closing. Veridian might also argue that Penterra's Deficiency Notice was deficient in form or substance, or that Penterra's communications with Veridian during the post-signing period demonstrated a lack of commitment to consummating the transaction.
Penterra's Position. Penterra fully complied with its covenants and obligations under the SPA at all times. Penterra cooperated with Veridian throughout the post-signing period, participated in joint integration planning, supported the HSR filing process, and maintained the committed financing necessary to fund the purchase price. The Deficiency Notice dated September 6, 2024 was delivered in proper form and in compliance with the notice provisions of SPA § 10.1. The Termination Notice of September 30, 2024 was authorized by the Penterra Board of Directors pursuant to a formal resolution adopted at a special meeting on September 27, 2024 and was delivered in accordance with the SPA's termination procedures. Penterra's decision to terminate was a good-faith exercise of its contractual right, taken in response to material developments that fundamentally impaired the value of the target company.
The "reasonable best efforts" covenant does not require the Buyer to close a transaction in circumstances where the Buyer's closing conditions have failed due to the occurrence of an MAE. A buyer's covenant to use reasonable best efforts to consummate the closing presupposes that the closing conditions will be satisfied; it does not obligate the buyer to waive failed conditions or to close notwithstanding an MAE.
Assessment. We assess the risk that the court will find Penterra in material breach of the SPA as low. Penterra's conduct throughout the post-signing period was consistent with its obligations, and the termination was a properly authorized exercise of a contractual right. There is no factual basis for a finding of bad faith or breach of the reasonable best efforts covenant.
IV. Analysis of Veridian's Specific Performance Claim
A. Contractual Right Under SPA § 10.12
Section 10.12 of the SPA provides a negotiated specific performance remedy for the Sellers. The relevant language reads:
The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Each party shall be entitled to seek specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, in addition to any other remedy to which such party may be entitled at law or in equity; provided, however, that the Sellers shall be entitled to specific performance to compel the Buyer to consummate the Closing if (i) all of the conditions set forth in Sections 7.1 and 7.2 have been satisfied or waived (other than those conditions that by their terms are to be satisfied at the Closing, each of which is capable of being satisfied at the Closing) and (ii) the Buyer fails to consummate the Closing within five (5) Business Days after the date on which the Closing should have occurred pursuant to Section 2.2.
The critical prerequisite to specific performance is set forth in clause (i): the Sellers' right to compel closing exists only "if all of the conditions set forth in Sections 7.1 and 7.2 have been satisfied or waived." This includes the conditions in §§ 7.2(a) and 7.2(b) — the bring-down of representations to an MAE-qualified standard and the no-MAE condition, respectively.
Penterra's Defense. Penterra's defense to specific performance is straightforward: the closing conditions in §§ 7.2(a) and 7.2(b) are not satisfied because a Material Adverse Effect has occurred. If the Buyer's closing conditions have not been satisfied, the contractual prerequisite for specific performance under § 10.12 has not been met, and the Sellers have no right to compel closing. Specific performance is an equitable remedy that requires the requesting party to demonstrate its entitlement to the relief sought, and here, Veridian's entitlement is contingent upon the satisfaction of the very conditions that Penterra asserts have failed.
B. Delaware Law on Specific Performance
Delaware courts have historically been receptive to specific performance claims in the M&A context. The Court of Chancery has recognized that acquisition transactions — particularly those involving unique assets such as operating businesses or, as here, pharmaceutical pipelines — are appropriate candidates for specific performance because monetary damages are inherently difficult to calculate and may not fully compensate the injured party. See, e.g., Genworth Fin., Inc. v. China Oceanwide Holdings Grp. Co., 2021 WL 4452338 (Del. Ch. Sept. 29, 2021); AB Stable VIII LLC v. Maps Hotels & Resorts One LLC, 2020 WL 7024929 (Del. Ch. Nov. 30, 2020), aff'd, 268 A.3d 198 (Del. 2021).
However, specific performance is not automatic. The court will evaluate whether the plaintiff has satisfied the prerequisites for equitable relief, including demonstrating that all conditions precedent to the defendant's obligation have been met or waived. As the AB Stable court made clear, specific performance is available only where the closing conditions are satisfied; a buyer cannot be compelled to close a transaction where the buyer's closing conditions have legitimately failed.
Time Dimension. An additional practical consideration relates to the Outside Date. The SPA provides that the Outside Date for consummation of the closing is December 10, 2024. Under SPA § 8.1(b), either party may terminate the Agreement if the Closing has not occurred on or before the Outside Date, provided that the terminating party's breach did not cause the failure to close by the Outside Date. If Veridian files its complaint on or about November 15, 2024, and the Court of Chancery proceeds on an expedited basis, it is uncertain whether a trial and decision could be rendered before December 10, 2024. If the Outside Date passes without a closing, Penterra could independently terminate the SPA under § 8.1(b), potentially mooting the specific performance claim — unless the court enters an order enjoining Penterra from invoking the Outside Date termination or tolling the Outside Date pending resolution of the dispute.
Veridian is likely to seek such injunctive relief as part of its complaint or through a contemporaneous motion for a temporary restraining order or preliminary injunction. Calderwood & Harkness should be prepared to oppose any such motion, arguing that the court should not enjoin Penterra from exercising its contractual termination right under § 8.1(b) absent a clear showing that Penterra's prior termination under § 8.1(d) was wrongful.
C. Risk Assessment for Specific Performance
The risk assessment for specific performance flows directly from the MAE determination:
If the Court Concludes No MAE Occurred. If the Chancery Court determines that no Material Adverse Effect occurred, there is a high risk (estimated at 80% or greater) that the court will order specific performance compelling Penterra to close the $900,000,000 transaction. The transaction involves the acquisition of a unique asset — a clinical-stage pharmaceutical pipeline — that is not readily replaceable in the marketplace, and monetary damages would be inherently difficult to calculate with precision. Delaware courts in this scenario strongly favor specific performance as the appropriate remedy.
If the Court Concludes an MAE Occurred. If the Chancery Court determines that a Material Adverse Effect has occurred, specific performance will be denied because the contractual prerequisite — satisfaction of all closing conditions — has not been met. Penterra's termination will be validated, and the SPA will be at an end.
The Dispositive Issue. The entire case therefore turns on the MAE determination. The specific performance claim is not an independent cause of action with distinct elements; it is a remedy that becomes available or unavailable based on the resolution of the breach of contract claim. Calderwood & Harkness's litigation strategy should be structured accordingly, with the MAE defense as the central focus of all discovery, expert testimony, briefing, and trial presentation.
V. Analysis of Veridian's Expectation Damages Claim
A. Measure of Damages
In the alternative to specific performance, Veridian will seek expectation damages. Under Delaware law, expectation damages for breach of a stock purchase agreement are measured by the benefit of the bargain — i.e., the difference between the contract price and the fair market value of the seller's equity at the time of the breach. See, e.g., SARN Dev., LP v. Nat'l Holdings Corp., 2014 WL 6900041 (Del. Ch. Dec. 8, 2014).
Veridian will seek expectation damages equal to the difference between the $900,000,000 purchase price and the current fair market value of Veridian's equity following the termination of the SPA and the Marlowe Asset Management-2 clinical data. Veridian's FY2023 revenue was $0; its net loss was $87.3 million; its cash and cash equivalents were approximately $112.4 million as of March 31, 2024. As a clinical-stage company with no marketed products and a lead asset under a partial clinical hold, Veridian's post-termination fair market value is likely substantially below the $900,000,000 purchase price.
Establishing the current fair market value of Veridian will require expert valuation testimony. Veridian will likely retain a valuation expert who will seek to minimize the current fair market value in order to maximize the expectation damages claim. We anticipate that Veridian will argue that its current fair market value is in the range of $200–$400 million (based on the remaining cash, the value of earlier-stage pipeline assets such as VRD-6201 and VRD-3049, and a substantially impaired residual value for VRD-4187), yielding an expectation damages claim in the range of $500–$700 million.
Penterra's Primary Defense. If the court determines that an MAE occurred, Penterra is not liable for breach and no damages are owed. This is the threshold defense, and it eliminates the damages claim entirely if successful.
Penterra's Secondary Defenses. If the court were to determine that no MAE occurred and that Penterra breached the SPA, Penterra would challenge the damages calculation on multiple grounds. Penterra would retain its own valuation expert to contest Veridian's valuation methodology and assumptions, including challenging any attempt by Veridian to attribute value declines to the termination itself rather than to the underlying clinical data. Penterra would argue that Veridian's current fair market value should reflect the full impact of the VRD-4187 clinical data (regardless of the MAE determination), and that any premium attributable to the acquisition itself is not a compensable element of expectation damages.
B. Mitigation. Under Delaware law, a party seeking damages for breach of contract has a duty to take reasonable steps to mitigate its damages. See, e.g., Paul v. Morriven Ashford CPAs LLP & Touche, LLP, 974 A.2d 140, 147 (Del. 2009). Penterra may assert, as an affirmative defense, that Veridian failed to mitigate its damages by, among other things, failing to seek alternative acquirers or strategic partners, failing to pursue alternative financing sources, or failing to take other reasonable steps to preserve the value of its business following the termination.
Assessment. Mitigation is a valid affirmative defense, but its practical impact may be limited. The court will evaluate the reasonableness of Veridian's post-termination conduct, including whether Veridian conducted a post-termination market check, whether potential alternative acquirers were available at a price above Veridian's standalone value, and whether Veridian took reasonable steps to advance the VRD-4187 program (including resolution of the clinical hold). If Veridian can demonstrate that it took reasonable steps but was unable to find an alternative transaction at a comparable price — a likely scenario given the VRD-4187 data — the mitigation defense may have limited effect. Nonetheless, the defense should be pleaded and pursued in discovery to preserve Penterra's rights.
VI. Analysis of Reverse Termination Fee Demand ($45,000,000)
A. SPA Structure for Reverse Termination Fee
The SPA includes a reverse termination fee provision (§ 8.3(b)) pursuant to which Penterra, as Buyer, is obligated to pay a fee of $45,000,000 to the Stockholder Representative (for distribution to the Sellers) upon the occurrence of certain specified events. The reverse termination fee was calculated at 5% of the $900,000,000 purchase price, consistent with prevailing market practice for reverse termination fees in life sciences transactions.
The critical question is the scope of the triggering events. Under the SPA, the reverse termination fee is triggered only in the event of a financing failure — specifically, where the Buyer fails to consummate the Closing solely because the Buyer's committed debt financing is not funded by the lenders on the terms and conditions set forth in the Commitment Letter, and such failure is not the result of a failure of the conditions set forth in Sections 7.1 and 7.2 (other than the financing-related conditions). In other words, the reverse termination fee is a limited remedy designed to compensate the Sellers in the specific circumstance where the Buyer has the contractual obligation to close but cannot do so because its financing has fallen through — not in the circumstance where the Buyer terminates the SPA based on a legitimate failure of closing conditions.
B. Inapplicability to Present Circumstances
The reverse termination fee is plainly inapplicable to the present circumstances. Penterra's termination was based on the occurrence of a Material Adverse Effect and the resulting failure of Buyer's closing conditions under §§ 7.2(a) and 7.2(b), as provided by the termination right in § 8.1(d). The termination had nothing to do with financing.
Indeed, financing was never an issue. Penterra had in place a $500,000,000 committed term loan facility from Summit Ridge Capital Partners, LP and Ironclad Trust Company, N.A. (Commitment Letter Reference No. CL-2024-PPCA-0607), which remained available and fully committed at the time of termination. In addition, Penterra maintained approximately $2.1 billion in total cash and cash equivalents as of the end of Q2 2024, of which approximately $400,000,000 was designated for the cash portion of the acquisition funding. At no point during the post-signing period did Penterra experience or anticipate any financing shortfall, and at no point did Summit Ridge or Ironclad indicate any unwillingness to fund the committed facility.
Penterra separately notified Ironclad Trust Company, N.A. of the termination of the Commitment Letter by letter dated October 1, 2024, in accordance with the notice provisions of the Commitment Letter. This notification was a ministerial step following the valid termination of the SPA and does not give rise to any liability under the reverse termination fee provision.
As detailed in our analysis memorandum dated October 10, 2024 (Reverse Termination Fee — Inapplicability Analysis), the express language of § 8.3(b) limits the reverse termination fee to financing failure scenarios and does not extend to MAE-based terminations. Veridian's demand for the reverse termination fee conflates two entirely distinct contractual provisions and factual scenarios.
C. Assessment. We assess Penterra's position on the reverse termination fee demand as strong. The contractual language is clear and unambiguous: the reverse termination fee is triggered only by a financing failure, and no financing failure occurred. Veridian's demand for the $45,000,000 reverse termination fee is meritless on both the facts and the contractual language, and we are confident that it will not withstand judicial scrutiny.
We recommend that Penterra decline Veridian's demand for the reverse termination fee and, in any litigation, seek an early dispositive ruling on this issue to narrow the scope of the case and eliminate this distraction.
VII. Procedural Considerations
A. Forum and Governing Law
SPA § 10.6 designates the Court of Chancery of the State of Delaware as the exclusive forum for any action, suit, or proceeding arising out of or relating to the SPA or the transactions contemplated thereby. Section 10.5 provides that the SPA is governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts-of-law principles. Both parties have irrevocably submitted to the exclusive jurisdiction of the Court of Chancery and have waived any objection to venue.
The anticipated case caption is: Veridian Biosciences, Inc. v. Penterra Pharmaceuticals Corp., C.A. No. 2024-_ (Del. Ch.). We expect Veridian to file its complaint on or about November 15, 2024, consistent with the deadline stated in the demand letter.
Calderwood & Harkness maintains a well-established practice before the Court of Chancery and is prepared to handle all aspects of the litigation in that forum. We will associate local Delaware counsel as appropriate to comply with the Court of Chancery's rules regarding admission.
B. Expedited Proceedings
Given the time-sensitivity of this dispute — the Outside Date of December 10, 2024 is less than two months away — we anticipate that Veridian will move for expedited proceedings contemporaneously with the filing of its complaint or shortly thereafter. The Court of Chancery has well-established procedures for expedited proceedings in M&A disputes and has demonstrated a willingness to accommodate compressed schedules in cases involving pending or recently terminated transactions.
Veridian may also seek a preliminary injunction or temporary restraining order to prevent Penterra from invoking the Outside Date termination under § 8.1(b) or to toll the Outside Date pending resolution of the dispute. If suc

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