1018-00008 · Penterra Pharmaceuticals Corp · Regulatory

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

This memorandum has been prepared at the request of counsel for Penterra Pharmaceuticals Corp. and is protected in its entirety by the attorney-client privilege and the work product doctrine. This memorandum, and all information contained herein, should not be disclosed to any person or entity outside of the addressees and copy recipients identified below without the prior written consent of Martin Prumvane of Stonebridge HSW Antitrust Advisors LLP and Oliver Mackenzie of Calderwood & Harkness LLP. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.

JOINT MEMORANDUM

FROM:

Martin Prumvane, Partner Stonebridge HSW Antitrust Advisors LLP 1440 New York Avenue NW, Suite 700 Washington, DC 20005 Telephone: (202) 555-4100

Email: mhaldane@stonebridgehsw.com

Oliver Mackenzie, Partner, Mergers & Acquisitions Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 555-7800

Email: omackenzie@calderwoodharkness.com

TO:

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

Natalie Reiner, Senior Vice President, Corporate Development, Penterra Pharmaceuticals Corp.

CC:

Harrison Wexford, Partner, Calderwood & Harkness LLP

Megan Chu, Associate, Calderwood & Harkness LLP

Derek Okonkwo, Associate, Calderwood & Harkness LLP

DATE: April 10, 2024

RE: Antitrust Risk Assessment — Proposed Acquisition of 100% of Outstanding Capital Stock of Veridian Biosciences, Inc. by Penterra Pharmaceuticals Corp.

MATTER NO.: 1018-00008 (Calderwood & Harkness)

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I. Executive Summary

Stonebridge HSW Antitrust Advisors LLP ("Stonebridge HSW") and Calderwood & Harkness LLP ("Calderwood & Harkness," and together with Stonebridge HSW, "outside counsel") have been jointly engaged by Penterra Pharmaceuticals Corp. ("Penterra," "PPC," or the "Company") to assess the antitrust risks associated with Penterra's proposed acquisition of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian"), a privately held clinical-stage biotechnology company headquartered in Cambridge, Massachusetts. The proposed all-cash acquisition (the "Transaction") is valued at $900,000,000 (the "Purchase Price") and is expected to be structured as a stock purchase agreement to be executed in June 2024.

This memorandum sets forth our comprehensive antitrust risk assessment of the Transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), 15 U.S.C. § 18a, Section 7 of the Clayton Act, 15 U.S.C. § 18, Section 1 of the Sherman Act, 15 U.S.C. § 1, and applicable state antitrust statutes, as well as the merger control laws of relevant foreign jurisdictions.

Our overall conclusion is that the Transaction presents low antitrust risk. We base this assessment on the following key factors:

1. No Marketed Products at Veridian. Veridian is a clinical-stage biotechnology company with no marketed products and zero revenue. As of the date of this memorandum, Veridian has not obtained marketing approval from the U.S. Food and Drug Administration ("FDA") or any other regulatory authority for any of its product candidates. It does not participate in any commercial product market.

2. Early-Stage Lead Candidate. Veridian's lead product candidate, VRD-4187, a bispecific T-cell engager targeting delta-like ligand 3 ("DLL3") for the treatment of small cell lung cancer ("SCLC"), is currently in Phase II clinical trials. The pivotal Phase II trial, designated Marlowe Asset Management-2 (ClinicalTrials.gov Identifier: NCT05837291), is ongoing, and VRD-4187 is, under the most optimistic assumptions, at least three to five years from potential commercial launch. The compound has not yet demonstrated the requisite clinical efficacy and safety profile necessary for advancement to pivotal Phase III trials or regulatory submission.

3. Minimal or No Competitive Overlap. There is limited-to-no direct product market overlap between Penterra's marketed portfolio (which consists of twelve products across oncology, immunology, and rare diseases) and Veridian's development-stage pipeline. Penterra does not currently market, and is not currently developing, any bispecific T-cell engager product or any DLL3-targeting therapy. Penterra's internal immuno-oncology candidate, PPC-0921, was terminated following a Phase III futility analysis in November 2023 and is no longer competitively relevant.

4. Robust Competitive Landscape. The immuno-oncology therapeutic landscape, including the bispecific antibody and T-cell engager space, is highly competitive, with numerous well-funded pharmaceutical and biotechnology companies pursuing competing programs targeting DLL3 and other SCLC-related antigens. The Transaction does not remove a meaningful competitive constraint from any relevant market.

Based on this analysis, we recommend that Penterra proceed with filing the required HSR Act notification and request early termination of the statutory waiting period. We anticipate that clearance will be granted without the issuance of a Second Request or the imposition of any consent decree, divestiture obligation, or other remedial condition. The HSR filing is planned for April 22, 2024, with an expected waiting period expiration or early termination grant by late May 2024.

The remainder of this memorandum is organized as follows: Section II provides an overview of the Transaction. Section III addresses the HSR Act filing requirements. Section IV contains the substantive antitrust analysis. Section V assesses the risk of a Second Request. Section VI addresses state antitrust considerations. Section VII evaluates international filing obligations. Section VIII sets forth our recommendations and proposed next steps. Section IX provides our overall conclusion.

II. Transaction Overview

A. The Parties

1. Penterra Pharmaceuticals Corp. (Buyer). Penterra Pharmaceuticals Corp. is a corporation organized under the laws of the State of Delaware, with its principal executive offices located at 1100 Meridian Boulevard, Suite 400, Princeton, New Jersey 08540. Penterra's common stock is publicly traded on the Nasdaq Global Select Market under the ticker symbol "PPCA." As of the date of this memorandum, Penterra's market capitalization is approximately $14.2 billion, based on recent trading prices as of early 2024.

Penterra is a mid-cap specialty pharmaceutical company engaged in the discovery, development, manufacture, and commercialization of therapeutics across three primary therapeutic areas: oncology, immunology, and rare diseases. For the fiscal year ended December 31, 2023 ("FY2023"), Penterra reported total net revenue of approximately $4.87 billion. The Company currently maintains a commercial portfolio of twelve marketed products, which it markets and distributes through its own specialty sales force in the United States and through a combination of direct sales and distribution partnerships in international markets.

Penterra's senior management team includes Dr. Anand Rajagopal, Chief Executive Officer, and Catherine M. Burgess, Chief Financial Officer. Thomas F. Holbrook serves as General Counsel and Secretary of the Company. Natalie Reiner serves as Senior Vice President, Corporate Development, and has been the principal point of contact for the Transaction on Penterra's side.

In connection with the Transaction, Penterra has retained Garrison Zanthor & Co., LLC as its financial advisor. Kevin Driscoll, Managing Director, leads the Garrison Zanthor advisory team.

As context for the strategic rationale of the Transaction, it is important to note that Penterra's internal immuno-oncology pipeline suffered a significant setback in November 2023, when its lead internal candidate, PPC-0921 (an anti-PD-L1/CTLA-4 bispecific antibody being developed for the treatment of non-small cell lung cancer), failed a pre-specified interim futility analysis in its pivotal Phase III clinical trial. The independent data monitoring committee recommended discontinuation of the trial, and Penterra's board of directors (the "Board") subsequently authorized the termination of the PPC-0921 program in its entirety. This event created a meaningful gap in Penterra's immuno-oncology pipeline and was a principal motivating factor behind the Company's decision to pursue the Veridian acquisition as a means of re-establishing its presence in the immuno-oncology space through external innovation.

2. Veridian Biosciences, Inc. (Target). Veridian Biosciences, Inc. is a corporation organized under the laws of the State of Delaware, with its principal office located at 550 Gateway Drive, Cambridge, Massachusetts 02142. Veridian is a privately held, clinical-stage biotechnology company focused on the discovery and development of novel immuno-oncology therapeutics leveraging its proprietary T-cell engager technology platform, which the company has branded as "VeriTCE."

Veridian was co-founded by Dr. Julian Marek, who serves as the Company's Chief Executive Officer, and Dr. Priya Chandrasekaran, who serves as Chief Scientific Officer. The company currently employs approximately 148 individuals, with personnel located primarily at its Cambridge headquarters and at satellite offices and laboratory facilities in San Francisco, California, and Bethesda, Maryland.

As a clinical-stage company, Veridian has not yet commercialized any product and has generated no revenue from product sales to date. For FY2023, Veridian reported a net loss of approximately $87.3 million, reflecting ongoing investment in research and development activities, clinical trial operations, and general and administrative expenses. As of March 31, 2024, Veridian's balance sheet reflected cash and cash equivalents of approximately $112.4 million.

Since its founding, Veridian has raised approximately $420 million in aggregate equity financing through successive Series A, Series B, Series C, and Series D venture capital rounds. The Company's capitalization table reflects a concentrated investor base, with the following principal stockholders:

• Crestline Ventures, LP — approximately 28.3% of outstanding equity (David Ng, Managing Partner, serves on Veridian's Board of Directors);

• Boreal Health Partners Fund III, LP — approximately 19.7% of outstanding equity (Sarah Dalmqvist, General Partner, serves on Veridian's Board of Directors); and

• Apex Growth Equity Fund II, LP — approximately 14.1% of outstanding equity (Marcus Doyle, Partner, serves on Veridian's Board of Directors).

In connection with the Transaction, Veridian has retained Ridgeway Partners LLC as its financial advisor (Laura Beckett, Managing Director), and Zalcourt Archer & Cole LLP as its outside legal counsel (Rebecca Whitmore, Partner, leads the legal advisory team).

B. Transaction Structure and Economics

The Transaction is structured as a 100% stock purchase, pursuant to which Penterra will acquire all of the outstanding capital stock of Veridian, including all shares of Veridian's common stock and preferred stock (Series A, Series B, Series C, and Series D Preferred Stock), for an aggregate all-cash purchase price of $900,000,000. Following the closing, Veridian will become a wholly owned subsidiary of Penterra.

The Purchase Price represents a significant premium to Veridian's most recent private valuation and reflects the strategic value that Penterra places on Veridian's VeriTCE technology platform and, in particular, the VRD-4187 clinical program. The Purchase Price was negotiated at arm's length between the parties and their respective financial advisors.

Penterra intends to fund the Purchase Price through a combination of debt and available cash, as follows:

• Committed Term Loan Facility: $500,000,000 from a committed senior secured term loan facility, with Summit Ridge Capital Partners, LP serving as lead arranger and Ironclad Trust Company, N.A. serving as administrative agent. The commitment letter for this facility (Commitment Letter Reference No. CL-2024-PPCA-0607) is expected to be dated on or about June 7, 2024, coinciding with the anticipated execution of the definitive Stock Purchase Agreement.

• Cash on Hand: $400,000,000 from Penterra's existing cash and cash equivalents. As of the end of the second quarter of 2024, Penterra is projected to hold approximately $2.1 billion in cash and cash equivalents, providing substantial liquidity cushion beyond the amounts required for the Transaction.

The definitive Stock Purchase Agreement (the "SPA") between Penterra and Veridian (and, as applicable, the selling stockholders) is expected to be executed in June 2024. The SPA is being negotiated by Calderwood & Harkness LLP on behalf of Penterra and Zalcourt Archer & Cole LLP on behalf of Veridian.

C. Strategic Rationale

The strategic rationale for the Transaction is principally pipeline-driven. As noted above, Penterra's decision to pursue the Veridian acquisition was precipitated by the failure and subsequent termination of PPC-0921, which had been Penterra's most advanced internal immuno-oncology candidate. The termination of PPC-0921 left a significant gap in Penterra's pipeline, particularly in the high-growth immuno-oncology segment, and the Company's Board authorized management to evaluate external opportunities to rebuild the Company's competitive position in this therapeutic area.

Veridian's VeriTCE technology platform and its lead candidate, VRD-4187, represent an opportunity for Penterra to enter the bispecific T-cell engager space — a modality in which Penterra has no existing internal program — and to establish a development program targeting DLL3-expressing tumors, with SCLC as the initial therapeutic indication. Penterra's management and scientific advisors believe that the DLL3 target and the bispecific T-cell engager approach represent a promising and clinically differentiated strategy for the treatment of SCLC, a disease with significant unmet medical need and limited therapeutic options.

In addition to VRD-4187, Veridian has two additional earlier-stage pipeline candidates based on the VeriTCE platform: one in preclinical development targeting a different solid tumor antigen, and one in early Phase I clinical evaluation. The acquisition of Veridian would provide Penterra with access to the full VeriTCE platform and the intellectual property portfolio underlying these programs, enabling Penterra to pursue multiple development opportunities across the immuno-oncology landscape.

Critically, the Transaction is intended to be pipeline-additive — it is designed to augment Penterra's development pipeline by adding new programs in therapeutic areas and modalities where Penterra has no current presence, rather than to consolidate existing market positions or eliminate competitive rivalry. This distinction is significant for purposes of the antitrust analysis set forth below.

III. HSR Act Filing Requirements

A. Reportability Analysis

Under the HSR Act and the implementing regulations promulgated by the Federal Trade Commission ("FTC"), 16 C.F.R. Parts 801–803, the acquisition of voting securities, assets, or non-corporate interests that satisfies certain statutory thresholds requires pre-closing notification to both the FTC and the Antitrust Division of the U.S. Department of Justice ("DOJ"), and the observance of a statutory waiting period before the transaction may be consummated.

We have analyzed the reportability of the Transaction under the HSR Act thresholds as adjusted for 2024. Our analysis confirms that the Transaction is reportable, as follows:

Size of Transaction Test. The HSR Act requires notification for acquisitions in which the "value of the voting securities and assets to be held" exceeds certain dollar thresholds, which are adjusted annually by the FTC. For 2024, the applicable "size of transaction" threshold is $111.4 million. Here, the aggregate Purchase Price for 100% of the outstanding capital stock of Veridian is $900,000,000, which substantially exceeds the $111.4 million threshold. The size of transaction test is therefore satisfied.

Size of Person Test. Where the size of the transaction exceeds $111.4 million but does not exceed $445.5 million, a "size of person" test must also be met. However, because the Transaction value of $900,000,000 exceeds the $445.5 million threshold, the size of person test is not strictly required to establish reportability. Nevertheless, for completeness, we note that both parties independently satisfy the size of person thresholds as well:

• Penterra (Acquiring Person): Penterra's total assets as of the most recent fiscal year, and its annual net sales for FY2023 ($4.87 billion), each exceed the $222.7 million threshold applicable to one party in the transaction.

• Veridian (Acquired Person): Veridian's total assets, which include cash and cash equivalents of $112.4 million as of March 31, 2024, exceed the $22.3 million threshold applicable to the other party in the transaction.

Engagement in Commerce. Both Penterra and Veridian are engaged in, or their activities affect, commerce within the meaning of the HSR Act. Penterra manufactures and sells pharmaceutical products throughout the United States and internationally. Veridian conducts clinical research activities, employs personnel, and engages with clinical trial sites in the United States and the European Union.

Conclusion. Based on the foregoing, HSR Act pre-merger notification is required from both the acquiring person (Penterra) and the acquired person (Veridian and/or its selling stockholders, as applicable under 16 C.F.R. § 801.30). Both parties must file a Notification and Report Form with the FTC and DOJ, and the statutory waiting period must expire or be terminated before the Transaction may close.

B. Filing Fee

The HSR Act filing fee is calculated based on the aggregate total value of the voting securities and assets to be acquired. For 2024, the applicable fee schedule, as adjusted pursuant to the Merger Filing Fee Modernization Act of 2022, is as follows:

Based on the $900,000,000 Transaction value, the applicable 2024 HSR filing fee is $280,500. As is customary, we anticipate that the filing fee will be paid by Penterra as the acquiring person, subject to any contrary allocation agreed upon by the parties in the SPA.

C. Waiting Period and Early Termination

Upon the filing and acceptance of both parties' HSR notifications, a standard initial waiting period of 30 calendar days commences. During this period, the FTC and DOJ review the notifications and accompanying materials to determine whether the transaction warrants further investigation. The waiting period may be extended only by issuance of a Request for Additional Information and Documentary Material (a "Second Request"), which triggers a new waiting period that does not expire until 30 days after both parties have substantially complied with the Second Request.

The HSR Act permits parties to request early termination of the initial 30-day waiting period. If granted, early termination allows the transaction to close before the expiration of the full 30-day period. Early termination is typically granted for transactions that do not raise competitive concerns warranting further investigation. The FTC publishes early termination grants on its website.

We intend to request early termination of the waiting period simultaneously with the filing of both parties' notifications. Based on our assessment that the Transaction presents low antitrust risk and raises no competitive concerns, we anticipate that early termination will be granted. Under current FTC processing timelines, early termination grants for straightforward transactions are typically issued within approximately 25 to 30 days of filing, although the precise timing is within the sole discretion of the reviewing agency.

Our target date for the filing of both parties' HSR notifications is April 22, 2024. Assuming timely filing and acceptance, the initial 30-day waiting period would expire on or about May 22, 2024. We anticipate that early termination may be granted on or before that date, potentially in late May 2024.

D. Filing Logistics

The preparation and submission of the HSR Notification and Report Form will be coordinated between Stonebridge HSW and Calderwood & Harkness as follows:

• Stonebridge HSW will take the lead on the preparation of Penterra's Notification and Report Form, including the drafting of the narrative description of the transaction, the identification of applicable NAICS codes and overlap areas, the compilation of documents responsive to Item 4(c) (competition-related documents prepared by or for officers or directors), and the compilation of documents responsive to Item 4(d) (documents analyzing the transaction with respect to markets, market shares, competition, competitors, potential for sales growth, or expansion into product or geographic markets). Stonebridge HSW will also coordinate directly with Penterra's internal legal and corporate development teams to gather and review responsive materials.

• Calderwood & Harkness will provide all transaction-related documents responsive to Item 4, including the definitive Stock Purchase Agreement (or the most recent draft thereof at the time of filing), ancillary transaction agreements, Board resolutions and materials authorizing the Transaction, and any other deal documentation that may be responsive to Item 4's requirements. Calderwood & Harkness will also provide ongoing coordination with the deal team to ensure that the HSR filing accurately reflects the final transaction terms.

• Target-Side Filing. Both Stonebridge HSW and Calderwood & Harkness will coordinate with Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner; Jonathan Pratt, Counsel) on the preparation and submission of Veridian's Notification and Report Form. Under the HSR Act, the acquired person (here, Veridian and/or its selling stockholders) bears its own filing obligations. We will work cooperatively with Veridian's counsel to ensure that both filings are submitted simultaneously and contain consistent information, while respecting the independence of each party's filing obligations.

• Corporate Development Coordination. Both firms will coordinate with Penterra's Corporate Development team, led by Natalie Reiner, SVP Corporate Development, to obtain the underlying business information, strategic analyses, competitive landscape assessments, and other data necessary to prepare the filing accurately and completely.

IV. Substantive Antitrust Analysis

A. Relevant Product Markets

The foundation of any substantive antitrust analysis under Section 7 of the Clayton Act is the definition of the relevant product market or markets within which the merging parties participate. A merger violates Section 7 only if it may substantially lessen competition or tend to create a monopoly in a properly defined relevant market. The relevant product market is typically defined as the narrowest group of products for which a hypothetical monopolist could profitably impose a small but significant and non-transitory increase in price (the "SSNIP" test), as set forth in the U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (the "2023 Merger Guidelines").

In the pharmaceutical context, the FTC and DOJ have historically defined relevant product markets at varying levels of specificity, depending on the facts of the particular transaction. Markets may be defined as broadly as a therapeutic area (e.g., "oncology therapeutics") or as narrowly as a specific molecular target and indication (e.g., "DLL3-targeting therapies for SCLC"). The appropriate level of specificity depends on the degree of substitutability among the products in question and the nature of the competitive dynamics at play.

1. Penterra's Commercial Portfolio. Penterra currently markets a portfolio of twelve products across three therapeutic areas: oncology, immunology, and rare diseases. In the oncology segment specifically, Penterra's marketed products include therapeutics for the treatment of various solid tumors and hematological malignancies. A comprehensive summary of Penterra's marketed oncology product portfolio is set forth in Appendix A to this memorandum, and includes the product name, approved indication(s), mechanism of action, year of first approval, and FY2023 net revenue for each product.

For purposes of this antitrust analysis, the critical observation is that Penterra does not currently market any bispecific T-cell engager product or any DLL3-targeting therapy. Penterra's oncology portfolio consists of products that target different tumor types, employ different mechanisms of action, and address different patient populations than those targeted by Veridian's lead candidate VRD-4187. None of Penterra's marketed products are indicated for the treatment of SCLC, and none compete with or serve as substitutes for a DLL3-targeting bispecific T-cell engager.

Additionally, it bears emphasis that Penterra's formerly active internal immuno-oncology candidate, PPC-0921, is no longer in development. PPC-0921 was a bispecific antibody targeting PD-L1 and CTLA-4 that was being evaluated for the treatment of non-small cell lung cancer ("NSCLC") — a different disease indication from SCLC. Following the recommendation of the independent data monitoring committee and subsequent analysis by Penterra's R&D leadership, the PPC-0921 program was terminated in its entirety in November 2023. PPC-0921 is no longer in Penterra's pipeline, and the Company has publicly disclosed the termination. Accordingly, PPC-0921 is not competitively relevant to the analysis of this Transaction.

2. Veridian's Pipeline. Veridian has no marketed products and generates zero revenue from product sales. Its operations are wholly focused on research and development. Veridian's pipeline consists of the following candidates:

Lead Candidate: VRD-4187. VRD-4187 is a bispecific T-cell engager that simultaneously binds DLL3 (expressed on the surface of SCLC tumor cells) and CD3 (expressed on T cells), thereby redirecting T cells to attack DLL3-expressing tumor cells. VRD-4187 is currently in Phase II clinical evaluation in the Marlowe Asset Management-2 trial (ClinicalTrials.gov Identifier: NCT05837291), a randomized, controlled, multi-center study evaluating VRD-4187 in combination with standard platinum-based chemotherapy in patients with extensive-stage SCLC. The Marlowe Asset Management-2 trial is being conducted across 42 clinical sites in the United States and the European Union, with 387 patients enrolled (194 in the treatment arm and 193 in the control arm). Veridian submitted an Investigational New Drug application for VRD-4187 (IND 154832) to the FDA.

Based on the current development timeline, assuming successful completion of the Phase II trial, favorable results, and subsequent initiation and completion of a pivotal Phase III trial followed by regulatory review, VRD-4187 is estimated to be at least three to five years from potential commercial launch. This estimate incorporates the remaining duration of the Phase II trial, the time required to analyze and report results, the design and conduct of a Phase III trial, the preparation and submission of a Biologics License Application ("BLA") or New Drug Application ("NDA"), and the FDA review process. Multiple clinical, regulatory, and commercial risks could further delay or prevent commercialization.

Earlier-Stage Pipeline Candidates. In addition to VRD-4187, Veridian has two additional pipeline candidates at earlier stages of development, both of which are based on the VeriTCE platform. One candidate is in preclinical development targeting a different solid tumor antigen, and the other is in early Phase I clinical evaluation. These candidates are substantially further from potential commercialization than VRD-4187 and do not alter the competitive analysis. A summary of Veridian's complete pipeline is set forth in Appendix B to this memorandum.

3. Market Definition: Immuno-Oncology and Bispecific T-Cell Engagers. For purposes of this risk assessment, we have considered the relevant product market at multiple levels of specificity, ranging from the broadest to the narrowest plausible definition, to ensure that our analysis is robust under any market definition the reviewing agency might adopt:

Broad Relevant Market: Immuno-Oncology Therapeutics. At the broadest level, the relevant market could be defined as immuno-oncology therapeutics generally. This market encompasses a wide range of therapeutic modalities, including immune checkpoint inhibitors (e.g., anti-PD-1, anti-PD-L1, and anti-CTLA-4 antibodies), chimeric antigen receptor T-cell ("CAR-T") therapies, bispecific antibodies and T-cell engagers, antibody-drug conjugates ("ADCs") with immune-modulating payloads, cancer vaccines, and other immunotherapeutic approaches. This is a large and rapidly growing market, valued at tens of billions of dollars globally, with numerous participants ranging from large-cap multinational pharmaceutical companies to early-stage biotechnology firms.

Narrower Potential Market: Bispecific T-Cell Engagers for Solid Tumors. A narrower market could be defined around bispecific T-cell engagers being developed for the treatment of solid tumors. While bispecific T-cell engagers have achieved commercial success in hematological malignancies (most notably Greaves Industries's blinatumomab for acute lymphoblastic leukemia), the application of this modality to solid tumors is an area of active clinical investigation by numerous companies. Under this market definition, VRD-4187 would be one of many competing development-stage programs, none of which are marketed by Penterra.

Narrowest Potential Market: DLL3-Targeting Therapies for SCLC. The narrowest plausible market could be defined as therapies targeting DLL3 for the treatment of SCLC. DLL3 is a notch ligand family member that is highly expressed on the surface of SCLC tumor cells but has limited expression on normal adult tissues, making it an attractive therapeutic target. Several companies in addition to Veridian are pursuing DLL3-targeting approaches for SCLC, using various modalities including bispecific antibodies, ADCs, and CAR-T therapies. Even under this narrow definition, the competitive landscape is active.

Under any of these market definitions — broad, narrow, or narrowest — Penterra and Veridian have minimal or no competitive overlap. This conclusion follows directly from the facts that:

• Penterra has no marketed or pipeline DLL3-targeting product of any kind;

• Penterra has no marketed or pipeline bispecific T-cell engager of any kind;

• Penterra's formerly active immuno-oncology candidate, PPC-0921, has been terminated and was, in any event, directed at a different target (PD-L1/CTLA-4), a different modality (not a T-cell engager in the relevant sense), and a different disease indication (NSCLC rather than SCLC); and

• Following PPC-0921's failure, Penterra's immuno-oncology pipeline is effectively empty — the Veridian acquisition is gap-filling, not consolidating.

In short, this Transaction does not combine two competing products, two competing pipeline assets, or two companies with overlapping competitive positions in any relevant market. The Transaction is structurally analogous to a new market entry by Penterra through acquisition — a type of transaction that the antitrust agencies generally view favorably because it adds capabilities to the acquirer without removing an independent competitor from the market.

B. Relevant Geographic Market

The relevant geographic market for pharmaceutical products is typically defined on either a national (United States) or global basis, consistent with the approach taken by the FTC and DOJ in prior pharmaceutical merger reviews. This reflects the fact that pharmaceutical products are generally subject to national regulatory approval regimes, are marketed and distributed on a national or international basis, and are priced on a national or regional basis.

For purposes of this Transaction, the relevant geographic market is, at minimum, the United States, and potentially global in scope. Both Penterra and Veridian have their principal operations in the United States. Penterra is headquartered in Princeton, New Jersey, and conducts commercial operations in the United States and internationally. Veridian is headquartered in Cambridge, Massachusetts, and is conducting its Marlowe Asset Management-2 clinical trial at sites in both the United States and the European Union. Any future commercialization of VRD-4187 would likely occur initially in the United States, with potential subsequent launches in the EU, Japan, and other markets.

The choice of geographic market definition does not materially affect the competitive analysis in this case, because the absence of competitive overlap between Penterra and Veridian exists regardless of whether the market is defined as the United States, the EU, or a broader global market.

C. Competitive Landscape Analysis

1. SCLC Treatment Landscape. SCLC is a highly aggressive form of lung cancer that accounts for approximately 10–15% of all lung cancer diagnoses. It is characterized by rapid growth, early metastasis, and initial responsiveness to chemotherapy followed by nearly universal relapse. SCLC represents a high-unmet-need indication with limited approved treatment options and poor overall survival outcomes.

The current standard-of-care for first-line treatment of extensive-stage SCLC consists of platinum-based chemotherapy (typically carboplatin or cisplatin in combination with etoposide) plus an immune checkpoint inhibitor. Two checkpoint inhibitors have been approved in this setting: atezolizumab (marketed by Strathmore Group as Tecentriq) and durvalumab (marketed by Ridgeway Holdings as Imfinzi), each in combination with platinum-etoposide chemotherapy. Despite these advances, median overall survival remains limited to approximately 12–13 months, and there is significant room for therapeutic improvement.

Several pharmaceutical and biotechnology companies are actively developing novel therapies for SCLC, including DLL3-targeting agents and bispecific T-cell engagers among other modalities. The pipeline for SCLC-directed therapies is active and competitive. VRD-4187, if successfully developed, would enter a treatment landscape that is expected to include multiple new therapies from well-funded competitors. This competitive dynamic reduces any theoretical concern that the Transaction could harm competition in the SCLC treatment market.

Penterra's currently marketed oncology products target different tumor types and employ different mechanisms of action. None of Penterra's twelve marketed products are indicated for the treatment of SCLC, and none employ the same DLL3-targeting mechanism as VRD-4187. There is no direct therapeutic overlap between Penterra's commercial oncology portfolio and Veridian's SCLC-focused pipeline.

2. Bispecific T-Cell Engager Competitive Set. The bispecific antibody and T-cell engager space is one of the most active areas of pharmaceutical research and development globally. Multiple large-cap and mid-cap pharmaceutical companies, as well as well-funded biotechnology firms, are pursuing bispecific antibody and T-cell engager programs across a broad range of oncological and non-oncological indications. The space has attracted significant investment, reflecting the scientific promise and commercial potential of this modality.

In the specific context of DLL3-targeting agents for SCLC, several companies have disclosed clinical-stage or advanced preclinical programs. A detailed summary of the competitive landscape in this area is provided in Appendix C to this memorandum. The key competitive observation is that the acquisition of Veridian by Penterra does not eliminate a direct competitor to any Penterra product or pipeline asset. Penterra has no product, marketed or in development, that competes with VRD-4187 or with any other DLL3-targeting agent. The Transaction does not reduce the number of independent programs under development in this space — Veridian's VRD-4187 program will continue under Penterra's ownership, and the competitive dynamics among the remaining participants in the DLL3/SCLC space will be unaffected.

Even under an "innovation markets" theory — a theory that the FTC has occasionally applied in pharmaceutical mergers to analyze competition at the research and development stage, rather than at the commercial product market stage — there is no competitive concern here. The innovation markets theory has been applied where two merging parties are among a limited number of firms pursuing competing research programs in the same therapeutic area, and the merger would reduce the number of independent R&D efforts. See, e.g., Statement of the Federal Trade Commission, In re Roche Holding Ltd./Pemberton Partners LLC (1990); FTC v. Mallinckrodt Inc. (2017 complaint). That theory has no application to this Transaction because Penterra has no competing research program in the DLL3/bispecific T-cell engager space. Penterra is acquiring Veridian to enter a new space, not to consolidate or reduce the number of independent R&D efforts in an existing one.

3. Concentration Analysis. Under the 2023 Merger Guidelines, the FTC and DOJ assess the structural effects of a merger using, among other tools, the Herfindahl-Hirschman Index ("HHI"). The HHI is calculated by summing the squares of the individual market shares of all participants in the relevant market. Mergers that increase the HHI by more than 100 points in a market with a post-merger HHI above 1,800 are presumed to be likely to enhance market power under the Guidelines.

Under any plausible definition of the relevant product market, the post-merger HHI increase attributable to this Transaction is negligible or non-existent. This conclusion follows from three independent observations:

1. Zero Market Share for Veridian. Veridian has no marketed products and generates zero revenue. In any commercial product market, Veridian's market share is zero. Accordingly, the acquisition of Veridian by Penterra does not combine any existing market shares and does not produce any HHI increase in any commercial product market.

2. No Competing Marketed Products. The Transaction does not combine competing marketed products. Penterra's marketed portfolio does not include any product that competes with a Veridian product, because Veridian has no marketed products. The HHI in any market defined around Penterra's existing products is unchanged by the Transaction.

3. No Reduction in Pipeline Competitors. Even if the analysis is extended to development-stage products (as it might be under an innovation markets theory), the Transaction does not reduce the number of competing pipeline candidates in the DLL3/SCLC space. Penterra has no DLL3-targeting program, so the acquisition of Veridian's VRD-4187 program does not eliminate an independent competitor. The number of independent R&D programs in this space is unchanged post-Transaction.

For these reasons, the Transaction does not raise any structural concern under the HHI framework or any other measure of market concentration.

D. Potential Theories of Harm

In order to provide a thorough assessment of antitrust risk, we have considered each of the principal theories of competitive harm that the FTC or DOJ might apply to evaluate this Transaction.

1. Horizontal Overlap. The most common theory of harm in merger enforcement is that the merger combines two direct competitors, resulting in a reduction of competition in a relevant market. This theory requires, at a minimum, that the merging parties offer competing products (or are developing competing products) in the same relevant market.

As detailed above, there is no meaningful horizontal overlap between Penterra and Veridian. No product-to-product competition exists between the parties' respective portfolios. Penterra's twelve marketed products address different disease indications, employ different mechanisms of action, and serve different patient populations than Veridian's development-stage pipeline. No pipeline-to-pipeline competition exists: Penterra does not have any bispecific T-cell engager program, any DLL3-targeting program, or any SCLC-directed program. Penterra's formerly active immuno-oncology candidate, PPC-0921, was terminated in November 2023, targeted different antigens (PD-L1/CTLA-4), targeted a different disease (NSCLC), and is no longer competitively relevant.

Assessment: No horizontal concern.

2. Potential Competition / Innovation Markets. The FTC and DOJ have, in certain pharmaceutical merger cases, challenged transactions based on a "potential competition" or "innovation markets" theory of harm. Under this theory, even where the merging parties do not currently compete in a commercial product market, the merger may be challenged if it eliminates a potential future competitor — for example, where both parties are developing products that would compete against each other if brought to market, and the merger would reduce the number of independent development efforts.

This theory of harm was articulated in the FTC's 1995 Antitrust Guidelines for the Licensing of intellectual Property and has been applied in several pharmaceutical merger enforcement actions. Notable examples include the FTC's challenges in matters involving the combination of overlapping late-stage pipeline products in the same therapeutic indication.

However, this theory is inapplicable to the present Transaction for the following reasons:

• Penterra is not developing any DLL3-targeting or bispecific T-cell engager product. There is no competing Penterra pipeline program that would be eliminated or marginalized as a result of the acquisition of Veridian. The merger does not reduce the number of independent R&D efforts in any therapeutic area or modality.

• Penterra is acquiring Veridian to enter a new therapeutic area. The strategic rationale for the Transaction is pipeline-additive: Penterra is acquiring capabilities it does not currently possess, rather than eliminating a competitive threat. Transactions involving market entry through acquisition are generally viewed by the antitrust agencies as procompetitive, because they bring new resources and capabilities to the development of the acquired company's programs.

• Post-acquisition incentives favor continued development. Following the closing, Penterra will have strong economic incentives to continue developing VRD-4187 and the other Veridian pipeline candidates. The entire strategic rationale for the $900 million acquisition — and the value Penterra's shareholders are receiving — depends on the successful advancement of VRD-4187 through clinical development and toward commercialization. There is no plausible theory that Penterra would acquire Veridian and then shelve or delay the VRD-4187 program; to the contrary, Penterra's greater resources are expected to accelerate the development timeline.

Assessment: No potential competition concern.

3. Vertical Concerns. Vertical theories of harm arise where the merging parties stand in a supplier-customer or otherwise vertically related position, and the merger may enable the combined entity to foreclose competitors from necessary inputs (input foreclosure) or to deny competitors access to downstream customers (customer foreclosure).

No vertical relationship exists between Penterra and Veridian. Veridian is not a supplier to Penterra, nor is Penterra a customer of Veridian. Veridian does not manufacture or supply any input, raw material, active pharmaceutical ingredient, or platform technology that Penterra currently procures or uses in its own operations. Conversely, Penterra does not supply any input or service to Veridian. The two companies operate at the same level of the pharmaceutical value chain — both are (or aspire to be) developers and commercializers of therapeutic products.

Assessment: No vertical concern.

4. Conglomerate / Portfolio Effects. Conglomerate or portfolio effects theories of harm arise where a merger combines complementary (but not directly competing) products in a way that may enable the combined entity to leverage its expanded portfolio to the detriment of competition — for example, through anticompetitive bundling, tying, or the exercise of portfolio-based market power.

While the Transaction will expand Penterra's product portfolio to include Veridian's pipeline assets, there is no plausible theory of anticompetitive bundling or portfolio power that would apply. Veridian has no marketed products, and its pipeline candidates are years from potential commercialization. Even if and when VRD-4187 reaches the market, the addition of a single SCLC treatment to Penterra's existing portfolio would not create the type of dominant, broad-based portfolio that could be leveraged to foreclose competition. Penterra's portfolio is diversified across multiple therapeutic areas and does not hold a dominant position in any single market. The 2023 Merger Guidelines do not identify conglomerate concerns as a primary enforcement focus, and we are not aware of any pharmaceutical merger that has been challenged primarily on a conglomerate theory.

Assessment: No conglomerate concern.

E. FTC/DOJ Enforcement Trends in Pharmaceutical Transactions

The FTC has been the primary federal enforcer for pharmaceutical mergers in recent decades, pursuant to the interagency clearance process between the FTC and DOJ. The FTC's Bureau of Competition includes a dedicated Health Care Division that reviews pharmaceutical transactions.

In recent years, the FTC has been increasingly active in its review and challenge of pharmaceutical mergers and acquisitions, reflecting broader trends toward more aggressive antitrust enforcement under the current leadership of Chair Lina Khan. Notable recent enforcement actions in the pharmaceutical space include:

• Challenges to mergers involving direct product overlaps where the combination would reduce the number of competitors in a relevant market from three to two, or from two to one. These cases have typically resulted in consent decrees requiring the divestiture of one of the overlapping products or product lines to a competitively suitable buyer.

• Challenges to mergers involving late-stage pipeline overlaps where both parties have competing candidates in the same indication at the Phase III or BLA/NDA submission stage, and the merger would reduce the number of independent development programs. These challenges reflect the application of the innovation markets or potential competition doctrine to pharmaceutical R&D.

• An increased focus on patent-related competitive dynamics, including challenges where the merger might reduce incentives to pursue patent challenges or to bring generic or biosimilar competitors to market.

Critically, however, the enforcement actions described above share a common feature that is absent from this Transaction: they all involve some form of direct competitive overlap between the merging parties, whether at the marketed product level or the late-stage pipeline level. The FTC has not, to our knowledge, challenged a pharmaceutical acquisition in which the acquirer had no existing presence (whether through marketed products or pipeline programs) in the same therapeutic area, mechanism of action, or disease indication as the target's products or pipeline.

Clinical-stage acquisitions by companies without competing programs — that is, transactions that are purely pipeline-additive — have generally been cleared without challenge. This pattern is consistent with the economic logic that such transactions increase, rather than decrease, the resources available for the development of the acquired company's programs, and do not reduce competitive rivalry in any relevant market.

While we acknowledge that the current FTC leadership has signaled an interest in expanding the scope of merger enforcement and in developing new theories of harm, we do not believe that this Transaction is a plausible candidate for novel enforcement theories. The absence of any competitive overlap, the clinical-stage nature of Veridian's pipeline, and the robustness of the competitive landscape in the DLL3/bispecific T-cell engager space all militate strongly against a challenge.

V. Second Request Risk Assessment

Based on the comprehensive analysis set forth in Section IV above, we assess the risk that the FTC or DOJ will issue a Second Request (a Request for Additional Information and Documentary Material, pursuant to 15 U.S.C. § 18a(e)) in connection with this Transaction as very low. We estimate the probability of a Second Request at less than 5%.

The following factors support our assessment that the Transaction will be cleared without a Second Request:

1. No overlapping marketed products. Penterra and Veridian do not compete in any commercial product market. There is no product for which both parties hold meaningful market share.

2. No overlapping pipeline candidates. Penterra has no bispecific T-cell engager, DLL3-targeting therapy, or SCLC treatment in development. There is no pipeline-to-pipeline overlap in any therapeutic area or mechanism of action.

3. Veridian is clinical-stage with zero revenue. The FTC's enforcement priorities in pharmaceutical mergers have historically focused on transactions involving marketed products or late-stage pipeline candidates with identifiable commercial implications. Veridian's lead candidate is in Phase II clinical trials and is years from potential commercialization.

4. Well-established strategic rationale. The Transaction is motivated by Penterra's desire to rebuild its immuno-oncology pipeline following the failure of PPC-0921. Internal strategy documents, board materials, and management presentations uniformly describe the Transaction as pipeline-additive and designed to fill a gap in Penterra's development portfolio. This narrative is consistent with a procompetitive, rather than anticompetitive, motivation.

5. Robust competitive landscape post-transaction. The DLL3/SCLC and bispecific T-cell engager competitive landscape remains highly competitive following the Transaction. Multiple well-funded competitors are pursuing independent development programs in this space. The Transaction does not reduce the number of independent competitors or eliminate a meaningful competitive constraint.

In the unlikely event that the FTC or DOJ were to issue a Second Request, Stonebridge HSW and Calderwood & Harkness are prepared to engage promptly and constructively with the reviewing agency's staff to demonstrate the absence of competitive overlap and to provide any additional information or analysis that may be requested. However, we do not anticipate this scenario and believe that proactive engagement during the initial waiting period (through "pull-and-refile" or informal staff discussions, if necessary) would be sufficient to resolve any preliminary questions that may arise.

We note that the issuance of a Second Request, even if it occurred, would not be determinative of the ultimate outcome. Many transactions that receive Second Requests are ultimately cleared, either through voluntary compliance with the Second Request, consent decree, or abandonment of the investigation by the agency. In this case, even a Second Request investigation would likely result in clearance, given the fundamental absence of competitive overlap.

VI. State Antitrust Considerations

In addition to federal antitrust review, pharmaceutical mergers may, in certain circumstances, attract the attention of state attorneys general, who possess independent authority under state antitrust statutes and, in some cases, under parens patriae authority to enforce the federal Clayton Act on behalf of their states' citizens. In recent years, state attorneys general have occasionally investigated or challenged pharmaceutical mergers in parallel with, or independently of, the FTC and DOJ.

We have evaluated the potential for state-level antitrust scrutiny of this Transaction and conclude that the risk of a state attorney general investigation or challenge is negligible. This assessment is based on the following considerations:

• The Transaction involves no overlapping marketed products and therefore poses no risk of consumer harm through price increases or reduced product availability in any state market.

• Veridian has no marketed products and generates no revenue, so there is no existing consumer relationship that could be disrupted by the Transaction.

• The competitive landscape in the immuno-oncology and SCLC treatment markets is national and international in scope, and is not affected by the Transaction in a manner that would raise state-specific competitive concerns.

• No pre-filing notifications are required to any state antitrust authority for this Transaction. While certain states (such as California and New York) have active antitrust enforcement programs that monitor large pharmaceutical transactions, the absence of competitive overlap in this case makes it highly unlikely that any state authority would initiate an investigation.

We will continue to monitor for any state-level developments following the HSR filing, but we do not anticipate any state antitrust issues and do not recommend any proactive outreach to state attorneys general in connection with this Transaction.

VII. International / Foreign Antitrust Filings

We have conducted an assessment of the Transaction's filing obligations under the merger control laws of relevant foreign jurisdictions. This analysis considers the revenue profiles, asset locations, and operational footprints of both Penterra and Veridian in each jurisdiction where merger control notification may potentially be triggered.

Veridian's operations are concentrated in the United States. Its principal office is in Cambridge, Massachusetts, and its employees are located in Massachusetts, California, and Maryland. While Veridian is conducting its Marlowe Asset Management-2 clinical trial at clinical sites in both the United States and the European Union, the company has no commercial operations, no revenue, and no permanent establishment or subsidiary outside of the United States.

Penterra, by contrast, has global commercial operations and generates revenue in multiple jurisdictions, including the United States, the European Union, the United Kingdom, Japan, and other markets. However, for purposes of foreign merger control filings, the relevant analysis turns on the revenue and/or assets of both the acquirer and the target in each jurisdiction.

European Union — EU Merger Regulation (Council Regulation (EC) No 139/2004). The EU Merger Regulation requires notification of "concentrations with a Community dimension" where specified revenue thresholds are met. Under Article 1(2), a concentration has a Community dimension where: (a) the combined aggregate worldwide turnover of all the undertakings concerned exceeds €5 billion; and (b) the aggregate EU-wide turnover of each of at least two of the undertakings concerned exceeds €250 million, unless each achieves more than two-thirds of its EU-wide turnover within one and the same Member State. Alternatively, under Article 1(3), lower thresholds may apply where certain member-state-level criteria are met.

In this case, while Penterra's worldwide and EU-wide turnover likely exceed the applicable thresholds, Veridian does not meet the EU-wide turnover threshold because Veridian generates zero revenue globally, including zero revenue in the EU. Accordingly, a filing under the EU Merger Regulation is not required.

United Kingdom — Competition and Markets Authority ("CMA"). The UK merger control regime is voluntary (except in certain sectors) but provides the CMA with the authority to review and potentially challenge mergers that meet certain jurisdictional tests. The two jurisdictional tests are: (a) the "turnover test" (target's UK turnover exceeds £70 million); and (b) the "share of supply test" (the merger creates or enhances a share of supply of at least 25% in the UK). Veridian has no UK turnover, and the Transaction does not create or enhance any share of supply in the UK. Accordingly, a UK merger control filing is not required, and we assess the risk of a CMA call-in as negligible.

Germany — Federal Cartel Office ("Bundeskartellamt" / "FCO"). German merger control notification is required where certain turnover thresholds are met by both parties. Veridian's zero revenue means that the German thresholds are not met. While Germany adopted a transaction-value-based threshold (applicable where the transaction value exceeds €400 million and the target has significant domestic activities in Germany), Veridian's domestic activities in Germany are limited to clinical trial site participation and do not constitute "significant domestic activities" within the meaning of the German statute. Accordingly, a German filing is not required.

Other Jurisdictions. We have reviewed the merger control filing requirements in other potentially relevant jurisdictions, including France, Italy, Spain, Japan, Canada, Australia, China, and Brazil. In each case, the applicable turnover or asset thresholds for the target company are not met because Veridian generates no revenue and has no material assets outside of the United States.

Conclusion. Based on our analysis, the HSR Act filing is the only required antitrust filing for this Transaction. No foreign merger control notifications are required. We will confirm this conclusion as part of our final pre-filing review and will update this assessment if any material changes in the facts or the parties' revenue profiles occur prior to closing.

VIII. Recommendations and Next Steps

Based on the analysis set forth in this memorandum, we recommend the following course of action:

A. Filing Strategy

We recommend that Penterra and Veridian proceed with the preparation and submission of their respective HSR Notification and Report Forms by the target filing date of April 22, 2024. Both filings should be submitted simultaneously to the FTC and DOJ through the HSR electronic filing system.

Simultaneously with the filing, we will submit a request for early termination of the 30-day statutory waiting period. Given the absence of any competitive overlap or competitive concern, we are confident that this request will be granted, and we anticipate early termination within approximately 25 to 30 days of filing.

The filings will include a comprehensive narrative description of the Transaction, the parties, and the competitive landscape, as well as all documents responsive to the Item 4 requirements. We will prepare the narrative and supporting materials to affirmatively demonstrate the absence of competitive harm, with a view toward facilitating a prompt and favorable review by the assigned staff attorneys at the FTC or DOJ.

We further recommend that Stonebridge HSW coordinate the preparation of the Item 4(c) and 4(d) document compilations for the Penterra-side filing, including the identification and review of all documents potentially responsive to these requirements. Calderwood & Harkness will provide all transaction-related documents and board materials that may be responsive.

With respect to the Veridian-side filing, Stonebridge HSW and Calderwood & Harkness will coordinate with Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner; Jonathan Pratt, Counsel) on the preparation and submission of Veridian's notification. We will work cooperatively wit

PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
This memorandum has been prepared at the request of counsel for Penterra Pharmaceuticals Corp. and is protected in its entirety by the attorney-client privilege and the work product doctrine. This memorandum, and all information contained herein, should not be disclosed to any person or entity outside of the addressees and copy recipients identified below without the prior written consent of Martin Prumvane of Stonebridge HSW Antitrust Advisors LLP and Oliver Mackenzie of Calderwood & Harkness LLP. Any inadvertent disclosure does not constitute a waiver of any applicable privilege or protection.
JOINT MEMORANDUM
FROM:
Martin Prumvane, Partner Stonebridge HSW Antitrust Advisors LLP 1440 New York Avenue NW, Suite 700 Washington, DC 20005 Telephone: (202) 555-4100
Email: mhaldane@stonebridgehsw.com
Oliver Mackenzie, Partner, Mergers & Acquisitions Calderwood & Harkness LLP 200 Park Avenue, 42nd Floor New York, NY 10166 Telephone: (212) 555-7800
Email: omackenzie@calderwoodharkness.com
TO:
Thomas F. Holbrook, General Counsel & Secretary, Penterra Pharmaceuticals Corp.
Natalie Reiner, Senior Vice President, Corporate Development, Penterra Pharmaceuticals Corp.
CC:
Harrison Wexford, Partner, Calderwood & Harkness LLP
Megan Chu, Associate, Calderwood & Harkness LLP
Derek Okonkwo, Associate, Calderwood & Harkness LLP
DATE: April 10, 2024
RE: Antitrust Risk Assessment — Proposed Acquisition of 100% of Outstanding Capital Stock of Veridian Biosciences, Inc. by Penterra Pharmaceuticals Corp.
MATTER NO.: 1018-00008 (Calderwood & Harkness)
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I. Executive Summary
Stonebridge HSW Antitrust Advisors LLP ("Stonebridge HSW") and Calderwood & Harkness LLP ("Calderwood & Harkness," and together with Stonebridge HSW, "outside counsel") have been jointly engaged by Penterra Pharmaceuticals Corp. ("Penterra," "PPC," or the "Company") to assess the antitrust risks associated with Penterra's proposed acquisition of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian"), a privately held clinical-stage biotechnology company headquartered in Cambridge, Massachusetts. The proposed all-cash acquisition (the "Transaction") is valued at $900,000,000 (the "Purchase Price") and is expected to be structured as a stock purchase agreement to be executed in June 2024.
This memorandum sets forth our comprehensive antitrust risk assessment of the Transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), 15 U.S.C. § 18a, Section 7 of the Clayton Act, 15 U.S.C. § 18, Section 1 of the Sherman Act, 15 U.S.C. § 1, and applicable state antitrust statutes, as well as the merger control laws of relevant foreign jurisdictions.
Our overall conclusion is that the Transaction presents low antitrust risk. We base this assessment on the following key factors:
1. No Marketed Products at Veridian. Veridian is a clinical-stage biotechnology company with no marketed products and zero revenue. As of the date of this memorandum, Veridian has not obtained marketing approval from the U.S. Food and Drug Administration ("FDA") or any other regulatory authority for any of its product candidates. It does not participate in any commercial product market.
2. Early-Stage Lead Candidate. Veridian's lead product candidate, VRD-4187, a bispecific T-cell engager targeting delta-like ligand 3 ("DLL3") for the treatment of small cell lung cancer ("SCLC"), is currently in Phase II clinical trials. The pivotal Phase II trial, designated Marlowe Asset Management-2 (ClinicalTrials.gov Identifier: NCT05837291), is ongoing, and VRD-4187 is, under the most optimistic assumptions, at least three to five years from potential commercial launch. The compound has not yet demonstrated the requisite clinical efficacy and safety profile necessary for advancement to pivotal Phase III trials or regulatory submission.
3. Minimal or No Competitive Overlap. There is limited-to-no direct product market overlap between Penterra's marketed portfolio (which consists of twelve products across oncology, immunology, and rare diseases) and Veridian's development-stage pipeline. Penterra does not currently market, and is not currently developing, any bispecific T-cell engager product or any DLL3-targeting therapy. Penterra's internal immuno-oncology candidate, PPC-0921, was terminated following a Phase III futility analysis in November 2023 and is no longer competitively relevant.
4. Robust Competitive Landscape. The immuno-oncology therapeutic landscape, including the bispecific antibody and T-cell engager space, is highly competitive, with numerous well-funded pharmaceutical and biotechnology companies pursuing competing programs targeting DLL3 and other SCLC-related antigens. The Transaction does not remove a meaningful competitive constraint from any relevant market.
Based on this analysis, we recommend that Penterra proceed with filing the required HSR Act notification and request early termination of the statutory waiting period. We anticipate that clearance will be granted without the issuance of a Second Request or the imposition of any consent decree, divestiture obligation, or other remedial condition. The HSR filing is planned for April 22, 2024, with an expected waiting period expiration or early termination grant by late May 2024.
The remainder of this memorandum is organized as follows: Section II provides an overview of the Transaction. Section III addresses the HSR Act filing requirements. Section IV contains the substantive antitrust analysis. Section V assesses the risk of a Second Request. Section VI addresses state antitrust considerations. Section VII evaluates international filing obligations. Section VIII sets forth our recommendations and proposed next steps. Section IX provides our overall conclusion.
II. Transaction Overview
A. The Parties
1. Penterra Pharmaceuticals Corp. (Buyer). Penterra Pharmaceuticals Corp. is a corporation organized under the laws of the State of Delaware, with its principal executive offices located at 1100 Meridian Boulevard, Suite 400, Princeton, New Jersey 08540. Penterra's common stock is publicly traded on the Nasdaq Global Select Market under the ticker symbol "PPCA." As of the date of this memorandum, Penterra's market capitalization is approximately $14.2 billion, based on recent trading prices as of early 2024.
Penterra is a mid-cap specialty pharmaceutical company engaged in the discovery, development, manufacture, and commercialization of therapeutics across three primary therapeutic areas: oncology, immunology, and rare diseases. For the fiscal year ended December 31, 2023 ("FY2023"), Penterra reported total net revenue of approximately $4.87 billion. The Company currently maintains a commercial portfolio of twelve marketed products, which it markets and distributes through its own specialty sales force in the United States and through a combination of direct sales and distribution partnerships in international markets.
Penterra's senior management team includes Dr. Anand Rajagopal, Chief Executive Officer, and Catherine M. Burgess, Chief Financial Officer. Thomas F. Holbrook serves as General Counsel and Secretary of the Company. Natalie Reiner serves as Senior Vice President, Corporate Development, and has been the principal point of contact for the Transaction on Penterra's side.
In connection with the Transaction, Penterra has retained Garrison Zanthor & Co., LLC as its financial advisor. Kevin Driscoll, Managing Director, leads the Garrison Zanthor advisory team.
As context for the strategic rationale of the Transaction, it is important to note that Penterra's internal immuno-oncology pipeline suffered a significant setback in November 2023, when its lead internal candidate, PPC-0921 (an anti-PD-L1/CTLA-4 bispecific antibody being developed for the treatment of non-small cell lung cancer), failed a pre-specified interim futility analysis in its pivotal Phase III clinical trial. The independent data monitoring committee recommended discontinuation of the trial, and Penterra's board of directors (the "Board") subsequently authorized the termination of the PPC-0921 program in its entirety. This event created a meaningful gap in Penterra's immuno-oncology pipeline and was a principal motivating factor behind the Company's decision to pursue the Veridian acquisition as a means of re-establishing its presence in the immuno-oncology space through external innovation.
2. Veridian Biosciences, Inc. (Target). Veridian Biosciences, Inc. is a corporation organized under the laws of the State of Delaware, with its principal office located at 550 Gateway Drive, Cambridge, Massachusetts 02142. Veridian is a privately held, clinical-stage biotechnology company focused on the discovery and development of novel immuno-oncology therapeutics leveraging its proprietary T-cell engager technology platform, which the company has branded as "VeriTCE."
Veridian was co-founded by Dr. Julian Marek, who serves as the Company's Chief Executive Officer, and Dr. Priya Chandrasekaran, who serves as Chief Scientific Officer. The company currently employs approximately 148 individuals, with personnel located primarily at its Cambridge headquarters and at satellite offices and laboratory facilities in San Francisco, California, and Bethesda, Maryland.
As a clinical-stage company, Veridian has not yet commercialized any product and has generated no revenue from product sales to date. For FY2023, Veridian reported a net loss of approximately $87.3 million, reflecting ongoing investment in research and development activities, clinical trial operations, and general and administrative expenses. As of March 31, 2024, Veridian's balance sheet reflected cash and cash equivalents of approximately $112.4 million.
Since its founding, Veridian has raised approximately $420 million in aggregate equity financing through successive Series A, Series B, Series C, and Series D venture capital rounds. The Company's capitalization table reflects a concentrated investor base, with the following principal stockholders:
• Crestline Ventures, LP — approximately 28.3% of outstanding equity (David Ng, Managing Partner, serves on Veridian's Board of Directors);
• Boreal Health Partners Fund III, LP — approximately 19.7% of outstanding equity (Sarah Dalmqvist, General Partner, serves on Veridian's Board of Directors); and
• Apex Growth Equity Fund II, LP — approximately 14.1% of outstanding equity (Marcus Doyle, Partner, serves on Veridian's Board of Directors).
In connection with the Transaction, Veridian has retained Ridgeway Partners LLC as its financial advisor (Laura Beckett, Managing Director), and Zalcourt Archer & Cole LLP as its outside legal counsel (Rebecca Whitmore, Partner, leads the legal advisory team).
B. Transaction Structure and Economics
The Transaction is structured as a 100% stock purchase, pursuant to which Penterra will acquire all of the outstanding capital stock of Veridian, including all shares of Veridian's common stock and preferred stock (Series A, Series B, Series C, and Series D Preferred Stock), for an aggregate all-cash purchase price of $900,000,000. Following the closing, Veridian will become a wholly owned subsidiary of Penterra.
The Purchase Price represents a significant premium to Veridian's most recent private valuation and reflects the strategic value that Penterra places on Veridian's VeriTCE technology platform and, in particular, the VRD-4187 clinical program. The Purchase Price was negotiated at arm's length between the parties and their respective financial advisors.
Penterra intends to fund the Purchase Price through a combination of debt and available cash, as follows:
• Committed Term Loan Facility: $500,000,000 from a committed senior secured term loan facility, with Summit Ridge Capital Partners, LP serving as lead arranger and Ironclad Trust Company, N.A. serving as administrative agent. The commitment letter for this facility (Commitment Letter Reference No. CL-2024-PPCA-0607) is expected to be dated on or about June 7, 2024, coinciding with the anticipated execution of the definitive Stock Purchase Agreement.
• Cash on Hand: $400,000,000 from Penterra's existing cash and cash equivalents. As of the end of the second quarter of 2024, Penterra is projected to hold approximately $2.1 billion in cash and cash equivalents, providing substantial liquidity cushion beyond the amounts required for the Transaction.
The definitive Stock Purchase Agreement (the "SPA") between Penterra and Veridian (and, as applicable, the selling stockholders) is expected to be executed in June 2024. The SPA is being negotiated by Calderwood & Harkness LLP on behalf of Penterra and Zalcourt Archer & Cole LLP on behalf of Veridian.
C. Strategic Rationale
The strategic rationale for the Transaction is principally pipeline-driven. As noted above, Penterra's decision to pursue the Veridian acquisition was precipitated by the failure and subsequent termination of PPC-0921, which had been Penterra's most advanced internal immuno-oncology candidate. The termination of PPC-0921 left a significant gap in Penterra's pipeline, particularly in the high-growth immuno-oncology segment, and the Company's Board authorized management to evaluate external opportunities to rebuild the Company's competitive position in this therapeutic area.
Veridian's VeriTCE technology platform and its lead candidate, VRD-4187, represent an opportunity for Penterra to enter the bispecific T-cell engager space — a modality in which Penterra has no existing internal program — and to establish a development program targeting DLL3-expressing tumors, with SCLC as the initial therapeutic indication. Penterra's management and scientific advisors believe that the DLL3 target and the bispecific T-cell engager approach represent a promising and clinically differentiated strategy for the treatment of SCLC, a disease with significant unmet medical need and limited therapeutic options.
In addition to VRD-4187, Veridian has two additional earlier-stage pipeline candidates based on the VeriTCE platform: one in preclinical development targeting a different solid tumor antigen, and one in early Phase I clinical evaluation. The acquisition of Veridian would provide Penterra with access to the full VeriTCE platform and the intellectual property portfolio underlying these programs, enabling Penterra to pursue multiple development opportunities across the immuno-oncology landscape.
Critically, the Transaction is intended to be pipeline-additive — it is designed to augment Penterra's development pipeline by adding new programs in therapeutic areas and modalities where Penterra has no current presence, rather than to consolidate existing market positions or eliminate competitive rivalry. This distinction is significant for purposes of the antitrust analysis set forth below.
III. HSR Act Filing Requirements
A. Reportability Analysis
Under the HSR Act and the implementing regulations promulgated by the Federal Trade Commission ("FTC"), 16 C.F.R. Parts 801–803, the acquisition of voting securities, assets, or non-corporate interests that satisfies certain statutory thresholds requires pre-closing notification to both the FTC and the Antitrust Division of the U.S. Department of Justice ("DOJ"), and the observance of a statutory waiting period before the transaction may be consummated.
We have analyzed the reportability of the Transaction under the HSR Act thresholds as adjusted for 2024. Our analysis confirms that the Transaction is reportable, as follows:
Size of Transaction Test. The HSR Act requires notification for acquisitions in which the "value of the voting securities and assets to be held" exceeds certain dollar thresholds, which are adjusted annually by the FTC. For 2024, the applicable "size of transaction" threshold is $111.4 million. Here, the aggregate Purchase Price for 100% of the outstanding capital stock of Veridian is $900,000,000, which substantially exceeds the $111.4 million threshold. The size of transaction test is therefore satisfied.
Size of Person Test. Where the size of the transaction exceeds $111.4 million but does not exceed $445.5 million, a "size of person" test must also be met. However, because the Transaction value of $900,000,000 exceeds the $445.5 million threshold, the size of person test is not strictly required to establish reportability. Nevertheless, for completeness, we note that both parties independently satisfy the size of person thresholds as well:
• Penterra (Acquiring Person): Penterra's total assets as of the most recent fiscal year, and its annual net sales for FY2023 ($4.87 billion), each exceed the $222.7 million threshold applicable to one party in the transaction.
• Veridian (Acquired Person): Veridian's total assets, which include cash and cash equivalents of $112.4 million as of March 31, 2024, exceed the $22.3 million threshold applicable to the other party in the transaction.
Engagement in Commerce. Both Penterra and Veridian are engaged in, or their activities affect, commerce within the meaning of the HSR Act. Penterra manufactures and sells pharmaceutical products throughout the United States and internationally. Veridian conducts clinical research activities, employs personnel, and engages with clinical trial sites in the United States and the European Union.
Conclusion. Based on the foregoing, HSR Act pre-merger notification is required from both the acquiring person (Penterra) and the acquired person (Veridian and/or its selling stockholders, as applicable under 16 C.F.R. § 801.30). Both parties must file a Notification and Report Form with the FTC and DOJ, and the statutory waiting period must expire or be terminated before the Transaction may close.
B. Filing Fee
The HSR Act filing fee is calculated based on the aggregate total value of the voting securities and assets to be acquired. For 2024, the applicable fee schedule, as adjusted pursuant to the Merger Filing Fee Modernization Act of 2022, is as follows:
Based on the $900,000,000 Transaction value, the applicable 2024 HSR filing fee is $280,500. As is customary, we anticipate that the filing fee will be paid by Penterra as the acquiring person, subject to any contrary allocation agreed upon by the parties in the SPA.
C. Waiting Period and Early Termination
Upon the filing and acceptance of both parties' HSR notifications, a standard initial waiting period of 30 calendar days commences. During this period, the FTC and DOJ review the notifications and accompanying materials to determine whether the transaction warrants further investigation. The waiting period may be extended only by issuance of a Request for Additional Information and Documentary Material (a "Second Request"), which triggers a new waiting period that does not expire until 30 days after both parties have substantially complied with the Second Request.
The HSR Act permits parties to request early termination of the initial 30-day waiting period. If granted, early termination allows the transaction to close before the expiration of the full 30-day period. Early termination is typically granted for transactions that do not raise competitive concerns warranting further investigation. The FTC publishes early termination grants on its website.
We intend to request early termination of the waiting period simultaneously with the filing of both parties' notifications. Based on our assessment that the Transaction presents low antitrust risk and raises no competitive concerns, we anticipate that early termination will be granted. Under current FTC processing timelines, early termination grants for straightforward transactions are typically issued within approximately 25 to 30 days of filing, although the precise timing is within the sole discretion of the reviewing agency.
Our target date for the filing of both parties' HSR notifications is April 22, 2024. Assuming timely filing and acceptance, the initial 30-day waiting period would expire on or about May 22, 2024. We anticipate that early termination may be granted on or before that date, potentially in late May 2024.
D. Filing Logistics
The preparation and submission of the HSR Notification and Report Form will be coordinated between Stonebridge HSW and Calderwood & Harkness as follows:
• Stonebridge HSW will take the lead on the preparation of Penterra's Notification and Report Form, including the drafting of the narrative description of the transaction, the identification of applicable NAICS codes and overlap areas, the compilation of documents responsive to Item 4(c) (competition-related documents prepared by or for officers or directors), and the compilation of documents responsive to Item 4(d) (documents analyzing the transaction with respect to markets, market shares, competition, competitors, potential for sales growth, or expansion into product or geographic markets). Stonebridge HSW will also coordinate directly with Penterra's internal legal and corporate development teams to gather and review responsive materials.
• Calderwood & Harkness will provide all transaction-related documents responsive to Item 4, including the definitive Stock Purchase Agreement (or the most recent draft thereof at the time of filing), ancillary transaction agreements, Board resolutions and materials authorizing the Transaction, and any other deal documentation that may be responsive to Item 4's requirements. Calderwood & Harkness will also provide ongoing coordination with the deal team to ensure that the HSR filing accurately reflects the final transaction terms.
• Target-Side Filing. Both Stonebridge HSW and Calderwood & Harkness will coordinate with Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner; Jonathan Pratt, Counsel) on the preparation and submission of Veridian's Notification and Report Form. Under the HSR Act, the acquired person (here, Veridian and/or its selling stockholders) bears its own filing obligations. We will work cooperatively with Veridian's counsel to ensure that both filings are submitted simultaneously and contain consistent information, while respecting the independence of each party's filing obligations.
• Corporate Development Coordination. Both firms will coordinate with Penterra's Corporate Development team, led by Natalie Reiner, SVP Corporate Development, to obtain the underlying business information, strategic analyses, competitive landscape assessments, and other data necessary to prepare the filing accurately and completely.
IV. Substantive Antitrust Analysis
A. Relevant Product Markets
The foundation of any substantive antitrust analysis under Section 7 of the Clayton Act is the definition of the relevant product market or markets within which the merging parties participate. A merger violates Section 7 only if it may substantially lessen competition or tend to create a monopoly in a properly defined relevant market. The relevant product market is typically defined as the narrowest group of products for which a hypothetical monopolist could profitably impose a small but significant and non-transitory increase in price (the "SSNIP" test), as set forth in the U.S. Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (the "2023 Merger Guidelines").
In the pharmaceutical context, the FTC and DOJ have historically defined relevant product markets at varying levels of specificity, depending on the facts of the particular transaction. Markets may be defined as broadly as a therapeutic area (e.g., "oncology therapeutics") or as narrowly as a specific molecular target and indication (e.g., "DLL3-targeting therapies for SCLC"). The appropriate level of specificity depends on the degree of substitutability among the products in question and the nature of the competitive dynamics at play.
1. Penterra's Commercial Portfolio. Penterra currently markets a portfolio of twelve products across three therapeutic areas: oncology, immunology, and rare diseases. In the oncology segment specifically, Penterra's marketed products include therapeutics for the treatment of various solid tumors and hematological malignancies. A comprehensive summary of Penterra's marketed oncology product portfolio is set forth in Appendix A to this memorandum, and includes the product name, approved indication(s), mechanism of action, year of first approval, and FY2023 net revenue for each product.
For purposes of this antitrust analysis, the critical observation is that Penterra does not currently market any bispecific T-cell engager product or any DLL3-targeting therapy. Penterra's oncology portfolio consists of products that target different tumor types, employ different mechanisms of action, and address different patient populations than those targeted by Veridian's lead candidate VRD-4187. None of Penterra's marketed products are indicated for the treatment of SCLC, and none compete with or serve as substitutes for a DLL3-targeting bispecific T-cell engager.
Additionally, it bears emphasis that Penterra's formerly active internal immuno-oncology candidate, PPC-0921, is no longer in development. PPC-0921 was a bispecific antibody targeting PD-L1 and CTLA-4 that was being evaluated for the treatment of non-small cell lung cancer ("NSCLC") — a different disease indication from SCLC. Following the recommendation of the independent data monitoring committee and subsequent analysis by Penterra's R&D leadership, the PPC-0921 program was terminated in its entirety in November 2023. PPC-0921 is no longer in Penterra's pipeline, and the Company has publicly disclosed the termination. Accordingly, PPC-0921 is not competitively relevant to the analysis of this Transaction.
2. Veridian's Pipeline. Veridian has no marketed products and generates zero revenue from product sales. Its operations are wholly focused on research and development. Veridian's pipeline consists of the following candidates:
Lead Candidate: VRD-4187. VRD-4187 is a bispecific T-cell engager that simultaneously binds DLL3 (expressed on the surface of SCLC tumor cells) and CD3 (expressed on T cells), thereby redirecting T cells to attack DLL3-expressing tumor cells. VRD-4187 is currently in Phase II clinical evaluation in the Marlowe Asset Management-2 trial (ClinicalTrials.gov Identifier: NCT05837291), a randomized, controlled, multi-center study evaluating VRD-4187 in combination with standard platinum-based chemotherapy in patients with extensive-stage SCLC. The Marlowe Asset Management-2 trial is being conducted across 42 clinical sites in the United States and the European Union, with 387 patients enrolled (194 in the treatment arm and 193 in the control arm). Veridian submitted an Investigational New Drug application for VRD-4187 (IND 154832) to the FDA.
Based on the current development timeline, assuming successful completion of the Phase II trial, favorable results, and subsequent initiation and completion of a pivotal Phase III trial followed by regulatory review, VRD-4187 is estimated to be at least three to five years from potential commercial launch. This estimate incorporates the remaining duration of the Phase II trial, the time required to analyze and report results, the design and conduct of a Phase III trial, the preparation and submission of a Biologics License Application ("BLA") or New Drug Application ("NDA"), and the FDA review process. Multiple clinical, regulatory, and commercial risks could further delay or prevent commercialization.
Earlier-Stage Pipeline Candidates. In addition to VRD-4187, Veridian has two additional pipeline candidates at earlier stages of development, both of which are based on the VeriTCE platform. One candidate is in preclinical development targeting a different solid tumor antigen, and the other is in early Phase I clinical evaluation. These candidates are substantially further from potential commercialization than VRD-4187 and do not alter the competitive analysis. A summary of Veridian's complete pipeline is set forth in Appendix B to this memorandum.
3. Market Definition: Immuno-Oncology and Bispecific T-Cell Engagers. For purposes of this risk assessment, we have considered the relevant product market at multiple levels of specificity, ranging from the broadest to the narrowest plausible definition, to ensure that our analysis is robust under any market definition the reviewing agency might adopt:
Broad Relevant Market: Immuno-Oncology Therapeutics. At the broadest level, the relevant market could be defined as immuno-oncology therapeutics generally. This market encompasses a wide range of therapeutic modalities, including immune checkpoint inhibitors (e.g., anti-PD-1, anti-PD-L1, and anti-CTLA-4 antibodies), chimeric antigen receptor T-cell ("CAR-T") therapies, bispecific antibodies and T-cell engagers, antibody-drug conjugates ("ADCs") with immune-modulating payloads, cancer vaccines, and other immunotherapeutic approaches. This is a large and rapidly growing market, valued at tens of billions of dollars globally, with numerous participants ranging from large-cap multinational pharmaceutical companies to early-stage biotechnology firms.
Narrower Potential Market: Bispecific T-Cell Engagers for Solid Tumors. A narrower market could be defined around bispecific T-cell engagers being developed for the treatment of solid tumors. While bispecific T-cell engagers have achieved commercial success in hematological malignancies (most notably Greaves Industries's blinatumomab for acute lymphoblastic leukemia), the application of this modality to solid tumors is an area of active clinical investigation by numerous companies. Under this market definition, VRD-4187 would be one of many competing development-stage programs, none of which are marketed by Penterra.
Narrowest Potential Market: DLL3-Targeting Therapies for SCLC. The narrowest plausible market could be defined as therapies targeting DLL3 for the treatment of SCLC. DLL3 is a notch ligand family member that is highly expressed on the surface of SCLC tumor cells but has limited expression on normal adult tissues, making it an attractive therapeutic target. Several companies in addition to Veridian are pursuing DLL3-targeting approaches for SCLC, using various modalities including bispecific antibodies, ADCs, and CAR-T therapies. Even under this narrow definition, the competitive landscape is active.
Under any of these market definitions — broad, narrow, or narrowest — Penterra and Veridian have minimal or no competitive overlap. This conclusion follows directly from the facts that:
• Penterra has no marketed or pipeline DLL3-targeting product of any kind;
• Penterra has no marketed or pipeline bispecific T-cell engager of any kind;
• Penterra's formerly active immuno-oncology candidate, PPC-0921, has been terminated and was, in any event, directed at a different target (PD-L1/CTLA-4), a different modality (not a T-cell engager in the relevant sense), and a different disease indication (NSCLC rather than SCLC); and
• Following PPC-0921's failure, Penterra's immuno-oncology pipeline is effectively empty — the Veridian acquisition is gap-filling, not consolidating.
In short, this Transaction does not combine two competing products, two competing pipeline assets, or two companies with overlapping competitive positions in any relevant market. The Transaction is structurally analogous to a new market entry by Penterra through acquisition — a type of transaction that the antitrust agencies generally view favorably because it adds capabilities to the acquirer without removing an independent competitor from the market.
B. Relevant Geographic Market
The relevant geographic market for pharmaceutical products is typically defined on either a national (United States) or global basis, consistent with the approach taken by the FTC and DOJ in prior pharmaceutical merger reviews. This reflects the fact that pharmaceutical products are generally subject to national regulatory approval regimes, are marketed and distributed on a national or international basis, and are priced on a national or regional basis.
For purposes of this Transaction, the relevant geographic market is, at minimum, the United States, and potentially global in scope. Both Penterra and Veridian have their principal operations in the United States. Penterra is headquartered in Princeton, New Jersey, and conducts commercial operations in the United States and internationally. Veridian is headquartered in Cambridge, Massachusetts, and is conducting its Marlowe Asset Management-2 clinical trial at sites in both the United States and the European Union. Any future commercialization of VRD-4187 would likely occur initially in the United States, with potential subsequent launches in the EU, Japan, and other markets.
The choice of geographic market definition does not materially affect the competitive analysis in this case, because the absence of competitive overlap between Penterra and Veridian exists regardless of whether the market is defined as the United States, the EU, or a broader global market.
C. Competitive Landscape Analysis
1. SCLC Treatment Landscape. SCLC is a highly aggressive form of lung cancer that accounts for approximately 10–15% of all lung cancer diagnoses. It is characterized by rapid growth, early metastasis, and initial responsiveness to chemotherapy followed by nearly universal relapse. SCLC represents a high-unmet-need indication with limited approved treatment options and poor overall survival outcomes.
The current standard-of-care for first-line treatment of extensive-stage SCLC consists of platinum-based chemotherapy (typically carboplatin or cisplatin in combination with etoposide) plus an immune checkpoint inhibitor. Two checkpoint inhibitors have been approved in this setting: atezolizumab (marketed by Strathmore Group as Tecentriq) and durvalumab (marketed by Ridgeway Holdings as Imfinzi), each in combination with platinum-etoposide chemotherapy. Despite these advances, median overall survival remains limited to approximately 12–13 months, and there is significant room for therapeutic improvement.
Several pharmaceutical and biotechnology companies are actively developing novel therapies for SCLC, including DLL3-targeting agents and bispecific T-cell engagers among other modalities. The pipeline for SCLC-directed therapies is active and competitive. VRD-4187, if successfully developed, would enter a treatment landscape that is expected to include multiple new therapies from well-funded competitors. This competitive dynamic reduces any theoretical concern that the Transaction could harm competition in the SCLC treatment market.
Penterra's currently marketed oncology products target different tumor types and employ different mechanisms of action. None of Penterra's twelve marketed products are indicated for the treatment of SCLC, and none employ the same DLL3-targeting mechanism as VRD-4187. There is no direct therapeutic overlap between Penterra's commercial oncology portfolio and Veridian's SCLC-focused pipeline.
2. Bispecific T-Cell Engager Competitive Set. The bispecific antibody and T-cell engager space is one of the most active areas of pharmaceutical research and development globally. Multiple large-cap and mid-cap pharmaceutical companies, as well as well-funded biotechnology firms, are pursuing bispecific antibody and T-cell engager programs across a broad range of oncological and non-oncological indications. The space has attracted significant investment, reflecting the scientific promise and commercial potential of this modality.
In the specific context of DLL3-targeting agents for SCLC, several companies have disclosed clinical-stage or advanced preclinical programs. A detailed summary of the competitive landscape in this area is provided in Appendix C to this memorandum. The key competitive observation is that the acquisition of Veridian by Penterra does not eliminate a direct competitor to any Penterra product or pipeline asset. Penterra has no product, marketed or in development, that competes with VRD-4187 or with any other DLL3-targeting agent. The Transaction does not reduce the number of independent programs under development in this space — Veridian's VRD-4187 program will continue under Penterra's ownership, and the competitive dynamics among the remaining participants in the DLL3/SCLC space will be unaffected.
Even under an "innovation markets" theory — a theory that the FTC has occasionally applied in pharmaceutical mergers to analyze competition at the research and development stage, rather than at the commercial product market stage — there is no competitive concern here. The innovation markets theory has been applied where two merging parties are among a limited number of firms pursuing competing research programs in the same therapeutic area, and the merger would reduce the number of independent R&D efforts. See, e.g., Statement of the Federal Trade Commission, In re Roche Holding Ltd./Pemberton Partners LLC (1990); FTC v. Mallinckrodt Inc. (2017 complaint). That theory has no application to this Transaction because Penterra has no competing research program in the DLL3/bispecific T-cell engager space. Penterra is acquiring Veridian to enter a new space, not to consolidate or reduce the number of independent R&D efforts in an existing one.
3. Concentration Analysis. Under the 2023 Merger Guidelines, the FTC and DOJ assess the structural effects of a merger using, among other tools, the Herfindahl-Hirschman Index ("HHI"). The HHI is calculated by summing the squares of the individual market shares of all participants in the relevant market. Mergers that increase the HHI by more than 100 points in a market with a post-merger HHI above 1,800 are presumed to be likely to enhance market power under the Guidelines.
Under any plausible definition of the relevant product market, the post-merger HHI increase attributable to this Transaction is negligible or non-existent. This conclusion follows from three independent observations:
1. Zero Market Share for Veridian. Veridian has no marketed products and generates zero revenue. In any commercial product market, Veridian's market share is zero. Accordingly, the acquisition of Veridian by Penterra does not combine any existing market shares and does not produce any HHI increase in any commercial product market.
2. No Competing Marketed Products. The Transaction does not combine competing marketed products. Penterra's marketed portfolio does not include any product that competes with a Veridian product, because Veridian has no marketed products. The HHI in any market defined around Penterra's existing products is unchanged by the Transaction.
3. No Reduction in Pipeline Competitors. Even if the analysis is extended to development-stage products (as it might be under an innovation markets theory), the Transaction does not reduce the number of competing pipeline candidates in the DLL3/SCLC space. Penterra has no DLL3-targeting program, so the acquisition of Veridian's VRD-4187 program does not eliminate an independent competitor. The number of independent R&D programs in this space is unchanged post-Transaction.
For these reasons, the Transaction does not raise any structural concern under the HHI framework or any other measure of market concentration.
D. Potential Theories of Harm
In order to provide a thorough assessment of antitrust risk, we have considered each of the principal theories of competitive harm that the FTC or DOJ might apply to evaluate this Transaction.
1. Horizontal Overlap. The most common theory of harm in merger enforcement is that the merger combines two direct competitors, resulting in a reduction of competition in a relevant market. This theory requires, at a minimum, that the merging parties offer competing products (or are developing competing products) in the same relevant market.
As detailed above, there is no meaningful horizontal overlap between Penterra and Veridian. No product-to-product competition exists between the parties' respective portfolios. Penterra's twelve marketed products address different disease indications, employ different mechanisms of action, and serve different patient populations than Veridian's development-stage pipeline. No pipeline-to-pipeline competition exists: Penterra does not have any bispecific T-cell engager program, any DLL3-targeting program, or any SCLC-directed program. Penterra's formerly active immuno-oncology candidate, PPC-0921, was terminated in November 2023, targeted different antigens (PD-L1/CTLA-4), targeted a different disease (NSCLC), and is no longer competitively relevant.
Assessment: No horizontal concern.
2. Potential Competition / Innovation Markets. The FTC and DOJ have, in certain pharmaceutical merger cases, challenged transactions based on a "potential competition" or "innovation markets" theory of harm. Under this theory, even where the merging parties do not currently compete in a commercial product market, the merger may be challenged if it eliminates a potential future competitor — for example, where both parties are developing products that would compete against each other if brought to market, and the merger would reduce the number of independent development efforts.
This theory of harm was articulated in the FTC's 1995 Antitrust Guidelines for the Licensing of intellectual Property and has been applied in several pharmaceutical merger enforcement actions. Notable examples include the FTC's challenges in matters involving the combination of overlapping late-stage pipeline products in the same therapeutic indication.
However, this theory is inapplicable to the present Transaction for the following reasons:
• Penterra is not developing any DLL3-targeting or bispecific T-cell engager product. There is no competing Penterra pipeline program that would be eliminated or marginalized as a result of the acquisition of Veridian. The merger does not reduce the number of independent R&D efforts in any therapeutic area or modality.
• Penterra is acquiring Veridian to enter a new therapeutic area. The strategic rationale for the Transaction is pipeline-additive: Penterra is acquiring capabilities it does not currently possess, rather than eliminating a competitive threat. Transactions involving market entry through acquisition are generally viewed by the antitrust agencies as procompetitive, because they bring new resources and capabilities to the development of the acquired company's programs.
• Post-acquisition incentives favor continued development. Following the closing, Penterra will have strong economic incentives to continue developing VRD-4187 and the other Veridian pipeline candidates. The entire strategic rationale for the $900 million acquisition — and the value Penterra's shareholders are receiving — depends on the successful advancement of VRD-4187 through clinical development and toward commercialization. There is no plausible theory that Penterra would acquire Veridian and then shelve or delay the VRD-4187 program; to the contrary, Penterra's greater resources are expected to accelerate the development timeline.
Assessment: No potential competition concern.
3. Vertical Concerns. Vertical theories of harm arise where the merging parties stand in a supplier-customer or otherwise vertically related position, and the merger may enable the combined entity to foreclose competitors from necessary inputs (input foreclosure) or to deny competitors access to downstream customers (customer foreclosure).
No vertical relationship exists between Penterra and Veridian. Veridian is not a supplier to Penterra, nor is Penterra a customer of Veridian. Veridian does not manufacture or supply any input, raw material, active pharmaceutical ingredient, or platform technology that Penterra currently procures or uses in its own operations. Conversely, Penterra does not supply any input or service to Veridian. The two companies operate at the same level of the pharmaceutical value chain — both are (or aspire to be) developers and commercializers of therapeutic products.
Assessment: No vertical concern.
4. Conglomerate / Portfolio Effects. Conglomerate or portfolio effects theories of harm arise where a merger combines complementary (but not directly competing) products in a way that may enable the combined entity to leverage its expanded portfolio to the detriment of competition — for example, through anticompetitive bundling, tying, or the exercise of portfolio-based market power.
While the Transaction will expand Penterra's product portfolio to include Veridian's pipeline assets, there is no plausible theory of anticompetitive bundling or portfolio power that would apply. Veridian has no marketed products, and its pipeline candidates are years from potential commercialization. Even if and when VRD-4187 reaches the market, the addition of a single SCLC treatment to Penterra's existing portfolio would not create the type of dominant, broad-based portfolio that could be leveraged to foreclose competition. Penterra's portfolio is diversified across multiple therapeutic areas and does not hold a dominant position in any single market. The 2023 Merger Guidelines do not identify conglomerate concerns as a primary enforcement focus, and we are not aware of any pharmaceutical merger that has been challenged primarily on a conglomerate theory.
Assessment: No conglomerate concern.
E. FTC/DOJ Enforcement Trends in Pharmaceutical Transactions
The FTC has been the primary federal enforcer for pharmaceutical mergers in recent decades, pursuant to the interagency clearance process between the FTC and DOJ. The FTC's Bureau of Competition includes a dedicated Health Care Division that reviews pharmaceutical transactions.
In recent years, the FTC has been increasingly active in its review and challenge of pharmaceutical mergers and acquisitions, reflecting broader trends toward more aggressive antitrust enforcement under the current leadership of Chair Lina Khan. Notable recent enforcement actions in the pharmaceutical space include:
• Challenges to mergers involving direct product overlaps where the combination would reduce the number of competitors in a relevant market from three to two, or from two to one. These cases have typically resulted in consent decrees requiring the divestiture of one of the overlapping products or product lines to a competitively suitable buyer.
• Challenges to mergers involving late-stage pipeline overlaps where both parties have competing candidates in the same indication at the Phase III or BLA/NDA submission stage, and the merger would reduce the number of independent development programs. These challenges reflect the application of the innovation markets or potential competition doctrine to pharmaceutical R&D.
• An increased focus on patent-related competitive dynamics, including challenges where the merger might reduce incentives to pursue patent challenges or to bring generic or biosimilar competitors to market.
Critically, however, the enforcement actions described above share a common feature that is absent from this Transaction: they all involve some form of direct competitive overlap between the merging parties, whether at the marketed product level or the late-stage pipeline level. The FTC has not, to our knowledge, challenged a pharmaceutical acquisition in which the acquirer had no existing presence (whether through marketed products or pipeline programs) in the same therapeutic area, mechanism of action, or disease indication as the target's products or pipeline.
Clinical-stage acquisitions by companies without competing programs — that is, transactions that are purely pipeline-additive — have generally been cleared without challenge. This pattern is consistent with the economic logic that such transactions increase, rather than decrease, the resources available for the development of the acquired company's programs, and do not reduce competitive rivalry in any relevant market.
While we acknowledge that the current FTC leadership has signaled an interest in expanding the scope of merger enforcement and in developing new theories of harm, we do not believe that this Transaction is a plausible candidate for novel enforcement theories. The absence of any competitive overlap, the clinical-stage nature of Veridian's pipeline, and the robustness of the competitive landscape in the DLL3/bispecific T-cell engager space all militate strongly against a challenge.
V. Second Request Risk Assessment
Based on the comprehensive analysis set forth in Section IV above, we assess the risk that the FTC or DOJ will issue a Second Request (a Request for Additional Information and Documentary Material, pursuant to 15 U.S.C. § 18a(e)) in connection with this Transaction as very low. We estimate the probability of a Second Request at less than 5%.
The following factors support our assessment that the Transaction will be cleared without a Second Request:
1. No overlapping marketed products. Penterra and Veridian do not compete in any commercial product market. There is no product for which both parties hold meaningful market share.
2. No overlapping pipeline candidates. Penterra has no bispecific T-cell engager, DLL3-targeting therapy, or SCLC treatment in development. There is no pipeline-to-pipeline overlap in any therapeutic area or mechanism of action.
3. Veridian is clinical-stage with zero revenue. The FTC's enforcement priorities in pharmaceutical mergers have historically focused on transactions involving marketed products or late-stage pipeline candidates with identifiable commercial implications. Veridian's lead candidate is in Phase II clinical trials and is years from potential commercialization.
4. Well-established strategic rationale. The Transaction is motivated by Penterra's desire to rebuild its immuno-oncology pipeline following the failure of PPC-0921. Internal strategy documents, board materials, and management presentations uniformly describe the Transaction as pipeline-additive and designed to fill a gap in Penterra's development portfolio. This narrative is consistent with a procompetitive, rather than anticompetitive, motivation.
5. Robust competitive landscape post-transaction. The DLL3/SCLC and bispecific T-cell engager competitive landscape remains highly competitive following the Transaction. Multiple well-funded competitors are pursuing independent development programs in this space. The Transaction does not reduce the number of independent competitors or eliminate a meaningful competitive constraint.
In the unlikely event that the FTC or DOJ were to issue a Second Request, Stonebridge HSW and Calderwood & Harkness are prepared to engage promptly and constructively with the reviewing agency's staff to demonstrate the absence of competitive overlap and to provide any additional information or analysis that may be requested. However, we do not anticipate this scenario and believe that proactive engagement during the initial waiting period (through "pull-and-refile" or informal staff discussions, if necessary) would be sufficient to resolve any preliminary questions that may arise.
We note that the issuance of a Second Request, even if it occurred, would not be determinative of the ultimate outcome. Many transactions that receive Second Requests are ultimately cleared, either through voluntary compliance with the Second Request, consent decree, or abandonment of the investigation by the agency. In this case, even a Second Request investigation would likely result in clearance, given the fundamental absence of competitive overlap.
VI. State Antitrust Considerations
In addition to federal antitrust review, pharmaceutical mergers may, in certain circumstances, attract the attention of state attorneys general, who possess independent authority under state antitrust statutes and, in some cases, under parens patriae authority to enforce the federal Clayton Act on behalf of their states' citizens. In recent years, state attorneys general have occasionally investigated or challenged pharmaceutical mergers in parallel with, or independently of, the FTC and DOJ.
We have evaluated the potential for state-level antitrust scrutiny of this Transaction and conclude that the risk of a state attorney general investigation or challenge is negligible. This assessment is based on the following considerations:
• The Transaction involves no overlapping marketed products and therefore poses no risk of consumer harm through price increases or reduced product availability in any state market.
• Veridian has no marketed products and generates no revenue, so there is no existing consumer relationship that could be disrupted by the Transaction.
• The competitive landscape in the immuno-oncology and SCLC treatment markets is national and international in scope, and is not affected by the Transaction in a manner that would raise state-specific competitive concerns.
• No pre-filing notifications are required to any state antitrust authority for this Transaction. While certain states (such as California and New York) have active antitrust enforcement programs that monitor large pharmaceutical transactions, the absence of competitive overlap in this case makes it highly unlikely that any state authority would initiate an investigation.
We will continue to monitor for any state-level developments following the HSR filing, but we do not anticipate any state antitrust issues and do not recommend any proactive outreach to state attorneys general in connection with this Transaction.
VII. International / Foreign Antitrust Filings
We have conducted an assessment of the Transaction's filing obligations under the merger control laws of relevant foreign jurisdictions. This analysis considers the revenue profiles, asset locations, and operational footprints of both Penterra and Veridian in each jurisdiction where merger control notification may potentially be triggered.
Veridian's operations are concentrated in the United States. Its principal office is in Cambridge, Massachusetts, and its employees are located in Massachusetts, California, and Maryland. While Veridian is conducting its Marlowe Asset Management-2 clinical trial at clinical sites in both the United States and the European Union, the company has no commercial operations, no revenue, and no permanent establishment or subsidiary outside of the United States.
Penterra, by contrast, has global commercial operations and generates revenue in multiple jurisdictions, including the United States, the European Union, the United Kingdom, Japan, and other markets. However, for purposes of foreign merger control filings, the relevant analysis turns on the revenue and/or assets of both the acquirer and the target in each jurisdiction.
European Union — EU Merger Regulation (Council Regulation (EC) No 139/2004). The EU Merger Regulation requires notification of "concentrations with a Community dimension" where specified revenue thresholds are met. Under Article 1(2), a concentration has a Community dimension where: (a) the combined aggregate worldwide turnover of all the undertakings concerned exceeds €5 billion; and (b) the aggregate EU-wide turnover of each of at least two of the undertakings concerned exceeds €250 million, unless each achieves more than two-thirds of its EU-wide turnover within one and the same Member State. Alternatively, under Article 1(3), lower thresholds may apply where certain member-state-level criteria are met.
In this case, while Penterra's worldwide and EU-wide turnover likely exceed the applicable thresholds, Veridian does not meet the EU-wide turnover threshold because Veridian generates zero revenue globally, including zero revenue in the EU. Accordingly, a filing under the EU Merger Regulation is not required.
United Kingdom — Competition and Markets Authority ("CMA"). The UK merger control regime is voluntary (except in certain sectors) but provides the CMA with the authority to review and potentially challenge mergers that meet certain jurisdictional tests. The two jurisdictional tests are: (a) the "turnover test" (target's UK turnover exceeds £70 million); and (b) the "share of supply test" (the merger creates or enhances a share of supply of at least 25% in the UK). Veridian has no UK turnover, and the Transaction does not create or enhance any share of supply in the UK. Accordingly, a UK merger control filing is not required, and we assess the risk of a CMA call-in as negligible.
Germany — Federal Cartel Office ("Bundeskartellamt" / "FCO"). German merger control notification is required where certain turnover thresholds are met by both parties. Veridian's zero revenue means that the German thresholds are not met. While Germany adopted a transaction-value-based threshold (applicable where the transaction value exceeds €400 million and the target has significant domestic activities in Germany), Veridian's domestic activities in Germany are limited to clinical trial site participation and do not constitute "significant domestic activities" within the meaning of the German statute. Accordingly, a German filing is not required.
Other Jurisdictions. We have reviewed the merger control filing requirements in other potentially relevant jurisdictions, including France, Italy, Spain, Japan, Canada, Australia, China, and Brazil. In each case, the applicable turnover or asset thresholds for the target company are not met because Veridian generates no revenue and has no material assets outside of the United States.
Conclusion. Based on our analysis, the HSR Act filing is the only required antitrust filing for this Transaction. No foreign merger control notifications are required. We will confirm this conclusion as part of our final pre-filing review and will update this assessment if any material changes in the facts or the parties' revenue profiles occur prior to closing.
VIII. Recommendations and Next Steps
Based on the analysis set forth in this memorandum, we recommend the following course of action:
A. Filing Strategy
We recommend that Penterra and Veridian proceed with the preparation and submission of their respective HSR Notification and Report Forms by the target filing date of April 22, 2024. Both filings should be submitted simultaneously to the FTC and DOJ through the HSR electronic filing system.
Simultaneously with the filing, we will submit a request for early termination of the 30-day statutory waiting period. Given the absence of any competitive overlap or competitive concern, we are confident that this request will be granted, and we anticipate early termination within approximately 25 to 30 days of filing.
The filings will include a comprehensive narrative description of the Transaction, the parties, and the competitive landscape, as well as all documents responsive to the Item 4 requirements. We will prepare the narrative and supporting materials to affirmatively demonstrate the absence of competitive harm, with a view toward facilitating a prompt and favorable review by the assigned staff attorneys at the FTC or DOJ.
We further recommend that Stonebridge HSW coordinate the preparation of the Item 4(c) and 4(d) document compilations for the Penterra-side filing, including the identification and review of all documents potentially responsive to these requirements. Calderwood & Harkness will provide all transaction-related documents and board materials that may be responsive.
With respect to the Veridian-side filing, Stonebridge HSW and Calderwood & Harkness will coordinate with Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner; Jonathan Pratt, Counsel) on the preparation and submission of Veridian's notification. We will work cooperatively wit

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