[sheet: Cover & Summary]

Field	Detail
Document Title	Cost-Sharing Ratio Analysis — Reasonably Anticipated Benefits (TY 2017–2020)
Prepared By	Garrett Simmons, Calderwood & Harkness LLP / Dr. Helena Vasquez & Dr. Rohan Chakrabarti, Whitmore Valuation Group LLC
Matter Number	1018-00009
Kovel Reference	1018-00009-KV
Client	Penterra Pharmaceuticals Corp. (EIN: 22-3741856)
Subject Entity	Penterra Biopharma International DAC (Irish Tax Ref: 3218764T)
Intermediate Holding Co.	Penterra Holdings Luxembourg S.à r.l. (RCS: B 168452) — disregarded entity for U.S. federal tax purposes
Tax Years at Issue	2017, 2018, 2019, 2020
IRS Exam Team ID	LB&I-NE-TP-2022-00641
CSA Effective Date	July 1, 2012
PCT Payment Date / Amount	July 1, 2012 / $312,000,000
Regulatory Framework	IRC § 482; Treas. Reg. § 1.482-7 (Qualified Cost-Sharing Arrangements); Treas. Reg. § 1.482-1(d) (Arm's-Length Standard)
Status	PRIVILEGED AND CONFIDENTIAL — Attorney Work Product / Kovel
Date Prepared	November 2022 (updated February 2024 for Appeals)
Purpose	Model PBI's cost-sharing percentages based on reasonably anticipated benefits (RAB) and compare PPC's position against IRS proposed adjustments; support transfer pricing defense
Lead Attorney	Garrett Simmons, Calderwood & Harkness LLP
Lead Economist	Dr. Helena Vasquez, Whitmore Valuation Group LLC
Original TP Documentation	Crestfield & Associates LLP (Martin Ogilvy, Engagement Partner; Susan Lam, Transfer Pricing Partner)

[sheet: Revenue Projections - RAB Basis]

Product	Territory	2017 Actual Net Sales ($M)	2018 Actual Net Sales ($M)	2019 Actual Net Sales ($M)	2020 Actual Net Sales ($M)	Notes
Veritaxol	Americas	1620	1700	1740	1780	Oncology blockbuster; global 2020 net sales $3,120M
Veritaxol	Non-Americas (PBI)	1100	1180	1260	1340	Non-Americas 2020 = $1,340M (~43% of global)
Veritaxol	Global Subtotal	2720	2880	3000	3120
Imvara	Americas	980	1020	1050	1080	Immunology; global 2020 net sales $1,870M
Imvara	Non-Americas (PBI)	620	680	740	790	Non-Americas 2020 = $790M (~42% of global)
Imvara	Global Subtotal	1600	1700	1790	1870
Cerulon	Americas	290	310	330	340	Rare disease; global 2020 net sales $620M
Cerulon	Non-Americas (PBI)	200	230	260	280	Non-Americas 2020 = $280M (~45% of global)
Cerulon	Global Subtotal	490	540	590	620
Other CSA Products	Americas	350	370	385	400	Additional compounds in CSA scope
Other CSA Products	Non-Americas (PBI)	180	210	240	260	Pipeline and recently launched products
Other CSA Products	Global Subtotal	530	580	625	660
TOTAL	Americas	3240	3400	3505	3600	Sum of Americas products
TOTAL	Non-Americas (PBI)	2100	2300	2500	2670	Sum of Non-Americas products
GLOBAL TOTAL	All	5340	5700	6005	6270	Americas + Non-Americas

[sheet: RAB Calculation - PPC Position]

Item	2017	2018	2019	2020	Source / Notes
PBI Reasonably Anticipated Benefits (Non-Americas projected revenue, $M)	2100	2300	2500	2670	From Revenue Projections sheet
PPC Reasonably Anticipated Benefits (Americas projected revenue, $M)	3240	3400	3505	3600	From Revenue Projections sheet
Total RAB ($M)	5340	5700	6005	6270	PBI RAB + PPC RAB
PBI RAB Share (%)	39.33	40.35	41.63	42.58	= PBI RAB / Total RAB × 100 (pre-adjustment)
Risk Adjustment Factor (PBI)	-1.13	-0.75	-0.53	0.12	Reflects differential market risk for Non-Americas territories
PBI Cost-Sharing Percentage (as filed) (%)	38.2	39.6	41.1	42.7	Per PPC Forms 1120; reflects adjustments for timing and risk factors
PPC Cost-Sharing Percentage (as filed) (%)	61.8	60.4	58.9	57.3	= 100% − PBI %
Total Qualified R&D Costs ($M)	487.3	523.8	561.2	598.4	Annual qualified R&D costs under CSA
PBI Cost-Share Payment ($M)	186.15	207.42	230.65	255.52	= PBI % × Total R&D Costs
PPC Cost-Share Payment ($M)	301.15	316.38	330.55	342.88	= (1 − PBI %) × Total R&D Costs
PBI Share as % of Total R&D (check)	38.2	39.6	41.1	42.7	= PBI Payment / Total R&D × 100
PPC Share as % of Total R&D (check)	61.8	60.4	58.9	57.3	= PPC Payment / Total R&D × 100
CSA Effective Date	July 1, 2012	PBI incorporated March 15, 2012
PCT Payment (2012)	$312,000,000	Lump sum at CSA inception; within arm's-length range of $278M–$361M per WVG DCF at 9.8% WACC
PCT Valuation Range (PPC/WVG)	$278M–$361M	DCF methodology; WACC 9.8%

[sheet: IRS Proposed Adjustments]

Item	2017	2018	2019	2020	Total	Notes
PPC Filed Cost-Share % (PBI)	38.2	39.6	41.1	42.7	PPC's position per filed returns
IRS Proposed Cost-Share % (PBI)	48.2	50.6	52.3	53.7	IRS proposed percentages per NOPA dated October 12, 2023
Increase (percentage points)	10	11	11.2	11	IRS adjustment in pp
Total Qualified R&D Costs ($M)	487.3	523.8	561.2	598.4	2170.7
Additional CSA Payment to PPC ($M)	48.73	57.62	62.85	65.82	235.02	= Increase pp × Total R&D / 100
IRS Proposed PBI Cost-Share Payment ($M)	234.88	265.04	293.51	321.34	1114.77	= IRS % × Total R&D
PPC Filed PBI Cost-Share Payment ($M)	186.15	207.42	230.65	255.52	879.74	= PPC % × Total R&D
Delta ($M)	48.73	57.62	62.86	65.82	235.03	Rounding to $235.01M per NOPA
NOPA Amount (as stated)	48.73	57.61	62.85	65.82	235.01	Per NOPA dated October 12, 2023
NOPA Date	October 12, 2023	Issued for all four years
30-Day Letter Date	November 8, 2023
Formal Protest Filed	December 22, 2023
IRS Exam Team	LB&I-NE-TP-2022-00641	Lead RA: Patricia Dunleavy; Team Mgr: Gerald Meskill
IRS Economist	Dr. Alan Washburne	IRS Transfer Pricing Practice
IRS Chief Counsel	Franklin Rosario (Attorney-Advisor); Donna Hirabayashi (Senior Counsel)
IRS Basis for Adjustment	IRS asserts PPC's RAB projections understate U.S.-source value; also questions PCT valuation ($312M vs. IRS $852M using 7.2% WACC)

[sheet: Full NOPA Summary]

Adjustment Category	2017 ($M)	2018 ($M)	2019 ($M)	2020 ($M)	Total ($M)
CSA Cost-Sharing Ratio Adjustment	48.73	57.61	62.85	65.82	235.01
Legacy IP Royalty Rate Adjustment (4.5% → 11.0%)	52.95	49.55	44.97	40.57	188.04
Gross Proposed Adjustments	101.68	107.16	107.82	106.39	423.05
Correlative Offset (avoid double-counting)	-10.42	-10.72	-10.93	-10.58	-42.65
Net Proposed Adjustment	91.26	96.44	96.89	95.81	380.4
Legacy Net Sales, Non-Americas ($M)	814.6	762.3	691.8	624.1	2892.8
Royalty Paid at 4.5% ($M)	36.657	34.304	31.131	28.085	130.177
IRS Royalty at 11.0% ($M)	89.606	83.853	76.098	68.651	318.208
Royalty Adjustment ($M)	52.949	49.549	44.967	40.566	188.031
Applicable Tax Rate	35%/21% blended	21%	21%	21%
Proposed Tax on Net Adjustment (est.)	79.88
IRC § 6662(e) Penalty (20% of tax)	15.98

[sheet: PPC vs IRS Comparison]

Tax Year	Total R&D Costs ($M)	PPC Filed PBI %	PPC Filed PBI Payment ($M)	IRS Proposed PBI %	IRS Proposed PBI Payment ($M)	Increase (pp)	Additional Payment to PPC ($M)	% Increase over PPC Position
2017	487.3	38.2	186.15	48.2	234.88	10	48.73	26.18
2018	523.8	39.6	207.42	50.6	265.04	11	57.62	27.78
2019	561.2	41.1	230.65	52.3	293.51	11.2	62.85	27.25
2020	598.4	42.7	255.52	53.7	321.34	11	65.82	25.76
TOTAL	2170.7	879.74	1114.77	235.02	26.71

[sheet: Cover & Summary]
Field | Detail
Document Title | Cost-Sharing Ratio Analysis — Reasonably Anticipated Benefits (TY 2017–2020)
Prepared By | Garrett Simmons, Calderwood & Harkness LLP / Dr. Helena Vasquez & Dr. Rohan Chakrabarti, Whitmore Valuation Group LLC
Matter Number | 1018-00009
Kovel Reference | 1018-00009-KV
Client | Penterra Pharmaceuticals Corp. (EIN: 22-3741856)
Subject Entity | Penterra Biopharma International DAC (Irish Tax Ref: 3218764T)
Intermediate Holding Co. | Penterra Holdings Luxembourg S.à r.l. (RCS: B 168452) — disregarded entity for U.S. federal tax purposes
Tax Years at Issue | 2017, 2018, 2019, 2020
IRS Exam Team ID | LB&I-NE-TP-2022-00641
CSA Effective Date | July 1, 2012
PCT Payment Date / Amount | July 1, 2012 / $312,000,000
Regulatory Framework | IRC § 482; Treas. Reg. § 1.482-7 (Qualified Cost-Sharing Arrangements); Treas. Reg. § 1.482-1(d) (Arm's-Length Standard)
Status | PRIVILEGED AND CONFIDENTIAL — Attorney Work Product / Kovel
Date Prepared | November 2022 (updated February 2024 for Appeals)
Purpose | Model PBI's cost-sharing percentages based on reasonably anticipated benefits (RAB) and compare PPC's position against IRS proposed adjustments; support transfer pricing defense
Lead Attorney | Garrett Simmons, Calderwood & Harkness LLP
Lead Economist | Dr. Helena Vasquez, Whitmore Valuation Group LLC
Original TP Documentation | Crestfield & Associates LLP (Martin Ogilvy, Engagement Partner; Susan Lam, Transfer Pricing Partner)
[sheet: Revenue Projections - RAB Basis]
Product | Territory | 2017 Actual Net Sales ($M) | 2018 Actual Net Sales ($M) | 2019 Actual Net Sales ($M) | 2020 Actual Net Sales ($M) | Notes
Veritaxol | Americas | 1620 | 1700 | 1740 | 1780 | Oncology blockbuster; global 2020 net sales $3,120M
Veritaxol | Non-Americas (PBI) | 1100 | 1180 | 1260 | 1340 | Non-Americas 2020 = $1,340M (~43% of global)
Veritaxol | Global Subtotal | 2720 | 2880 | 3000 | 3120
Imvara | Americas | 980 | 1020 | 1050 | 1080 | Immunology; global 2020 net sales $1,870M
Imvara | Non-Americas (PBI) | 620 | 680 | 740 | 790 | Non-Americas 2020 = $790M (~42% of global)
Imvara | Global Subtotal | 1600 | 1700 | 1790 | 1870
Cerulon | Americas | 290 | 310 | 330 | 340 | Rare disease; global 2020 net sales $620M
Cerulon | Non-Americas (PBI) | 200 | 230 | 260 | 280 | Non-Americas 2020 = $280M (~45% of global)
Cerulon | Global Subtotal | 490 | 540 | 590 | 620
Other CSA Products | Americas | 350 | 370 | 385 | 400 | Additional compounds in CSA scope
Other CSA Products | Non-Americas (PBI) | 180 | 210 | 240 | 260 | Pipeline and recently launched products
Other CSA Products | Global Subtotal | 530 | 580 | 625 | 660
TOTAL | Americas | 3240 | 3400 | 3505 | 3600 | Sum of Americas products
TOTAL | Non-Americas (PBI) | 2100 | 2300 | 2500 | 2670 | Sum of Non-Americas products
GLOBAL TOTAL | All | 5340 | 5700 | 6005 | 6270 | Americas + Non-Americas
[sheet: RAB Calculation - PPC Position]
Item | 2017 | 2018 | 2019 | 2020 | Source / Notes
PBI Reasonably Anticipated Benefits (Non-Americas projected revenue, $M) | 2100 | 2300 | 2500 | 2670 | From Revenue Projections sheet
PPC Reasonably Anticipated Benefits (Americas projected revenue, $M) | 3240 | 3400 | 3505 | 3600 | From Revenue Projections sheet
Total RAB ($M) | 5340 | 5700 | 6005 | 6270 | PBI RAB + PPC RAB
PBI RAB Share (%) | 39.33 | 40.35 | 41.63 | 42.58 | = PBI RAB / Total RAB × 100 (pre-adjustment)
Risk Adjustment Factor (PBI) | -1.13 | -0.75 | -0.53 | 0.12 | Reflects differential market risk for Non-Americas territories
PBI Cost-Sharing Percentage (as filed) (%) | 38.2 | 39.6 | 41.1 | 42.7 | Per PPC Forms 1120; reflects adjustments for timing and risk factors
PPC Cost-Sharing Percentage (as filed) (%) | 61.8 | 60.4 | 58.9 | 57.3 | = 100% − PBI %
Total Qualified R&D Costs ($M) | 487.3 | 523.8 | 561.2 | 598.4 | Annual qualified R&D costs under CSA
PBI Cost-Share Payment ($M) | 186.15 | 207.42 | 230.65 | 255.52 | = PBI % × Total R&D Costs
PPC Cost-Share Payment ($M) | 301.15 | 316.38 | 330.55 | 342.88 | = (1 − PBI %) × Total R&D Costs
PBI Share as % of Total R&D (check) | 38.2 | 39.6 | 41.1 | 42.7 | = PBI Payment / Total R&D × 100
PPC Share as % of Total R&D (check) | 61.8 | 60.4 | 58.9 | 57.3 | = PPC Payment / Total R&D × 100
CSA Effective Date | July 1, 2012 | PBI incorporated March 15, 2012
PCT Payment (2012) | $312,000,000 | Lump sum at CSA inception; within arm's-length range of $278M–$361M per WVG DCF at 9.8% WACC
PCT Valuation Range (PPC/WVG) | $278M–$361M | DCF methodology; WACC 9.8%
[sheet: IRS Proposed Adjustments]
Item | 2017 | 2018 | 2019 | 2020 | Total | Notes
PPC Filed Cost-Share % (PBI) | 38.2 | 39.6 | 41.1 | 42.7 | PPC's position per filed returns
IRS Proposed Cost-Share % (PBI) | 48.2 | 50.6 | 52.3 | 53.7 | IRS proposed percentages per NOPA dated October 12, 2023
Increase (percentage points) | 10 | 11 | 11.2 | 11 | IRS adjustment in pp
Total Qualified R&D Costs ($M) | 487.3 | 523.8 | 561.2 | 598.4 | 2170.7
Additional CSA Payment to PPC ($M) | 48.73 | 57.62 | 62.85 | 65.82 | 235.02 | = Increase pp × Total R&D / 100
IRS Proposed PBI Cost-Share Payment ($M) | 234.88 | 265.04 | 293.51 | 321.34 | 1114.77 | = IRS % × Total R&D
PPC Filed PBI Cost-Share Payment ($M) | 186.15 | 207.42 | 230.65 | 255.52 | 879.74 | = PPC % × Total R&D
Delta ($M) | 48.73 | 57.62 | 62.86 | 65.82 | 235.03 | Rounding to $235.01M per NOPA
NOPA Amount (as stated) | 48.73 | 57.61 | 62.85 | 65.82 | 235.01 | Per NOPA dated October 12, 2023
NOPA Date | October 12, 2023 | Issued for all four years
30-Day Letter Date | November 8, 2023
Formal Protest Filed | December 22, 2023
IRS Exam Team | LB&I-NE-TP-2022-00641 | Lead RA: Patricia Dunleavy; Team Mgr: Gerald Meskill
IRS Economist | Dr. Alan Washburne | IRS Transfer Pricing Practice
IRS Chief Counsel | Franklin Rosario (Attorney-Advisor); Donna Hirabayashi (Senior Counsel)
IRS Basis for Adjustment | IRS asserts PPC's RAB projections understate U.S.-source value; also questions PCT valuation ($312M vs. IRS $852M using 7.2% WACC)
[sheet: Full NOPA Summary]
Adjustment Category | 2017 ($M) | 2018 ($M) | 2019 ($M) | 2020 ($M) | Total ($M)
CSA Cost-Sharing Ratio Adjustment | 48.73 | 57.61 | 62.85 | 65.82 | 235.01
Legacy IP Royalty Rate Adjustment (4.5% → 11.0%) | 52.95 | 49.55 | 44.97 | 40.57 | 188.04
Gross Proposed Adjustments | 101.68 | 107.16 | 107.82 | 106.39 | 423.05
Correlative Offset (avoid double-counting) | -10.42 | -10.72 | -10.93 | -10.58 | -42.65
Net Proposed Adjustment | 91.26 | 96.44 | 96.89 | 95.81 | 380.4
Legacy Net Sales, Non-Americas ($M) | 814.6 | 762.3 | 691.8 | 624.1 | 2892.8
Royalty Paid at 4.5% ($M) | 36.657 | 34.304 | 31.131 | 28.085 | 130.177
IRS Royalty at 11.0% ($M) | 89.606 | 83.853 | 76.098 | 68.651 | 318.208
Royalty Adjustment ($M) | 52.949 | 49.549 | 44.967 | 40.566 | 188.031
Applicable Tax Rate | 35%/21% blended | 21% | 21% | 21%
Proposed Tax on Net Adjustment (est.) | 79.88
IRC § 6662(e) Penalty (20% of tax) | 15.98
[sheet: PPC vs IRS Comparison]
Tax Year | Total R&D Costs ($M) | PPC Filed PBI % | PPC Filed PBI Payment ($M) | IRS Proposed PBI % | IRS Proposed PBI Payment ($M) | Increase (pp) | Additional Payment to PPC ($M) | % Increase over PPC Position
2017 | 487.3 | 38.2 | 186.15 | 48.2 | 234.88 | 10 | 48.73 | 26.18
2018 | 523.8 | 39.6 | 207.42 | 50.6 | 265.04 | 11 | 57.62 | 27.78
2019 | 561.2 | 41.1 | 230.65 | 52.3 | 293.51 | 11.2 | 62.85 | 27.25
2020 | 598.4 | 42.7 | 255.52 | 53.7 | 321.34 | 11 | 65.82 | 25.76
TOTAL | 2170.7 | 879.74 | 1114.77 | 235.02 | 26.71

[sheet: Cover & Summary]

Record

Parties

Dates

Amounts