Leonard,
Thank you — and please pass along our thanks to Sylvia and Garrett as well — for the thorough and well-organized draft (Version 3) that we received on December 16. Deborah and I have reviewed the Protest in full, and we also discussed it internally with Rajesh Iyer on Monday. I'm pleased to confirm that PPC approves the filing, subject to the comments noted below. I'd characterize these as minor refinements rather than substantive changes to the legal positions or overall structure. Given the relatively limited nature of the edits, I'm providing them inline here rather than marking up the draft.
**1. Overall Impressions**
The Protest is well-structured and comprehensive in its treatment of the $380.4 million in proposed adjustments across TY 2017–2020 — the CSA cost-sharing adjustments of $235.01 million, the royalty rate adjustments of $188.04 million, less the $42.65 million correlative offset. Deborah is comfortable with the legal positions as presented. Rajesh and Catherine Falk have both been briefed and are supportive of filing.
**2. CSA / Cost-Sharing Section**
I'd like to see slightly more emphasis on PBI's headcount growth trajectory — specifically the increase from 52 employees at inception in 2012 to 185 by the end of 2020. I think this is important evidence that the reasonably anticipated benefit shares (38.2% to 42.7% over 2017–2020) were appropriately calibrated to PBI's expanding commercial capabilities and were not static or artificially depressed. Additionally, it would strengthen this section to cross-reference the cost-sharing ratios to the actual revenue splits by product — Veritaxol, Imvara, and Cerulon — in non-Americas territories. Making the economic logic more concrete should help the Appeals Officer see the commercial reality behind the numbers.
**3. Legacy IP Royalty Rate Section**
The CUT analysis is very strong — 14 comparable agreements, IQR of 3.1%–6.8%, median of 4.4%, with PPC's 4.5% rate falling squarely within the interquartile range. I'd suggest adding a brief sentence explicitly noting that the IRS's proposed 11.0% rate falls well outside even the upper quartile of the comparable set. The contrast is obvious from the data, but stating it directly sharpens the point and ensures it isn't lost.
**4. Economic Substance / DEMPE Section**
This is the strongest part of the Protest, in my view. The factual detail is accurate — the 42 board meetings in Dublin during 2017–2020, €47.2 million in cumulative regulatory expenditures, independent pricing across 68 country markets, and the approximately 18,000 sq ft office at Sandyford Business Park. Aidan Naughton reviewed the PBI substance section for factual accuracy and confirmed it is correct. If it would be helpful for the record, we can have Aidan provide a short written confirmation to that effect — please let me know.
**5. Penalty Protection (Exhibit E)**
I agree the reasonable-cause defense and the contemporaneous documentation argument under IRC § 6662(e)(3)(B) are well-supported. One thought: PPC's original transfer pricing documentation was prepared by Crestfield & Associates (Susan Lam's team) on a contemporaneous basis each year. Would a brief reference to the fact that PPC engaged reputable, independent advisors to prepare the documentation further strengthen the penalty abatement argument? I'll defer to your judgment on whether that adds value or is unnecessary given what's already there.
**6. PCT Valuation Discussion (Exhibit C)**
The Whitmore Valuation Group DCF analysis — arm's-length range of $278 million to $361 million at a 9.8% WACC, with the $312 million PCT payment falling within that range — reads persuasively. One request: please confirm that the summary figures in Exhibit C align precisely with Dr. Vasquez's final report. I recall a minor rounding difference in an earlier draft iteration, and I want to make sure we have exact consistency between the Protest and the underlying expert report before filing.
**7. Minor Edits**
A few small items:
- There appears to be an incorrect date reference on page 14 — please double-check. - One of the exhibit tables has a formatting issue (column alignment) that should be cleaned up. - Please verify that PPC's full legal name ("Penterra Pharmaceuticals Corp.") and EIN (22-3741856) are correct in both the caption and the signature block.
**8. Filing Logistics**
PPC authorizes filing on December 22, 2023, as planned, within the extended deadline agreed to with Supervisory Revenue Agent Meskill. I would appreciate it if you could circulate the final version before filing so that Deborah and I can do one last quick review — I understand time is tight, so we'll turn it around promptly. Also, please send a PDF courtesy copy to my attention at PPC's headquarters for our records:
Marcus Whitfield Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550
**9. Closing Thoughts**
I want to reiterate our appreciation for the quality of the work product, particularly given the compressed timeline since the NOPA was issued on October 12 and the 30-Day Letter on November 8. The team has done excellent work under real time pressure.
I'm available by phone the rest of this week if you or anyone on the team would like to discuss any of these comments. Happy to jump on a call at your convenience.
Best regards,
Marcus Whitfield Director, Tax Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550 (609) 555-4180 mwhitfield@penterra.com