PRIVILEGED AND CONFIDENTIAL — PREPARED AT THE DIRECTION OF COUNSEL UNDER KOVEL ARRANGEMENT
WHITMORE VALUATION LLC 200 Ashbury Asset Advisors, Suite 700 Boston, MA 02109
Reference: C&H Matter Number 1018-00009-KV
REBUTTAL MEMORANDUM
Economic Analysis of Dr. Alan Washburne, IRS Transfer Pricing Practice, Underlying the Notice of Proposed Adjustment (October 12, 2023)
Penterra Pharmaceuticals Corp. IRS Examination (Tax Years 2017–2020)
Prepared by:
Dr. Helena Vasquez, Ph.D., Managing Director, Whitmore Valuation Group LLC Dr. Rohan Chakrabarti, Ph.D., Senior Director, Whitmore Valuation Group LLC
Prepared at the Direction of:
Leonard Cross, Esq., Responsible Partner, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103
Date: January 22, 2024
Client: Penterra Pharmaceuticals Corp. (EIN: 22-3741856)
IRS Exam Team ID: LB&I-NE-TP-2022-00641
Re: Rebuttal of the economic analysis prepared by Dr. Alan Washburne, IRS Transfer Pricing Practice, supporting proposed adjustments totaling $380,400,000 for tax years 2017, 2018, 2019, and 2020.
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I. Executive Summary
This memorandum rebuts the economic analysis prepared by Dr. Alan Washburne of the Internal Revenue Service Transfer Pricing Practice, which underpins the Notice of Proposed Adjustment ("NOPA") issued on October 12, 2023, proposing net transfer pricing adjustments of $380.4 million across tax years 2017 through 2020 against Penterra Pharmaceuticals Corp. ("PPC"). Whitmore Valuation Group LLC ("Whitmore") was retained by Calderwood & Harkness LLP ("C&H"), counsel to PPC, under a Kovel arrangement, to prepare independent economic analyses and expert reports supporting PPC's transfer pricing positions. This rebuttal memorandum is one component of that engagement.
The NOPA adjustments proposed by the IRS examination team, supported by Dr. Washburne's economic analysis, consist of three primary components: (a) cost-sharing arrangement ("CSA") cost-sharing ratio increases totaling $235.01 million; (b) legacy intellectual property ("IP") royalty rate increases totaling $188.04 million; less (c) a correlative offset of $42.65 million intended to mitigate double-counting between the CSA and royalty adjustments. In total, the IRS proposes a net adjustment of $380.4 million, which would increase PPC's U.S. federal taxable income for the four examination years by an equivalent amount.
After extensive review and independent analysis, Whitmore has identified fundamental methodological errors pervading Dr. Washburne's economic analysis in three critical areas:
1. Comparable Uncontrolled Transaction ("CUT") Selection Criteria for the Royalty Rate Analysis. Dr. Washburne's selection of purported CUT agreements fails to satisfy the comparability standards prescribed by Treasury Regulation § 1.482-4(c). His comparable set includes license agreements involving fundamentally non-comparable intangible property — specifically, platform technology licenses with broad sublicensing rights, exclusive worldwide licenses (not territory-limited), and licenses bundled with significant know-how transfer and ongoing technical assistance. These agreements are materially distinguishable from PPC's narrowly scoped legacy compound license for non-Americas territories and cannot serve as reliable benchmarks for an arm's-length royalty rate.
2. discount Rate / Weighted Average Cost of Capital ("WACC") Assumptions in the Platform Contribution Transaction ("PCT") Income-Method Valuation. Dr. Washburne applied a WACC of 7.2% to discount projected income streams attributable to pre-existing IP contributed to the CSA. This rate is unsupportably low due to inappropriately low equity risk premium assumptions, beta selection errors arising from the inclusion of diversified healthcare conglomerates with materially different risk profiles, omission of applicable size and country risk premiums, and use of inappropriate capital structure assumptions.
3. Projected Revenue Growth Rates Used to Derive Reasonably Anticipated Benefit ("RAB") Shares for the CSA Cost-Sharing Analysis. Dr. Washburne's RAB recalculation improperly incorporates ex post actual results rather than ex ante prospective projections, overstates Americas revenue projections by including revenue from products and indications not covered by the CSA, and applies compound annual growth rates that exceeded contemporaneous analyst consensus by 300 to 500 basis points for non-Americas territories.
Whitmore's corrected analyses — applying properly screened CUT comparables, an appropriately derived WACC, and reliable contemporaneous revenue projections — demonstrate that PPC's transfer pricing positions for tax years 2017 through 2020 all fall squarely within arm's-length ranges. Specifically:
• Legacy IP Royalty Rate. PPC's 4.5% royalty rate falls within the interquartile range ("IQR") of 3.1% to 6.8% (median 4.4%) identified from 14 properly screened comparable license agreements. Dr. Washburne's proposed 11.0% rate relies on improperly selected CUTs that fail basic comparability standards under the regulations.
• PCT Valuation. A properly computed WACC of 9.8% — reflecting an appropriate equity risk premium, a beta derived from narrowly defined specialty pharmaceutical/biotechnology comparables, applicable size and country risk premiums, and a capital structure appropriate for a stand-alone IP-exploitation entity — yields a PCT arm's-length range of $278 million to $361 million. PPC's $312 million PCT payment falls within this range. Dr. Washburne's $852 million valuation, premised on a 7.2% WACC, is the mechanical product of an unsupportably low discount rate and overstated revenue projections.
• CSA Cost-Sharing Ratios. PPC's RAB-based cost-sharing ratios of 38.2% (2017) through 42.7% (2020) are supported by contemporaneous territory-level revenue projections prepared at the beginning of each cost-sharing period, validated by independent third-party market research, and corroborated by CPM/TNMM analysis of PBI's operating margins. The gradual increase in cost-sharing ratios over the four-year period reflected growing non-Americas market penetration for newer products, consistent with PPC's contemporaneous business plans and analyst consensus estimates.
• Economic Substance. PBI maintained robust economic substance throughout the examination period, employing 185 personnel (as of 2020), conducting 42 board meetings in Dublin, incurring €47.2 million in cumulative regulatory expenditures across 68 country markets, and exercising independent decision-making authority over pricing, market entry, distribution partner selection, and regulatory strategy. Dr. Washburne's partial economic substance challenge is not supported by the factual record.
In sum, the proposed net adjustment of $380.4 million is not supported by reliable economic analysis. PPC's transfer pricing positions are arm's-length in all material respects, and the proposed adjustment should be withdrawn in its entirety.
II. Background and Scope of Engagement
A. Whitmore Valuation Group's Engagement
Whitmore Valuation Group LLC was retained by Calderwood & Harkness LLP under a Kovel arrangement, pursuant to an engagement letter dated June 20, 2022 (Reference: 1018-00009-KV). Under this arrangement, Whitmore serves as a consulting expert engaged by counsel at the direction of PPC's legal team, and all communications, work product, and analyses prepared by Whitmore in connection with this engagement are protected by the attorney-client privilege and the work-product doctrine. The engagement letter specifies that Whitmore's role is to provide independent economic analyses, benchmarking studies, and expert reports supporting PPC's transfer pricing positions before the Internal Revenue Service.
Dr. Helena Vasquez, Ph.D., Managing Director at Whitmore, serves as the lead economist for this engagement. Dr. Rohan Chakrabarti, Ph.D., Senior Director at Whitmore, serves as the supporting economist. Biographies and detailed qualifications of both economists are set forth in Section XI of this memorandum. Whitmore's blended billing rate for this engagement is $650 per hour, as established in the engagement letter.
In the course of this engagement, Whitmore has reviewed the full administrative record of the IRS examination, including the NOPA dated October 12, 2023, Dr. Washburne's economic analysis report and supporting workpapers (to the extent produced by the IRS examination team), PPC's contemporaneous transfer pricing documentation for tax years 2017 through 2020 (prepared by Crestfield & Associates LLP), PPC's financial statements and regulatory filings, the CSA and legacy license agreements, board minutes and corporate records of PBI, and extensive market research and industry data relevant to the pharmaceutical sector. Whitmore has also conducted its own independent economic analyses, including CUT benchmarking, WACC derivation, revenue projection modeling, and CPM/TNMM comparability studies, the results of which are presented in this memorandum and its appendices.
B. PPC's IP Structure Overview
Penterra Pharmaceuticals Corp. ("PPC") is a publicly traded Delaware corporation headquartered at 100 College Road East, Princeton Junction, New Jersey 08540. PPC's common stock trades on the Nasdaq Global Select Market under the ticker symbol PPCA. For fiscal year 2020, PPC reported consolidated revenue of $6.82 billion, pre-tax income of $1.47 billion, and employed approximately 14,500 individuals worldwide. PPC is a specialty pharmaceutical company focused on oncology, immunology, and rare disease therapeutics, with a portfolio of marketed products and a clinical-stage development pipeline.
Penterra Biopharma International DAC ("PBI") is a designated activity company incorporated under the laws of Ireland on March 15, 2012, with its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI serves as the IP-holding company and commercial principal for the development and exploitation of PPC's pharmaceutical intellectual property outside the Americas (i.e., Europe, Middle East, Africa, and Asia-Pacific). PBI is a wholly owned subsidiary of Penterra Holdings Luxembourg S.à r.l. ("PHL"), a Luxembourg private limited liability company (société à responsabilité limitée). PHL is itself wholly owned by PPC. PHL is treated as a disregarded entity for U.S. federal income tax purposes under Treasury Regulation § 301.7701-3, such that PBI is treated as a directly owned controlled foreign corporation of PPC for purposes of Subpart F and the transfer pricing regulations.
Penterra Manufacturing Ireland Ltd. ("PMI") is an Irish private limited company with manufacturing operations at Ringaskiddy, County Cork, Ireland. PMI operates as a contract manufacturer under a cost-plus arrangement with PBI, receiving compensation equal to its total manufacturing costs plus a markup of 8%. As of 2020, PMI employed approximately 620 individuals. PMI's sole customer is PBI, and it performs toll manufacturing of pharmaceutical products for distribution in non-Americas markets.
Cost-Sharing Arrangement. Effective July 1, 2012, PPC and PBI entered into a qualified cost-sharing arrangement within the meaning of Treasury Regulation § 1.482-7 (the "CSA"). Under the CSA, PBI acquired the right to develop and exploit pharmaceutical intellectual property outside the Americas in exchange for (i) an upfront PCT payment of $312 million, compensating PPC for the value of pre-existing intangible property contributed to the arrangement, and (ii) ongoing cost-sharing payments representing PBI's share of qualified intangible development costs ("Coss"), determined annually based on PBI's share of reasonably anticipated benefits ("RABs"). During the examination years 2017 through 2020, PBI's CSA cost-sharing percentages were 38.2% (2017), 39.6% (2018), 41.1% (2019), and 42.7% (2020).
Legacy IP License. Concurrently with the CSA, PBI entered into a license agreement with PPC under which PBI licenses pre-2012 compounds — that is, compounds that were approved and commercialized prior to the effective date of the CSA and are therefore not subject to the CSA — from PPC at a royalty rate of 4.5% of non-Americas net sales. These legacy compounds represent a declining portion of PBI's overall product portfolio, with non-Americas net sales decreasing from $814.6 million in 2017 to $624.1 million in 2020, reflecting patent expirations and increasing generic competition.
Key Products. PPC's product portfolio includes three principal franchises:
• Veritaxol (oncology): A monoclonal antibody therapy for the treatment of non-small cell lung cancer and metastatic colorectal cancer. Veritaxol generated global net sales of $3.12 billion in 2020, of which $1.34 billion was attributable to non-Americas markets.
• Imvara (immunology): A biologic therapy for moderate-to-severe rheumatoid arthritis and psoriatic arthritis. Imvara generated global net sales of $1.87 billion in 2020, of which $0.79 billion was attributable to non-Americas markets.
• Cerulon (rare disease): An enzyme replacement therapy for a rare lysosomal storage disorder. Cerulon generated global net sales of $0.62 billion in 2020, of which $0.28 billion was attributable to non-Americas markets.
C. PBI's Functions, Assets, and Risks
A central issue in this examination is whether PBI possesses sufficient economic substance and performs adequate functions commensurate with its role as IP owner and CSA participant for non-Americas territories. The factual record overwhelmingly supports PBI's substantive operational presence.
As of 2020, PBI employed 185 individuals, up from 52 employees at the time of its incorporation in 2012. This substantial growth in headcount reflects PBI's expanding role in non-Americas commercialization and regulatory affairs. PBI's employees include senior professionals in regulatory affairs, medical affairs, commercial strategy, market access, pharmacovigilance, supply chain management, finance, and legal. PBI occupies approximately 18,000 square feet of office space at Sandyford Business Park in Dublin.
During the four examination years (2017–2020), PBI's board of directors convened 42 meetings in Dublin. Board meeting minutes, which have been produced to the IRS examination team, document substantive decisions regarding pricing strategies across non-Americas markets, market entry sequencing for new product launches, regulatory filing strategies before the European Medicines Agency ("EMA"), the Therapeutic Goods Administration ("TGA") of Australia, Health Canada, and numerous other national regulatory agencies, capital expenditure approvals, and distribution partner selection and contract renegotiation.
PBI incurred €47.2 million in cumulative regulatory expenditures during the 2017–2020 period in connection with regulatory submissions, clinical trial support, and post-marketing commitments across 68 country markets outside the Americas. PBI made independent pricing decisions in each of these 68 markets, reflecting local market conditions, reimbursement frameworks, competitive dynamics, and regulatory requirements. PBI selected and managed distribution partners in markets where it did not maintain a direct commercial presence, and it oversaw contract manufacturing operations through its relationship with PMI (cost-plus 8%).
PBI's managing director during the examination period was Aidan Naughton, an experienced pharmaceutical executive who exercised significant operational decision-making authority. Mr. Naughton reported to PBI's board and had authority over commercial strategy, regulatory affairs, and supply chain management for non-Americas operations.
PBI maintained independent banking relationships with Glenmore Bank Ireland plc, through which it managed cash flows, accounts receivable and payable, and intercompany settlements. PBI bore market risk for non-Americas territories, including demand risk, pricing risk, regulatory risk, and currency risk.
D. Dr. Washburne's Analysis — Overview
Dr. Alan Washburne, an economist with the IRS Transfer Pricing Practice within the Large Business and International ("LB&I") Division, prepared the economic analysis underlying the NOPA dated October 12, 2023. Dr. Washburne's analysis was supported by the IRS Office of Chief Counsel, specifically Attorney-Advisor Franklin Rosario and Senior Counsel Donna Hirabayashi.
Dr. Washburne's analysis contains four key elements:
1. CUT-Based Royalty Rate Increase. Dr. Washburne proposes increasing the legacy IP royalty rate from PPC's 4.5% to 11.0% of non-Americas net sales, based on a set of purported CUT agreements that he asserts establish an arm's-length royalty rate.
2. Income-Method PCT Revaluation. Dr. Washburne revalues the PCT payment at $852 million (versus PPC's $312 million) using the income method under Treasury Regulation § 1.482-7(g)(4), applying a WACC of 7.2% and aggressive revenue growth projections.
3. RAB-Based CSA Cost-Sharing Ratio Increases. Dr. Washburne proposes increasing PBI's cost-sharing percentages by 8 to 12 percentage points per year for each of the four examination years, resulting in additional cost-sharing payments totaling $235.01 million.
4. Partial Economic Substance Challenge. Dr. Washburne asserts that PBI lacks sufficient economic substance to justify its role as IP owner and CSA participant, arguing that key DEMPE functions (Development, Enhancement, Maintenance, Protection, and Exploitation) remained in the United States.
Each of these elements is addressed and rebutted in detail in the sections that follow.
III. Rebuttal of Dr. Washburne's CUT Analysis — Legacy IP Royalty Rate
A. Summary of Dr. Washburne's Position
Dr. Washburne proposes increasing the legacy IP royalty rate from PPC's 4.5% to 11.0% of non-Americas net sales. The 11.0% rate represents a 6.5 percentage point increase over PPC's reported royalty rate. Applied to PBI's non-Americas net sales of the legacy compounds during the four examination years, this increase produces the following proposed royalty adjustments:
To support this proposed rate increase, Dr. Washburne selected a set of purported CUT agreements from pharmaceutical and biotechnology licensing transactions. Dr. Washburne asserts that these agreements establish a royalty range that supports an arm's-length rate of 11.0%. As detailed below, however, Dr. Washburne's CUT selection methodology suffers from fundamental deficiencies that render his proposed rate unreliable.
B. Deficiencies in Dr. Washburne's CUT Selection Criteria
The CUT method, as applied under Treasury Regulation § 1.482-4(c), requires that the comparable transactions satisfy specific comparability standards. Section 1.482-4(c)(2) provides that the comparability of a controlled transaction to an uncontrolled transaction must be evaluated with reference to all factors that could affect the arm's-length result, including (1) the terms and conditions of the transfer, (2) the contractual terms, (3) the nature of the intangible property, and (4) the economic conditions existing at the time of the transaction. Where material differences exist between the controlled and uncontrolled transactions, adjustments must be made to account for those differences under Treasury Regulation § 1.482-4(c)(2)(ii), or the purported comparable must be rejected.
Dr. Washburne's CUT selection fails these comparability standards in multiple respects:
Inclusion of agreements involving fundamentally non-comparable intangibles. Dr. Washburne's set of purported CUT agreements includes licenses for platform technology rights with broad sublicensing rights, exclusive worldwide licenses (as opposed to territory-limited licenses), and licenses bundled with significant know-how transfer and ongoing technical assistance from the licensor. Each of these characteristics materially distinguishes the purported CUTs from PPC's legacy compound license, which involves a narrowly scoped license of approved, marketed compounds limited to non-Americas territories, without sublicensing rights or bundled know-how transfer. Platform technology licenses command higher royalty rates because they confer broader exploitation rights — including the right to develop derivative products and sublicense to third parties — that are fundamentally different from a license limited to the commercialization of specific approved compounds in defined territories.
Failure to control for stage of development. Several of Dr. Washburne's purported CUTs involve early-stage, pre-approval compounds with significant remaining development risk. In pharmaceutical licensing, it is well established that royalty rates for early-stage compounds are higher than those for approved, marketed products, reflecting the licensor's compensation for the substantial development risk borne during the pre-approval period. PPC's legacy compounds were mature, approved products in the declining phase of their product lifecycle. Non-Americas net sales of these legacy compounds declined steadily from $814.6 million in 2017 to $624.1 million in 2020, reflecting patent expirations and generic competition. Including early-stage compound licenses in the CUT set introduces a systematic upward bias into the royalty rate analysis.
Failure to account for volume and market size. It is a well-recognized economic principle that large-territory, high-volume licenses typically command lower per-unit or percentage royalty rates than small-territory, niche-market licenses. This reflects economies of scale, the licensee's bargaining power, and the inherent diversification benefits of larger territories. Dr. Washburne's selection includes small-territory, niche-market licenses with inherently higher percentage rates. PBI's legacy compound license covers a broad non-Americas territory generating $624 million to $815 million in annual net sales — a scale that would warrant a lower percentage royalty rate under standard licensing economics.
Inclusion of agreements with materially different risk allocation. Some of Dr. Washburne's purported CUTs involve licensees that bear no commercial risk or only minimal regulatory burden. In those transactions, the licensor retains significant control over commercialization and the licensee operates more as a passive royalty-generating vehicle. By contrast, PBI bore full market risk for non-Americas territories, including demand risk, pricing risk, currency risk, and regulatory risk. PBI incurred €47.2 million in cumulative regulatory expenditures during 2017–2020 for submissions across 68 country markets. PBI made independent pricing decisions, selected distribution partners, and controlled market access strategy. Under standard transfer pricing principles, a licensee that bears greater functions, assets, and risks should receive a larger share of the residual profit, which corresponds to a lower royalty rate to the licensor. Dr. Washburne's failure to account for these differences in risk allocation introduces further upward bias into his royalty rate analysis.
Failure to make appropriate comparability adjustments. Treasury Regulation § 1.482-4(c)(2)(ii) expressly requires that if there are material differences between the controlled and uncontrolled transactions, adjustments must be made to account for those differences. Dr. Washburne made no adjustments to his selected comparables to account for the material differences identified above. The failure to make any comparability adjustments, when material differences are readily identifiable, represents a fundamental deficiency in Dr. Washburne's application of the CUT method and renders his analysis unreliable.
C. Whitmore's CUT Analysis — Properly Screened Comparables
Whitmore conducted an independent CUT analysis applying rigorous screening criteria consistent with the comparability standards of Treasury Regulation § 1.482-4(c). Whitmore identified 14 comparable uncontrolled pharmaceutical license agreements that satisfy each of the following screening criteria:
(a) The license involves pharmaceutical or biotechnology intangible property;
(b) The licensed compounds are approved or late-stage (Phase III or later) at the time of the license agreement;
(c) The license is territory-limited (i.e., the licensee receives rights in defined geographic territories, not a worldwide exclusive license);
(d) The licensee bears commercial risk, including demand risk, pricing risk, and regulatory risk in its licensed territory;
(e) The license does not involve bundled technology transfer, significant ongoing technical assistance from the licensor, or broad sublicensing rights; and
(f) The licensed compounds are at a comparable stage in their product lifecycle (i.e., mature, approved products with established commercial profiles, not early-stage compounds with substantial remaining development risk).
Application of these criteria — each of which is directly derived from the comparability factors specified in Treasury Regulation § 1.482-4(c)(2) — yielded a set of 14 comparable license agreements. The key parameters and royalty rates of these 14 agreements are summarized in Appendix A (with party names redacted to protect confidential business information). The resulting arm's-length royalty rate distribution is as follows:
The interquartile range of 3.1% to 6.8% represents the arm's-length range under the CUT method, consistent with the range concept prescribed by Treasury Regulation § 1.482-1(e)(2). PPC's 4.5% royalty rate falls within this IQR, essentially at the median of 4.4%. This result confirms that PPC's reported royalty rate is arm's-length.
Even if one were to consider the upper quartile of Whitmore's properly screened comparable set, the maximum supportable rate of 6.8% is dramatically lower than Dr. Washburne's proposed 11.0%. Dr. Washburne's proposed rate lies well outside any defensible arm's-length range derived from properly comparable transactions.
Each of the 14 comparable agreements is discussed in detail in Appendix A, with information regarding the type of compound licensed, the territorial scope, the development stage at the time of the agreement, the risk allocation between licensor and licensee, and the reported royalty rate. The 14 agreements span a range of therapeutic areas (oncology, immunology, metabolic disease, and rare disease) and geographic territories (European Union, Asia-Pacific, and emerging markets), providing a robust and representative sample of territory-limited pharmaceutical licensing transactions.
D. Statistical and Methodological Critique
Dr. Washburne's comparable set, when subjected to the proper screening criteria described in Section III.C above, yields an upward-biased royalty rate distribution. The bias arises from the systematic inclusion of non-comparable transactions — specifically, platform technology licenses, worldwide exclusive licenses, early-stage compound licenses, and licenses with bundled know-how transfer — that inherently involve higher royalty rates due to the broader scope of rights, greater development risk, and more extensive licensor contributions that characterize those transactions.
To illustrate the magnitude of this bias, Whitmore conducted a sensitivity analysis in which the most clearly non-comparable agreements were removed from Dr. Washburne's set. Specifically, Whitmore removed (i) agreements involving worldwide exclusive licenses, (ii) agreements involving early-stage (pre-Phase III) compounds, and (iii) agreements involving bundled know-how transfer or ongoing technical assistance. Removing these non-comparable agreements from Dr. Washburne's set reduces his computed median royalty rate from approximately 10.5% to approximately 5.2%, which falls well within Whitmore's IQR of 3.1% to 6.8%. This sensitivity analysis demonstrates that Dr. Washburne's proposed 11.0% rate is driven by the inclusion of non-comparable transactions, not by the underlying economics of territory-limited pharmaceutical licensing.
Best Method Rule Analysis. Treasury Regulation § 1.482-1(c) provides that the arm's-length result of a controlled transaction must be determined under the method that, under the facts and circumstances, provides the most reliable measure of an arm's-length result (the "best method rule"). The CUT method is the best method for determining the arm's-length royalty rate in this case, given the availability of sufficiently comparable uncontrolled license agreements in the pharmaceutical sector. However, the reliability of the CUT method depends critically on the quality of the comparable transactions selected. Dr. Washburne's flawed CUT selection — which fails to satisfy the comparability standards of Treasury Regulation § 1.482-4(c) and makes no adjustments for material differences — does not satisfy the best method rule. Whitmore's properly screened CUT analysis, by contrast, satisfies the best method rule by applying rigorous comparability criteria, identifying transactions that are closely comparable to PPC's legacy compound license, and producing a reliable arm's-length range.
In conclusion, Dr. Washburne's proposed royalty rate of 11.0% is unsupported by properly comparable uncontrolled transactions and should be rejected. PPC's 4.5% royalty rate is arm's-length, falling at the median of the IQR identified from 14 properly screened CUT agreements.
IV. Rebuttal of Dr. Washburne's PCT Valuation — Discount Rate / WACC Analysis
A. Summary of Dr. Washburne's Position
Dr. Washburne revalued the platform contribution transaction ("PCT") at $852 million using the income method prescribed by Treasury Regulation § 1.482-7(g)(4). PPC reported a PCT payment of $312 million, paid by PBI to PPC on July 1, 2012, in connection with PBI's acquisition of the right to develop and exploit pre-existing pharmaceutical IP outside the Americas under the CSA. The delta between Dr. Washburne's revaluation and PPC's reported PCT is $540 million.
Although the PCT payment was made in 2012, which is outside the 2017–2020 examination years, the IRS examination team has used the revalued PCT to support its assertion that the CSA cost-sharing ratios understate PPC's U.S.-source income from the IP pool. Specifically, Dr. Washburne contends that the $312 million PCT payment undervalued the pre-existing IP contributed by PPC to the CSA, and that this undervaluation flows through to the RAB calculations underlying the cost-sharing ratios for the 2017–2020 examination years. As discussed in Section V below, correcting the PCT valuation to its proper arm's-length level eliminates the foundation for the IRS's proposed cost-sharing ratio increases.
The critical driver of the valuation difference between Dr. Washburne's $852 million and PPC's $312 million is the discount rate applied to the projected income streams. Dr. Washburne applied a WACC of 7.2%, which is unsupportably low for the reasons detailed below.
B. Deficiencies in Dr. Washburne's 7.2% WACC
The WACC is the most critical input in a discounted cash flow ("DCF") valuation, as it determines the present value of future projected cash flows. Small changes in the WACC produce disproportionately large changes in the resulting valuation, a well-known sensitivity that demands particular care in discount rate derivation. Dr. Washburne's 7.2% WACC suffers from five specific deficiencies:
Inappropriately low equity risk premium. Dr. Washburne appears to have used a generalized large-cap equity risk premium without adjusting for pharmaceutical-industry-specific risk factors. The pharmaceutical industry is characterized by unique risk factors that are not captured by a broad market equity risk premium, including regulatory approval risk (the risk that products will fail to receive approval in non-Americas jurisdictions or that approvals will be delayed or subject to restrictive labeling), patent cliff risk (the risk that patent expirations will lead to rapid and substantial revenue declines due to generic or biosimilar competition), and market adoption uncertainty in non-Americas territories (reflecting different payer systems, reimbursement frameworks, prescribing patterns, and competitive dynamics compared to the U.S. market). A properly calibrated equity risk premium should account for these sector-specific risks.
Beta selection errors. Dr. Washburne's beta comparables include diversified healthcare conglomerates with materially lower systematic risk profiles than specialty pharmaceutical and biotechnology companies focused on oncology and immunology. Diversified healthcare conglomerates — such as those with medical device, consumer health, and pharmaceutical divisions — exhibit lower volatility and lower betas because their revenue streams are diversified across multiple business lines with different risk profiles. PPC, by contrast, is a specialty pharmaceutical company concentrated in oncology, immunology, and rare disease therapeutics, with a product portfolio consisting of a relatively small number of high-value, patent-protected products. The appropriate beta comparables are other specialty pharmaceutical and biotechnology companies with similar therapeutic area focus and revenue concentration. Whitmore's analysis uses a beta derived from a more narrowly defined peer group of 12 such companies, as described in Section IV.C below.
Failure to incorporate size premium. The academic finance literature, including the widely cited size premium studies published by Westmark Consulting Group (now Sundial Advisors), supports the inclusion of a size premium for smaller or more concentrated businesses. While PPC as a whole is a large-cap company, the specific IP portfolio being valued — the pre-existing oncology and rare disease compounds — is concentrated in fewer products than a diversified portfolio, exhibiting risk characteristics more akin to a mid-cap specialty pharmaceutical company. Failure to incorporate an appropriate size premium understates the cost of equity and thus the WACC.
Debt-to-equity ratio assumptions. Dr. Washburne used a capital structure assumption reflecting PPC's overall corporate leverage rather than a hypothetical capital structure appropriate for a stand-alone IP-exploitation entity. Under the income method, the valuation should reflect the discount rate that a hypothetical buyer of the IP rights would apply, which corresponds to the capital structure of a stand-alone entity exploiting those rights, not the capital structure of the parent company. A stand-alone IP-exploitation entity would typically have higher equity weighting (and lower leverage) than a large, diversified corporation with access to investment-grade debt markets. The use of PPC's corporate-level leverage understates the WACC because it gives excessive weight to the lower-cost debt component of the capital structure.
Country risk premium omission. The pre-existing IP generates income across diverse non-Americas markets encompassing 68 countries, including developing markets in the Asia-Pacific ("APAC") and Latin America ("LATAM") regions. These markets carry higher country risk — including political risk, regulatory risk, currency risk, and macroeconomic volatility — than developed-market benchmarks used to derive the base risk-free rate and equity risk premium. A country-risk adjustment is appropriate to reflect the incremental risk associated with generating cash flows in these territories. Dr. Washburne did not apply any country-risk premium, which further understates his WACC.
C. Whitmore's 9.8% WACC — Detailed Derivation
Whitmore derived a WACC of 9.8% as the appropriate discount rate for the PCT income-method valuation. The components of this derivation are as follows:
Cost of Equity. The cost of equity was calculated using the modified Capital Asset Pricing Model ("CAPM"), incorporating the following components:
• Risk-free rate: The yield on the 10-year U.S. Treasury note as of July 1, 2012 (the PCT payment date). As of that date, the 10-year Treasury yield was approximately 1.65%.
• Beta: Whitmore derived the appropriate beta from a panel of 12 specialty pharmaceutical and biotechnology companies with therapeutic area focus in oncology, immunology, and/or rare disease. These companies are more closely comparable to PPC and PBI's IP exploitation activities than the diversified healthcare conglomerates used by Dr. Washburne. The resulting levered beta is approximately 1.15, reflecting the higher systematic risk associated with specialty pharmaceutical companies relative to the broad market. The detailed beta comparables and their individual betas are presented in Appendix B.
• Equity risk premium ("ERP"): Whitmore applied an ERP of 6.0% to 6.5%, consistent with published research on historical and forward-looking equity risk premiums, including estimates from Sundial Advisors (formerly Westmark Consulting Group), Damodaran, and other authoritative sources as of mid-2012.
• Size premium: Whitmore applied a size premium of 1.5% to 2.0% for the specific IP portfolio being valued, reflecting the mid-cap specialty pharmaceutical risk characteristics of the IP exploitation entity, consistent with published size premium studies.
• Country risk premium: Whitmore applied a country risk premium of 0.5% to 1.0% to reflect the incremental risk associated with non-Americas territory diversification across 68 country markets, including developing markets in APAC and LATAM.
The resulting cost of equity, incorporating all components, is approximately 11.5% to 12.5%.
Cost of Debt. The pre-tax cost of debt was determined based on PPC's actual borrowing costs under its credit facility with Hargrove National Bank, which was 4.2% as of July 1, 2012. Tax-affecting this rate at the applicable U.S. corporate tax rate produces an after-tax cost of debt of approximately 2.7% to 2.9%.
Capital Structure. Whitmore applied a capital structure reflecting a hypothetical stand-alone IP-exploitation entity, with approximately 80% equity and 20% debt. This is more conservative (higher equity weighting) than PPC's corporate-level capital structure but is appropriate for a DCF valuation of a concentrated pharmaceutical IP portfolio.
Resulting WACC. Combining the cost of equity, after-tax cost of debt, and appropriate capital structure weights, Whitmore derives a WACC of approximately 9.8%. The detailed WACC derivation workpaper, including all inputs, calculations, and supporting data, is presented in Appendix B.
Sensitivity Analysis. Given the extreme sensitivity of DCF valuations to the discount rate, Whitmore prepared a sensitivity analysis showing the resulting PCT valuation at various WACC levels:
At Whitmore's 9.8% WACC, the PCT arm's-length range is $278 million to $361 million (reflecting the reasonable range of variation in the revenue projections and other model inputs). PPC's $312 million PCT payment falls within this range.
At Dr. Washburne's 7.2% WACC, the present value is mechanically inflated to $852 million — a figure that is 2.7 times PPC's reported PCT payment. The 260 basis point differential between Dr. Washburne's 7.2% and Whitmore's 9.8% produces a valuation difference of $531 million, underscoring the extreme sensitivity of the DCF model to the discount rate assumption. This sensitivity reinforces the importance of applying a properly derived WACC, and it demonstrates that Dr. Washburne's $852 million figure is a mechanical artifact of an inappropriately low discount rate rather than a reflection of the economic fundamentals of the pre-existing IP portfolio.
The full sensitivity analysis is presented in tabular and graphical form in Appendix E.
D. Revenue Projection Differences in PCT Model
In addition to the discount rate differences, Dr. Washburne used more aggressive revenue growth projections for non-Americas markets in his income-method PCT model. Dr. Washburne assumed higher peak market penetration rates, longer product lifecycles before generic/biosimilar erosion, and compound annual growth rates ("CAGRs") that exceed contemporaneous analyst consensus estimates by 300 to 500 basis points for non-Americas territories.
Whitmore's revenue projections, by contrast, were based on contemporaneous 2012 market research and analyst consensus forecasts available as of the PCT payment date. This is consistent with the requirement of Treasury Regulation § 1.482-7(g)(4)(vi)(F) that the income-method valuation use "the most reliable estimate of prospective results" available at the time of the PCT. Projections made with the benefit of hindsight — or projections that systematically exceed what was known or reasonably knowable as of the valuation date — do not satisfy this standard.
The actual realized revenues for the 2012–2020 period are now available and provide a useful reasonableness check on the competing projections. While hindsight is not dispositive under the regulations — the arm's-length determination must be based on information reasonably available at the time of the transaction — the comparison of projected to actual revenues is informative:
• Veritaxol (non-Americas): Dr. Washburne projected 2020 net sales of approximately $1.62 billion; actual 2020 net sales were $1.34 billion. Dr. Washburne's projection overstated actual results by approximately 21%.
• Imvara (non-Americas): Dr. Washburne projected 2020 net sales of approximately $0.98 billion; actual 2020 net sales were $0.79 billion. Dr. Washburne's projection overstated actual results by approximately 24%.
• Cerulon (non-Americas): Dr. Washburne projected 2020 net sales of approximately $0.34 billion; actual 2020 net sales were $0.28 billion. Dr. Washburne's projection overstated actual results by approximately 21%.
In each case, Whitmore's contemporaneous 2012 projections were materially more accurate than Dr. Washburne's projections. The systematic overstatement of actual results in Dr. Washburne's model — consistently 21% to 24% across all three product lines — suggests that his revenue projections were not based on the most reliable estimates available at the time of the PCT, but rather reflect upward-biased assumptions that were not supportable by the contemporaneous evidence.
The detailed comparison of Dr. Washburne's projections, Whitmore's projections, and actual realized revenues, broken out by product and by year, is presented in Appendix C.
E. Impact on CSA Cost-Sharing Ratios
The PCT revaluation is not merely an isolated adjustment to the 2012 PCT payment. As noted in Section II.D above, Dr. Washburne uses his revalued PCT to support the proposition that PPC's cost-sharing ratios understate U.S.-source income from the IP pool. Specifically, an overstated PCT mechanically inflates the imputed value of U.S.-source contributions to the CSA, which in turn inflates the proposed cost-sharing adjustments for 2017–2020.
Correcting the PCT valuation to Whitmore's arm's-length range of $278 million to $361 million eliminates the foundation for the IRS's proposed cost-sharing ratio increases. At a $312 million PCT — the payment PPC actually made — the RAB shares underlying PPC's cost-sharing ratios are consistent with the arm's-length standard. The cascading effect of the PCT revaluation on the CSA cost-sharing ratios is analyzed in further detail in Section V below and in Appendix F.
V. Rebuttal of Dr. Washburne's CSA Cost-Sharing Ratio Analysis
A. Summary of Dr. Washburne's Position
Dr. Washburne proposed increasing PBI's cost-sharing percentages for each of the four examination years, as follows:
Dr. Washburne's proposed increases of 10.0 to 11.2 percentage points per year are based on his recalculation of the RAB shares, in which he asserts that PPC's projections of reasonably anticipated benefits understated U.S.-source value. As demonstrated below, Dr. Washburne's RAB recalculation suffers from multiple methodological deficiencies that render his proposed cost-sharing adjustments unreliable.
B. Deficiencies in Dr. Washburne's RAB Analysis
The RAB methodology under Treasury Regulation § 1.482-7(e)(2)(ii) provides that each CSA participant's share of intangible development costs must be determined based on its share of reasonably anticipated benefits, which are the benefits each participant is reasonably anticipated to derive from the intangible development activity. The regulation is explicit that RABs must be determined on a prospective (ex ante) basis, using projections of benefits made at the beginning of each cost-sharing period. Dr. Washburne's RAB recalculation departs from these requirements in four material respects:
Incorporation of ex post actual results. Dr. Washburne's RAB recalculation improperly incorporates ex post actual revenues realized during 2017–2020 rather than the ex ante projections made at the beginning of each cost-sharing period. The regulations require that RAB shares be based on the "reasonably anticipated" benefits as projected prospectively, not on actual outcomes known only with the benefit of hindsight. Using actual results to recalculate RAB shares is inconsistent with the regulatory framework and, as a practical matter, would always produce results that diverge from the ex ante projections — which is precisely why the regulations require a prospective analysis. PPC prepared its RAB projections at the beginning of each cost-sharing year, consistent with the regulatory requirement, and Dr. Washburne's substitution of actual results for these contemporaneous projections is improper.
Failure to account for territory-specific risk factors. Dr. Washburne's recalculation does not adequately account for territory-specific risk factors that contemporaneously supported a higher non-Americas share of projected benefits but also carried higher failure and attrition rates. Non-Americas markets are subject to different regulatory timelines, reimbursement frameworks, and competitive dynamics than the U.S. market. The higher uncertainty associated with non-Americas revenue projections — including the risk that products would fail to receive regulatory approval, the risk of delays in market access and reimbursement negotiations, and the risk of lower-than-expected pricing — was a factor that PPC appropriately considered in developing its RAB projections.
Overstatement of Americas revenue projections. Dr. Washburne overstated Americas revenue projections by including revenue from products and indications that are not covered by the CSA — specifically, legacy compounds that are separately licensed under the royalty agreement described in Section III. The CSA covers intangible development activities for new compounds and indications; legacy compounds are not part of the CSA's intangible development cost pool. By including legacy compound revenue in the Americas RAB numerator, Dr. Washburne artificially inflated the Americas share of RABs, which mechanically increased the proposed cost-sharing ratios for PBI.
Double-counting of R&D expenditures. Dr. Washburne's analysis double-counts certain R&D expenditures related to U.S.-specific clinical trials that are not relevant to non-Americas regulatory pathways. Under the CSA, PBI's cost-sharing obligation extends to qualified intangible development costs — that is, costs incurred in connection with the development of intangible property that benefits both CSA participants. Clinical trials conducted exclusively for U.S. regulatory requirements (e.g., trials designed to satisfy FDA-specific endpoints or labeling requirements with no relevance to EMA or other non-Americas regulatory submissions) do not benefit PBI and should not be included in the qualified R&D cost pool for purposes of calculating PBI's cost-sharing obligation. By including these U.S.-specific costs, Dr. Washburne improperly inflated the cost pool to which PBI's cost-sharing percentage is applied.
C. PPC's RAB Projections — Contemporaneous Support
PPC's cost-sharing ratios of 38.2% (2017), 39.6% (2018), 41.1% (2019), and 42.7% (2020) were based on territory-level revenue forecasts prepared contemporaneously at the beginning of each CSA year, consistent with the requirements of Treasury Regulation § 1.482-7(e)(2)(ii). These projections were developed by PPC's global commercial planning team and reviewed by PBI's commercial strategy personnel, and they reflected the best available information regarding expected product launches, market penetration trajectories, pricing assumptions, patent expiration timelines, and competitive dynamics in each territory.
The gradual increase in PBI's cost-sharing ratio from 38.2% in 2017 to 42.7% in 2020 was not arbitrary but reflected the growing non-Americas market penetration for newer products during this period. Specifically, Veritaxol received marketing authorization from the EMA in late 2015 and was progressively launched across European markets during 2016–2018, with APAC launches following. Similarly, Imvara received EMA approval in 2016, with subsequent launches in additional non-Americas markets. These sequential international launches were expected to increase non-Americas revenue as a share of total global revenue, which in turn would increase PBI's share of reasonably anticipated benefits and its corresponding cost-sharing obligation.
PPC's territory-level revenue projections were validated by independent third-party market research from recognized pharmaceutical market research firms and were consistent with analyst consensus estimates published by sell-side equity research analysts covering PPC. The convergence of PPC's internal projections, independent market research, and external analyst estimates provides strong support for the reliability of PPC's RAB calculations.
Actual results for the 2017–2020 period confirm the reasonableness of PPC's projections. Non-Americas revenue shares ranged from approximately 40% to 43% of global revenue during this period, closely tracking PPC's projected non-Americas shares and falling well within the range implied by PPC's CSA cost-sharing ratios. This consistency between projected and actual results confirms that PPC's contemporaneous RAB projections were reasonable and reliable.
D. CPM / TNMM Corroboration
As an independent cross-check on the arm's-length nature of PPC's transfer pricing positions, Whitmore conducted a comparable profits method ("CPM") / transactional net margin method ("TNMM") analysis testing PBI's operating margins against a set of 22 comparable companies. The comparable set consisted of distributors and IP-holding companies in the pharmaceutical and biotechnology sectors that perform functions, bear risks, and employ assets comparable to PBI's functions, assets, and risks in the non-Americas territories.
The results of this analysis confirm that PBI's operating margins fell within the interquartile range of the comparable companies in all four examination years (2017 through 2020). This finding is significant because it demonstrates that PBI earned arm's-length returns consistent with its role as a territory-limited IP principal — neither under-compensating nor over-compensating PPC's U.S. operations. If the CSA cost-sharing ratios had understated PPC's U.S.-source income to the degree asserted by Dr. Washburne, PBI's operating margins would be expected to exceed the arm's-length range, reflecting an excessive allocation of residual profit to the non-Americas operations. The fact that PBI's margins fall within the IQR provides independent corroboration that PPC's cost-sharing ratios are arm's-length.
The detailed comparable company analysis, including the 22 comparables, their operating margin data, and the IQR calculations, is presented in Appendix D.
E. Qualified R&D Cost Pool Analysis
PPC's qualified intangible development cost ("Coss") pool for the four examination years was as follows:
The composition and allocation of the R&D cost pool conforms to the requirements of Treasury Regulation § 1.482-7(d), which specifies the categories of costs that must be included in the Coss pool for purposes of determining each participant's cost-sharing obligation. PPC included in the cost pool all costs of developing intangible property that is reasonably anticipated to contribute to the development of new or improved products, processes, or know-how covered by the CSA, while excluding costs attributable to activities not covered by the CSA (such as legacy compound maintenance and U.S.-specific regulatory activities). The cost pool was reviewed and validated as part of PPC's annual transfer pricing documentation process.
VI. Rebuttal of Dr. Washburne's Economic Substance Assertions
A. Summary of Dr. Washburne's Position
In addition to his quantitative transfer pricing adjustments, Dr. Washburne asserted in his economic analysis that PBI lacked sufficient economic substance to justify its role as IP owner and CSA participant for non-Americas territories. Specifically, Dr. Washburne argued that the key DEMPE functions — Development, Enhancement, Maintenance, Protection, and Exploitation of the pharmaceutical IP — remained in the United States, and that PBI operated as a shell entity without the personnel, operational capacity, or decision-making authority necessary to perform the functions commensurate with its IP ownership and cost-sharing role.
This characterization is factually unsupported and is contradicted by the extensive documentary record produced during the examination, including corporate records, employment records, board minutes, regulatory filings, and financial data.
B. Factual Rebuttal — PBI's Substantive Operations
PBI has maintained a robust and growing operational presence in Ireland throughout the period since its incorporation in 2012. The following facts, all of which are documented in the administrative record, demonstrate PBI's substantive operations:
• Headcount Growth. PBI's headcount grew from 52 employees at the time of its incorporation in 2012 to 185 employees as of 2020. This nearly four-fold increase reflects PBI's expanding role in non-Americas commercialization and regulatory affairs. PBI's employees include senior professionals in regulatory affairs, medical affairs, commercial strategy, market access, pharmacovigilance, supply chain management, finance, and legal.
• Office Space. PBI occupied approximately 18,000 square feet of office space at Sandyford Business Park, Dublin, providing adequate physical infrastructure for its operations.
• Board Meetings. During the four examination years (2017–2020), PBI's board of directors convened 42 meetings in Dublin. Board meeting minutes, which have been produced to the IRS examination team, document substantive decisions regarding pricing strategies, market entry sequencing, regulatory filing strategies, capital expenditure approvals, and distribution partner selection and contract renegotiation. These are not pro forma governance exercises but reflect genuine, substantive decision-making by PBI's board and management.
• Regulatory Expenditures. PBI incurred €47.2 million in cumulative regulatory expenditures during the 2017–2020 period for regulatory submissions, clinical trial support, pharmacovigilance, and post-marketing commitments across 68 country markets outside the Americas. These expenditures were incurred by PBI in its own name, funded through PBI's own cash flows and banking relationships, and managed by PBI's in-house regulatory affairs team.
• Independent Pricing Decisions. PBI made independent pricing decisions across 68 non-Americas country markets, reflecting local market conditions, reimbursement frameworks, competitive dynamics, and regulatory requirements. Pricing decisions were made by PBI's commercial strategy team under the authority of PBI's managing director, not by PPC's U.S.-based personnel.
• Distribution Partner Management. PBI selected and managed distribution partners in markets where it did not maintain a direct commercial presence, negotiating distribution agreements and overseeing distribution partner performance.
• Contract Manufacturing Oversight. PBI oversaw contract manufacturing operations through its relationship with PMI at Ringaskiddy, Co. Cork, which operated under a cost-plus 8% arrangement with PBI.
• Independent Banking. PBI maintained independent banking relationships with Glenmore Bank Ireland plc, through which it managed cash flows, accounts receivable, accounts payable, intercompany settlements, and treasury operations.
• Managing Director. PBI's managing director, Aidan Naughton, was an experienced pharmaceutical executive who exercised significant operational decision-making authority over PBI's commercial strategy, regulatory affairs, and supply chain management for non-Americas operations. Mr. Naughton reported to PBI's board and was responsible for the day-to-day management of PBI's business.
C. DEMPE Analysis
The OECD Transfer Pricing Guidelines, as reflected in U.S. transfer pricing regulations, emphasize the importance of analyzing the DEMPE functions — Development, Enhancement, Maintenance, Protection, and Exploitation — in determining the appropriate allocation of income from intangible property. PBI performed substantial DEMPE functions during the examination period, as summarized below:
Development. PBI co-funded R&D through its CSA cost-sharing payments, which ranged from $186.15 million (2017) to $255.52 million (2020) per year. These payments represent PBI's proportionate share of the intangible development costs incurred under the CSA, and they constitute a substantial financial contribution to the development of new pharmaceutical compounds and indications. In addition to its financial contribution, PBI's regulatory team managed non-Americas development strategy and regulatory filing pathways, including the design and execution of clinical trial programs required by non-Americas regulatory authorities (EMA, TGA, Health Canada, and others) and the preparation and submission of marketing authorization applications in 68 country markets.
Enhancement. PBI invested in lifecycle management activities for products in non-Americas markets, including formulation improvements tailored to non-Americas market requirements (e.g., cold-chain logistics for APAC markets, packaging modifications for European regulatory standards), post-approval studies designed to expand indications or support label changes in non-Americas jurisdictions, and health economic and outcomes research to support reimbursement negotiations with non-Americas payer authorities.
Maintenance. PBI managed pharmacovigilance, label maintenance, and regulatory compliance for all marketed products outside the Americas. This included adverse event reporting, periodic safety update reports to the EMA and other regulatory agencies, label update submissions, and ongoing compliance with good pharmacovigilance practice requirements across 68 country markets.
Protection. PBI managed the IP protection strategy in non-Americas jurisdictions, including patent prosecution, patent defense, and enforcement activities. PBI coordinated with local patent counsel in key jurisdictions and managed the strategic aspects of IP protection, including decisions regarding patent term extensions, supplementary protection certificates (in the EU), and responses to patent challenges.
Exploitation. PBI was the commercial principal for all non-Americas territories. PBI managed pricing across 68 markets, selected distribution partners, controlled market access strategy, and bore the commercial risks associated with non-Americas sales. PBI's commercial strategy team, operating under the authority of Managing Director Naughton, made independent decisions regarding product positioning, promotional strategy, and market entry timing in each non-Americas market.
The D