1018-00009 · Client 1018 · IDR Responses

idr-15-response.docx DOCUMENT M&A / Corporate

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CALDERWOOD & HARKNESS LLP

Attorneys at Law

1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-7200 Facsimile: (215) 864-7201

600 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000

November 8, 2022

Revenue Agent Patricia Dunleavy Large Business & International Division Internal Revenue Service 600 Arch Street, Room 7426 Philadelphia, PA 19106

Re: Examination of Penterra Pharmaceuticals Corp. EIN: 22-3741856 Tax Years Under Examination: 2017, 2018, 2019, 2020 Exam Team ID: LB&I-NE-TP-2022-00641 Response to Information Document Request No. 15

Dear Revenue Agent Dunleavy:

This firm represents Penterra Pharmaceuticals Corp. ("PPC" or the "Company") in connection with the ongoing examination of PPC's federal income tax returns for the taxable years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. I write in my capacity as the Responsible Partner in the Tax Department of Calderwood & Harkness LLP ("C&H"), pursuant to the authority granted by PPC under IRS Form 2848 (Power of Attorney and Declaration of Representative) filed with the Internal Revenue Service on June 8, 2022. That Form 2848 authorizes Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari, each of Calderwood & Harkness LLP, to represent PPC before the Internal Revenue Service in all matters relating to the above-referenced examination. This matter is tracked internally as C&H Matter Number 1018-00009.

This letter constitutes PPC's response to Information Document Request No. 15 ("IDR No. 15"), which was issued by Revenue Agent Dunleavy on September 23, 2022, and which requested documentation relating to regulatory expenditures and submissions by Penterra Biopharma International DAC ("PBI") for non-Americas territories during the tax years 2017 through 2020. The examination was opened on May 16, 2022, via Letter 2205-A, and PPC has cooperated fully with the examination process since that date. This response and the enclosed documentation are being provided in furtherance of PPC's continuing cooperation with the examining team.

The enclosed documentation, which is described in detail below, consists of six sets of enclosures (designated Enclosures A through F) that are responsive to the specific requests set forth in IDR No. 15. Each enclosure is described in Section 4 of this letter. We have organized the narrative portions of this response to provide the examining team with context for the enclosed documents and to facilitate the team's review.

Section 1: Scope of IDR No. 15

IDR No. 15, dated September 23, 2022, contained four principal categories of requests relating to the regulatory activities of PBI in non-Americas territories during the period under examination. We set forth below our understanding of the scope of each request and confirm that PPC and PBI have undertaken a diligent search for responsive materials.

First, IDR No. 15 requested detailed records of regulatory expenditures incurred by PBI in connection with pharmaceutical product registrations, market authorizations, and regulatory compliance activities outside the Americas. For purposes of this IDR, "Americas" was defined to encompass North America, Central America, South America, and the Caribbean. The enclosed documents address regulatory expenditures incurred by PBI in all territories outside the Americas, which PBI refers to internally as its "Non-Americas Territory" or, in certain documents, the "International Territory."

Second, IDR No. 15 requested the identification of the specific country markets in which PBI submitted regulatory filings during the tax years 2017 through 2020. This information is presented in the narrative discussion in Section 3.4 below and in detail in Enclosure D.

Third, IDR No. 15 requested supporting documentation including, but not limited to, invoices, internal expenditure reports, regulatory submission records, and correspondence with foreign regulatory authorities. Representative supporting documentation is provided in Enclosures A, B, C, and E. Correspondence with foreign regulatory authorities has been compiled and representative samples are included within Enclosure E to the extent such correspondence relates to expenditures incurred during the period under examination.

Fourth, IDR No. 15 requested a breakdown of regulatory expenditures by year and by product line. This information is presented in the narrative discussion in Sections 3.2 and 3.3 below and is supported by the annual expenditure reports in Enclosure A and the general ledger extracts in Enclosure B.

PPC and PBI have conducted a diligent search of their respective records, including records maintained at PBI's registered office in Dublin, Ireland, PBI's electronic document management systems, and PPC's corporate records maintained at its principal offices in Princeton Junction, New Jersey. On the basis of that search, PPC and PBI are producing the responsive documents described in Section 4 of this letter, together with the narrative context provided herein.

Section 2: Overview of PBI's Regulatory Function

To provide appropriate context for the enclosed documentation, we briefly describe below PBI's organizational structure, its role within the Penterra group of companies, and the nature and scope of its regulatory affairs function.

2.1 Entity Overview. Penterra Biopharma International DAC ("PBI") is a Designated Activity Company organized and existing under the laws of Ireland, with its registered office located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI was incorporated on March 15, 2012, and commenced operations effective July 1, 2012, contemporaneous with the effective date of the cost-sharing arrangement between PPC and PBI (the "CSA"). PBI is registered with the Irish Companies Registration Office and maintains its statutory books and records at its registered office in Dublin.

2.2 Principal Role. PBI serves as the intellectual property–holding company and the commercialization principal for PPC products outside the Americas. In that capacity, PBI is responsible for all aspects of the development, enhancement, maintenance, protection, and exploitation ("DEMPE") of PPC's intangible assets as they relate to non-Americas territories. PBI manages the end-to-end commercialization process for products within its territory, including regulatory strategy, market access, pricing, distribution partner selection, and post-marketing activities. PBI bears the economic and market risk associated with commercialization in its territory and retains the residual profit attributable to its activities.

2.3 Employees and Personnel. PBI employed 185 full-time employees as of December 31, 2020. This represents substantial growth from the 52 employees at PBI's incorporation in 2012, reflecting the expansion of PBI's operational capabilities over the intervening years. PBI's personnel include individuals dedicated to regulatory affairs, medical affairs, commercial strategy, supply chain management, market access and health economics, pharmacovigilance, and general administrative functions, all based in Dublin, Ireland.

2.4 Managing Director. PBI's Managing Director is Aidan Naughton, who has served in that role since PBI's incorporation. Mr. Naughton oversees all non-Americas operations from PBI's offices in Dublin and reports to PBI's board of directors. Mr. Naughton is resident in Ireland and maintains his principal place of business at PBI's registered office.

2.5 Independent Decision-Making. PBI independently manages regulatory submissions, market authorization applications, and ongoing regulatory compliance across its territory. Key decisions regarding pricing strategy, market entry sequencing (i.e., the order in which PBI seeks market authorization and launches products in specific countries), and the selection of distribution partners are made by PBI's management team in Dublin, subject to the oversight of PBI's board of directors. PBI does not act as a mere implementation agent of PPC; rather, PBI exercises entrepreneurial judgment and assumes the attendant risks in connection with its non-Americas commercialization activities.

2.6 Physical Presence. PBI maintains approximately 18,000 square feet of dedicated office space at Sandyford Business Park, Dublin, which houses its operational, regulatory, and administrative staff. PBI's offices include dedicated work areas for its regulatory affairs team, conference rooms used for regulatory strategy meetings and board meetings, and secure document storage for regulatory dossiers and correspondence with foreign regulatory authorities.

2.7 Board of Directors. PBI's board of directors conducted 42 board meetings during the period 2017 through 2020, including regularly scheduled quarterly meetings and special sessions convened as needed to address significant regulatory, commercial, and strategic matters. All 42 board meetings were held in Dublin, Ireland, at PBI's registered office or, in a small number of instances, at other locations within Ireland. Regulatory strategy was a recurring agenda item at these board meetings, as discussed further in Section 5 below. Minutes of these board meetings are maintained at PBI's registered office and have been previously provided to the examining team in response to IDR No. 7.

Section 3: Summary of Regulatory Expenditures (2017–2020)

3.1 Cumulative Regulatory Expenditures

During the period under examination (tax years 2017 through 2020), PBI incurred cumulative regulatory expenditures of approximately €47.2 million (€47,200,000) in connection with regulatory submissions and compliance activities across non-Americas markets. These expenditures were recorded on PBI's books and records maintained at its registered office in Dublin, Ireland, and are reflected in the general ledger extracts enclosed as Enclosure B.

The €47.2 million in cumulative regulatory expenditures encompasses costs relating to the following categories of regulatory activity:

(a) Preparation and submission of market authorization applications ("MAAs") and equivalent initial registration dossiers filed with foreign regulatory authorities;

(b) Preparation, compilation, and submission of regulatory dossiers, including Common Technical Documents ("CTDs") formatted in accordance with the International Council for Harmonisation ("ICH") guidelines;

(c) Clinical study reports, bioequivalence studies, and pharmacovigilance filings submitted to regulatory authorities in connection with product registrations and post-marketing obligations;

(d) Post-marketing safety studies and periodic safety update reports ("PSURs") required by regulatory authorities as conditions of market authorization;

(e) Fees paid to third-party regulatory consultants engaged by PBI to assist with regulatory submissions in jurisdictions where specialized local expertise was required;

(f) Fees and charges paid directly to foreign regulatory authorities in connection with application submissions, variations, renewals, and other regulatory procedures; and

(g) Administrative costs associated with PBI's regulatory affairs function, including personnel costs, travel, regulatory intelligence subscriptions, and related overhead.

All of these expenditures were incurred by PBI in its own name and for its own account, consistent with PBI's role as the principal for non-Americas commercialization activities.

3.2 Annual Breakdown of Regulatory Expenditures

The following table presents PBI's regulatory expenditures for each of the four tax years under examination:

As reflected in the table above, PBI's regulatory expenditures increased year-over-year during each of the four tax years under examination. This trend reflects several concurrent developments: (i) the maturation of PBI's product portfolios, which generated increasing post-marketing regulatory obligations as products achieved approvals in additional country markets; (ii) the expansion of PBI's geographic footprint through new market entries, which required the preparation and submission of initial market authorization applications; (iii) the increasing complexity of the global regulatory environment, including the implementation of new pharmacovigilance reporting requirements and the adoption of new regulatory frameworks in certain markets; and (iv) the growth in PBI's headcount and internal regulatory capabilities, which allowed PBI to pursue a broader range of regulatory activities across its territory.

The modest deceleration in the rate of growth in 2020 (4.8% year-over-year, compared to approximately 11–12% in prior years) is attributable in part to the impact of the COVID-19 pandemic, which delayed certain regulatory submissions and in-person interactions with regulatory authorities during the second and third quarters of 2020. Notwithstanding these delays, PBI's regulatory expenditures continued to increase in absolute terms.

Supporting detail for each year is provided in the annual regulatory expenditure reports enclosed as Enclosure A and the general ledger extracts enclosed as Enclosure B.

3.3 Breakdown by Product Line

PBI's regulatory expenditures during the period 2017 through 2020 were allocated across PPC's three key product families commercialized by PBI, as well as a portfolio of legacy compounds. The following paragraphs describe the regulatory expenditure profile of each product line.

Veritaxol (Oncology). Veritaxol is PPC's blockbuster oncology compound and represents the single largest source of revenue for both PPC globally and PBI in its non-Americas territory. In the tax year 2020, Veritaxol generated global net sales of approximately $3.12 billion, of which approximately $1.34 billion was attributable to non-Americas net sales managed by PBI. Given Veritaxol's commercial significance, it commanded the largest share of PBI's regulatory expenditures during the period under examination. PBI's Veritaxol-related regulatory activities included initial market authorization applications in newly entered markets, label extension submissions based on new clinical indications approved during the examination period, post-marketing commitments and safety studies, and ongoing variation and renewal procedures across multiple jurisdictions. The detailed allocation of expenditures to Veritaxol is set forth in the annual regulatory expenditure reports in Enclosure A.

Imvara (Immunology). Imvara is PPC's principal immunology product and represents PBI's second-largest revenue stream in non-Americas markets. In the tax year 2020, Imvara generated global net sales of approximately $1.87 billion, of which approximately $790 million was attributable to non-Americas net sales managed by PBI. PBI's regulatory activities with respect to Imvara included market authorization applications, label variations reflecting updated clinical data, pharmacovigilance filings, and regulatory submissions in connection with new formulation approvals. Imvara accounted for the second-largest share of PBI's regulatory expenditures during the examination period.

Cerulon (Rare Disease). Cerulon is a specialized rare disease product that is commercialized under orphan drug designations in multiple jurisdictions. In the tax year 2020, Cerulon generated global net sales of approximately $620 million, of which approximately $280 million was attributable to non-Americas net sales managed by PBI. PBI's regulatory expenditures for Cerulon reflect the unique regulatory pathways applicable to orphan medicinal products, including orphan designation applications, conditional marketing authorization submissions, and compliance with post-authorization efficacy studies required as conditions of orphan drug approval in the European Union and other jurisdictions. Although Cerulon's total regulatory expenditure was smaller in absolute terms than that of Veritaxol or Imvara, the per-market cost of regulatory submissions was often higher due to the specialized nature of orphan drug regulatory requirements.

Legacy Compounds. In addition to the three principal product families described above, PBI's territory includes a portfolio of legacy compounds (i.e., pharmaceutical products with a vintage predating PBI's 2012 incorporation) that were licensed from PPC to PBI under a separate intercompany license agreement. PBI pays a royalty of 4.5% of net sales to PPC for the use of these legacy compound intangibles. These legacy compounds continue to be marketed in certain non-Americas territories and generate ongoing regulatory maintenance expenditures, including renewal fees, periodic safety update reports, and compliance with evolving regulatory requirements. The regulatory expenditures attributable to legacy compounds are included in the aggregate figures set forth in Section 3.1 and are separately identified in the annual regulatory expenditure reports in Enclosure A.

3.4 Country Markets

During the period 2017 through 2020, PBI submitted regulatory filings and/or maintained active product registrations in 68 country markets. These 68 country markets span the EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific) regions and represent the full geographic scope of PBI's regulatory responsibilities under its non-Americas mandate.

PBI's regulatory activities in these 68 country markets included interactions with a wide range of national and supranational regulatory authorities, including the European Medicines Agency ("EMA"), the United Kingdom's Medicines and Healthcare products Regulatory Agency ("MHRA"), the Pharmaceuticals and Medical Devices Agency ("PMDA") of Japan, the Therapeutic Goods Administration ("TGA") of Australia, the Health Sciences Authority ("HSA") of Singapore, the National Medical Products Administration ("NMPA") of the People's Republic of China, and numerous other national competent authorities across Europe, the Middle East, Africa, and the Asia-Pacific region.

PBI made independent pricing and market entry decisions across all 68 country markets. Market entry sequencing — the strategic determination of the order in which PBI would seek regulatory approval and commercial launch in specific countries — was decided by PBI's management team in Dublin, based on considerations including market size, reimbursement landscape, competitive dynamics, regulatory timelines, and distribution partner readiness. These decisions were reviewed and approved at PBI board meetings held in Dublin, as reflected in board meeting minutes previously produced to the examining team.

A complete country-by-country schedule identifying all 68 markets, the products registered in each, dates of initial registration, the applicable regulatory authority, and a summary of PBI expenditures attributable to each market is enclosed as Enclosure D.

Section 4: Description of Enclosed Documents

PPC is enclosing with this response six sets of documents, designated Enclosures A through F. Each enclosure is described below.

Enclosure A — PBI Annual Regulatory Expenditure Reports (2017–2020)

Enclosure A consists of four internal management reports prepared by PBI's regulatory affairs team in Dublin, Ireland, summarizing PBI's annual regulatory expenditures for each of the tax years 2017, 2018, 2019, and 2020. Each report presents PBI's regulatory expenditures organized by functional category, including: (i) dossier preparation costs; (ii) regulatory consultant fees; (iii) submission fees paid to regulatory authorities; (iv) pharmacovigilance costs; (v) post-marketing study costs; and (vi) administrative costs attributable to the regulatory affairs function. These reports are prepared annually by PBI's regulatory affairs team and are maintained in the ordinary course of PBI's business at its registered office in Dublin. The reports are utilized by PBI management for budgeting, resource allocation, and strategic planning purposes. Four reports are enclosed, one for each tax year under examination.

Enclosure B — PBI General Ledger Extracts — Regulatory Expenditure Accounts (2017–2020)

Enclosure B consists of extracts from PBI's general ledger for the cost center accounts associated with regulatory expenditures. PBI's general ledger is maintained at its registered office in Dublin, Ireland, and the underlying banking records are maintained with PBI's principal Irish bank, Glenmore Bank Ireland plc. The enclosed extracts cover the four tax years 2017 through 2020 and include line-item detail sufficient to reconcile the individual expenditure entries to the aggregated totals presented in the annual regulatory expenditure reports in Enclosure A. The general ledger extracts reflect expenditures denominated in euro, consistent with PBI's functional currency.

Enclosure C — Regulatory Submission Log

Enclosure C consists of PBI's master regulatory submission log, which is maintained by PBI's regulatory affairs department in Dublin on a continuous basis. The enclosed log covers all regulatory submissions made by PBI during the period 2017 through 2020 and is organized by: (i) product (Veritaxol, Imvara, Cerulon, and legacy compounds); (ii) country and/or regulatory authority to which the submission was directed; (iii) type of submission (including initial market authorization applications, Type IA, Type IB, and Type II variations, renewals, pharmacovigilance periodic safety update reports, and other regulatory filings); (iv) date of submission; and (v) status of the submission as of the date of this response (approved, pending, or withdrawn).

The regulatory submission log demonstrates PBI's independent management of regulatory strategy and its direct, ongoing interaction with foreign regulatory authorities across 68 country markets. The volume and geographic breadth of submissions reflected in this log are indicative of the substantive nature of PBI's regulatory affairs function in Dublin.

Enclosure D — Country Market Schedule

Enclosure D consists of a schedule listing all 68 country markets in which PBI held active product registrations or submitted regulatory filings during the period 2017 through 2020. For each country market, the schedule identifies: (i) the products registered or for which registration was sought; (ii) the date of initial product registration in that market; (iii) the name of the applicable national or supranational regulatory authority; and (iv) a summary of PBI's regulatory expenditures attributable to that market during the examination period. This schedule was prepared by PBI's regulatory affairs team specifically in response to IDR No. 15 based on data extracted from PBI's internal records.

Enclosure E — Sample Invoices and Expenditure Documentation

Enclosure E consists of a representative sample of invoices, vendor contracts, and internal expense approval records supporting the regulatory expenditures reported in Enclosures A and B. The sample has been selected to include documentation from each of the four tax years under examination and to represent each of the principal categories of regulatory expenditure identified in Section 3.1 of this letter. The sample includes, among other items:

(a) Invoices from third-party regulatory consultants engaged by PBI to assist with dossier preparation and regulatory submissions in specific country markets;

(b) Receipts and fee confirmations reflecting submission fees and application charges paid directly to foreign regulatory authorities;

(c) Contracts and invoices relating to post-marketing safety studies and pharmacovigilance activities conducted at PBI's direction; and

(d) Internal expense approval forms reflecting PBI management's review and authorization of regulatory expenditures.

All documents in Enclosure E are produced as Bates-numbered documents, bearing the prefix "PPC-IDR15-" followed by sequential numbering. The Bates range for Enclosure E is PPC-IDR15-000001 through PPC-IDR15-002847. A Bates index is provided at the beginning of Enclosure E for the examining team's convenience.

Enclosure F — PBI Organizational Charts — Regulatory Affairs Function (2017–2020)

Enclosure F consists of four annual organizational charts for PBI's regulatory affairs department, one for each tax year 2017 through 2020. These organizational charts show the headcount of PBI's regulatory affairs function in each year, the reporting lines from individual regulatory affairs personnel to PBI's Managing Director, Aidan Naughton, and the functional responsibilities of each position within the department. The organizational charts demonstrate that PBI employed dedicated regulatory affairs personnel in Dublin throughout the examination period, with decision-making authority over non-Americas regulatory strategy vested in PBI's Dublin-based team. The charts also reflect the growth in PBI's regulatory affairs headcount over the four-year period, consistent with the expansion of PBI's regulatory activities described in Section 3 of this letter.

Section 5: Relevance to PBI's Economic Substance and Transfer Pricing Positions

While PPC reserves all rights to present its transfer pricing positions in full at the appropriate stage of the examination, PPC respectfully notes that the enclosed documentation is directly relevant to PBI's economic substance and to PPC's transfer pricing positions for the tax years under examination.

The documentation enclosed with this response demonstrates that PBI performs substantive DEMPE functions — specifically, functions relating to the Development, Enhancement, Maintenance, Protection, and Exploitation of intangible assets — in the regulatory domain. In particular, PBI's regulatory activities constitute "Maintenance" and "Protection" functions within the meaning of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as those terms are understood in the context of Treasury Regulation § 1.482-4 and § 1.482-7. PBI's regulatory activities maintain the value of PPC's product intangibles by ensuring that market authorizations remain in force across 68 country markets, and they protect the value of those intangibles by ensuring compliance with evolving regulatory requirements that, if not satisfied, could result in the suspension or withdrawal of market authorizations.

PBI's cumulative regulatory expenditure of €47.2 million across 68 country markets during the examination period reflects genuine operational activity and economic substance in Ireland. These expenditures were incurred by PBI in its own name and for its own account, were managed by PBI's Dublin-based regulatory affairs team under the direction of PBI's Managing Director, and were subject to the oversight of PBI's board of directors at board meetings held in Dublin.

The documentation also supports PBI's role as the IP-holding company and commercialization principal for non-Americas territories under the cost-sharing arrangement (the "CSA") that became effective on July 1, 2012. Under the CSA, PBI assumed the risks and obligations associated with non-Americas commercialization, including the obligation to bear the costs of regulatory activities necessary to obtain and maintain market authorizations in its territory. The enclosed documentation demonstrates that PBI has fulfilled this obligation and has done so through the exercise of independent judgment and entrepreneurial decision-making, as evidenced by, among other things, the 42 board meetings held in Dublin during 2017 through 2020 at which regulatory strategy was a recurring agenda item.

Section 6: Privilege Reservation

PPC has produced with this response all non-privileged documents identified as responsive to IDR No. 15 following a diligent search of PPC's and PBI's records as described in Section 1 above.

PPC expressly reserves all rights under the attorney-client privilege, the work-product doctrine (as articulated in Hickman v. Taylor, 329 U.S. 495 (1947), and codified in Federal Rule of Civil Procedure 26(b)(3)), and any other applicable privilege or protection, including the tax practitioner privilege under Internal Revenue Code § 7525. Production of the enclosed documents does not constitute a waiver of any such privilege or protection with respect to any document, whether produced or withheld.

To the extent that any documents identified as potentially responsive to IDR No. 15 have been withheld on the basis of privilege, such documents will be identified on the privilege log that PPC is maintaining in connection with this examination. PPC will supplement the privilege log as appropriate.

PPC further notes that certain economic analyses and valuation work are being prepared by Whitmore Valuation Group LLC at the direction of counsel, Calderwood & Harkness LLP, pursuant to a Kovel arrangement. The Kovel engagement letter (C&H Kovel Letter Reference: 1018-00009-KV) was executed on June 20, 2022, and materials prepared by Whitmore Valuation Group LLC in connection with that engagement are protected by the attorney-client privilege and the work-product doctrine. See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). No materials prepared under the Kovel arrangement are included in this production, and PPC reserves all rights with respect to such materials.

Section 7: Reservation of Rights

PPC's production of documents in response to IDR No. 15 does not constitute a waiver of any objections that PPC may have, now or in the future, to the scope, relevance, or propriety of IDR No. 15 or any other information document request issued in connection with this examination. PPC specifically reserves all rights to challenge any proposed adjustments that the Internal Revenue Service may assert in connection with the examination, including, without limitation, PPC's rights under:

(a) Internal Revenue Code § 482 and the regulations thereunder;

(b) Treasury Regulation § 1.482-1(b)(1) (arm's-length standard);

(d) Treasury Regulation § 1.482-4 (methods to determine taxable income in connection with a transfer of intangible property);

(e) Treasury Regulation § 1.482-7 (methods to determine taxable income in connection with a cost sharing arrangement); and

(f) All other applicable provisions of the Internal Revenue Code, Treasury Regulations, tax treaties, and judicial authorities.

PPC further reserves all rights under applicable procedural and administrative provisions, including, without limitation, the right to seek competent authority relief under applicable income tax treaties and the right to pursue any available administrative and judicial remedies.

The production of documents in response to IDR No. 15 does not constitute agreement by PPC with any position that the Internal Revenue Service has taken or may take regarding PPC's transfer pricing methodology, the cost-sharing arrangement between PPC and PBI, PBI's economic substance, or any other issue arising in the examination. PPC's positions on all substantive issues are reserved in full.

Section 8: Contact Information and Closing

We trust that the foregoing narrative and the enclosed documents are responsive to the requests set forth in IDR No. 15. Should Revenue Agent Dunleavy or any member of the examining team have questions regarding this response or the enclosed documents, or should the examining team wish to discuss the enclosed materials in greater detail, please do not hesitate to contact the undersigned or Garrett Simmons at the contact information provided below.

Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-7214

Email: lcross@calderwoodharkness.com

Garrett Simmons Lead Associate, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-7338

Email: gsimmons@calderwoodharkness.com

We are available to arrange a conference call or an in-person meeting at the examining team's convenience to address any questions that may arise from the enclosed materials. PPC remains committed to cooperating fully with the examination and to providing the examining team with the information necessary to complete its review in an efficient and timely manner.

Respectfully submitted,

CALDERWOOD & HARKNESS LLP

By: ________

Leonard Cross Partner, Tax Department 1735 Market Street, Suite 3100 Philadelphia, PA 19103

cc: (by email and first-class mail, as indicated)

Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550 (via email)

Deborah Staines, General Counsel, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550 (via email)

Supervisory Revenue Agent Gerald Meskill, Team Manager, IRS Large Business & International Division, Exam Team LB&I-NE-TP-2022-00641 (via first-class mail)

Sylvia Hartwell, Billing Partner, Calderwood & Harkness LLP (via email)

Garrett Simmons, Lead Associate, Calderwood & Harkness LLP (via email)

Leila Nazari, Working Associate, Calderwood & Harkness LLP (via email)

Enclosures:

Enclosure A: PBI Annual Regulatory Expenditure Reports (2017–2020) — 4 reports

Enclosure B: PBI General Ledger Extracts — Regulatory Expenditure Accounts (2017–2020)

Enclosure C: PBI Regulatory Submission Log (2017–2020)

Enclosure D: Country Market Schedule — 68 Country Markets

Enclosure E: Sample Invoices and Expenditure Documentation (Bates Nos. PPC-IDR15-000001 through PPC-IDR15-002847)

Enclosure F: PBI Organizational Charts — Regulatory Affairs Function (2017–2020)

Tax Year	Regulatory Expenditures (€)	Year-over-Year Change
2017	€10,100,000	—
2018	€11,300,000	+11.9%
2019	€12,600,000	+11.5%
2020	€13,200,000	+4.8%
Total	€47,200,000	—

CALDERWOOD & HARKNESS LLP
Attorneys at Law
1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-7200 Facsimile: (215) 864-7201
600 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000
November 8, 2022
Revenue Agent Patricia Dunleavy Large Business & International Division Internal Revenue Service 600 Arch Street, Room 7426 Philadelphia, PA 19106
Re: Examination of Penterra Pharmaceuticals Corp. EIN: 22-3741856 Tax Years Under Examination: 2017, 2018, 2019, 2020 Exam Team ID: LB&I-NE-TP-2022-00641 Response to Information Document Request No. 15
Dear Revenue Agent Dunleavy:
This firm represents Penterra Pharmaceuticals Corp. ("PPC" or the "Company") in connection with the ongoing examination of PPC's federal income tax returns for the taxable years ending December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020. I write in my capacity as the Responsible Partner in the Tax Department of Calderwood & Harkness LLP ("C&H"), pursuant to the authority granted by PPC under IRS Form 2848 (Power of Attorney and Declaration of Representative) filed with the Internal Revenue Service on June 8, 2022. That Form 2848 authorizes Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari, each of Calderwood & Harkness LLP, to represent PPC before the Internal Revenue Service in all matters relating to the above-referenced examination. This matter is tracked internally as C&H Matter Number 1018-00009.
This letter constitutes PPC's response to Information Document Request No. 15 ("IDR No. 15"), which was issued by Revenue Agent Dunleavy on September 23, 2022, and which requested documentation relating to regulatory expenditures and submissions by Penterra Biopharma International DAC ("PBI") for non-Americas territories during the tax years 2017 through 2020. The examination was opened on May 16, 2022, via Letter 2205-A, and PPC has cooperated fully with the examination process since that date. This response and the enclosed documentation are being provided in furtherance of PPC's continuing cooperation with the examining team.
The enclosed documentation, which is described in detail below, consists of six sets of enclosures (designated Enclosures A through F) that are responsive to the specific requests set forth in IDR No. 15. Each enclosure is described in Section 4 of this letter. We have organized the narrative portions of this response to provide the examining team with context for the enclosed documents and to facilitate the team's review.
Section 1: Scope of IDR No. 15
IDR No. 15, dated September 23, 2022, contained four principal categories of requests relating to the regulatory activities of PBI in non-Americas territories during the period under examination. We set forth below our understanding of the scope of each request and confirm that PPC and PBI have undertaken a diligent search for responsive materials.
First, IDR No. 15 requested detailed records of regulatory expenditures incurred by PBI in connection with pharmaceutical product registrations, market authorizations, and regulatory compliance activities outside the Americas. For purposes of this IDR, "Americas" was defined to encompass North America, Central America, South America, and the Caribbean. The enclosed documents address regulatory expenditures incurred by PBI in all territories outside the Americas, which PBI refers to internally as its "Non-Americas Territory" or, in certain documents, the "International Territory."
Second, IDR No. 15 requested the identification of the specific country markets in which PBI submitted regulatory filings during the tax years 2017 through 2020. This information is presented in the narrative discussion in Section 3.4 below and in detail in Enclosure D.
Third, IDR No. 15 requested supporting documentation including, but not limited to, invoices, internal expenditure reports, regulatory submission records, and correspondence with foreign regulatory authorities. Representative supporting documentation is provided in Enclosures A, B, C, and E. Correspondence with foreign regulatory authorities has been compiled and representative samples are included within Enclosure E to the extent such correspondence relates to expenditures incurred during the period under examination.
Fourth, IDR No. 15 requested a breakdown of regulatory expenditures by year and by product line. This information is presented in the narrative discussion in Sections 3.2 and 3.3 below and is supported by the annual expenditure reports in Enclosure A and the general ledger extracts in Enclosure B.
PPC and PBI have conducted a diligent search of their respective records, including records maintained at PBI's registered office in Dublin, Ireland, PBI's electronic document management systems, and PPC's corporate records maintained at its principal offices in Princeton Junction, New Jersey. On the basis of that search, PPC and PBI are producing the responsive documents described in Section 4 of this letter, together with the narrative context provided herein.
Section 2: Overview of PBI's Regulatory Function
To provide appropriate context for the enclosed documentation, we briefly describe below PBI's organizational structure, its role within the Penterra group of companies, and the nature and scope of its regulatory affairs function.
2.1 Entity Overview. Penterra Biopharma International DAC ("PBI") is a Designated Activity Company organized and existing under the laws of Ireland, with its registered office located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI was incorporated on March 15, 2012, and commenced operations effective July 1, 2012, contemporaneous with the effective date of the cost-sharing arrangement between PPC and PBI (the "CSA"). PBI is registered with the Irish Companies Registration Office and maintains its statutory books and records at its registered office in Dublin.
2.2 Principal Role. PBI serves as the intellectual property–holding company and the commercialization principal for PPC products outside the Americas. In that capacity, PBI is responsible for all aspects of the development, enhancement, maintenance, protection, and exploitation ("DEMPE") of PPC's intangible assets as they relate to non-Americas territories. PBI manages the end-to-end commercialization process for products within its territory, including regulatory strategy, market access, pricing, distribution partner selection, and post-marketing activities. PBI bears the economic and market risk associated with commercialization in its territory and retains the residual profit attributable to its activities.
2.3 Employees and Personnel. PBI employed 185 full-time employees as of December 31, 2020. This represents substantial growth from the 52 employees at PBI's incorporation in 2012, reflecting the expansion of PBI's operational capabilities over the intervening years. PBI's personnel include individuals dedicated to regulatory affairs, medical affairs, commercial strategy, supply chain management, market access and health economics, pharmacovigilance, and general administrative functions, all based in Dublin, Ireland.
2.4 Managing Director. PBI's Managing Director is Aidan Naughton, who has served in that role since PBI's incorporation. Mr. Naughton oversees all non-Americas operations from PBI's offices in Dublin and reports to PBI's board of directors. Mr. Naughton is resident in Ireland and maintains his principal place of business at PBI's registered office.
2.5 Independent Decision-Making. PBI independently manages regulatory submissions, market authorization applications, and ongoing regulatory compliance across its territory. Key decisions regarding pricing strategy, market entry sequencing (i.e., the order in which PBI seeks market authorization and launches products in specific countries), and the selection of distribution partners are made by PBI's management team in Dublin, subject to the oversight of PBI's board of directors. PBI does not act as a mere implementation agent of PPC; rather, PBI exercises entrepreneurial judgment and assumes the attendant risks in connection with its non-Americas commercialization activities.
2.6 Physical Presence. PBI maintains approximately 18,000 square feet of dedicated office space at Sandyford Business Park, Dublin, which houses its operational, regulatory, and administrative staff. PBI's offices include dedicated work areas for its regulatory affairs team, conference rooms used for regulatory strategy meetings and board meetings, and secure document storage for regulatory dossiers and correspondence with foreign regulatory authorities.
2.7 Board of Directors. PBI's board of directors conducted 42 board meetings during the period 2017 through 2020, including regularly scheduled quarterly meetings and special sessions convened as needed to address significant regulatory, commercial, and strategic matters. All 42 board meetings were held in Dublin, Ireland, at PBI's registered office or, in a small number of instances, at other locations within Ireland. Regulatory strategy was a recurring agenda item at these board meetings, as discussed further in Section 5 below. Minutes of these board meetings are maintained at PBI's registered office and have been previously provided to the examining team in response to IDR No. 7.
Section 3: Summary of Regulatory Expenditures (2017–2020)
3.1 Cumulative Regulatory Expenditures
During the period under examination (tax years 2017 through 2020), PBI incurred cumulative regulatory expenditures of approximately €47.2 million (€47,200,000) in connection with regulatory submissions and compliance activities across non-Americas markets. These expenditures were recorded on PBI's books and records maintained at its registered office in Dublin, Ireland, and are reflected in the general ledger extracts enclosed as Enclosure B.
The €47.2 million in cumulative regulatory expenditures encompasses costs relating to the following categories of regulatory activity:
(a) Preparation and submission of market authorization applications ("MAAs") and equivalent initial registration dossiers filed with foreign regulatory authorities;
(b) Preparation, compilation, and submission of regulatory dossiers, including Common Technical Documents ("CTDs") formatted in accordance with the International Council for Harmonisation ("ICH") guidelines;
(c) Clinical study reports, bioequivalence studies, and pharmacovigilance filings submitted to regulatory authorities in connection with product registrations and post-marketing obligations;
(d) Post-marketing safety studies and periodic safety update reports ("PSURs") required by regulatory authorities as conditions of market authorization;
(e) Fees paid to third-party regulatory consultants engaged by PBI to assist with regulatory submissions in jurisdictions where specialized local expertise was required;
(f) Fees and charges paid directly to foreign regulatory authorities in connection with application submissions, variations, renewals, and other regulatory procedures; and
(g) Administrative costs associated with PBI's regulatory affairs function, including personnel costs, travel, regulatory intelligence subscriptions, and related overhead.
All of these expenditures were incurred by PBI in its own name and for its own account, consistent with PBI's role as the principal for non-Americas commercialization activities.
3.2 Annual Breakdown of Regulatory Expenditures
The following table presents PBI's regulatory expenditures for each of the four tax years under examination:
As reflected in the table above, PBI's regulatory expenditures increased year-over-year during each of the four tax years under examination. This trend reflects several concurrent developments: (i) the maturation of PBI's product portfolios, which generated increasing post-marketing regulatory obligations as products achieved approvals in additional country markets; (ii) the expansion of PBI's geographic footprint through new market entries, which required the preparation and submission of initial market authorization applications; (iii) the increasing complexity of the global regulatory environment, including the implementation of new pharmacovigilance reporting requirements and the adoption of new regulatory frameworks in certain markets; and (iv) the growth in PBI's headcount and internal regulatory capabilities, which allowed PBI to pursue a broader range of regulatory activities across its territory.
The modest deceleration in the rate of growth in 2020 (4.8% year-over-year, compared to approximately 11–12% in prior years) is attributable in part to the impact of the COVID-19 pandemic, which delayed certain regulatory submissions and in-person interactions with regulatory authorities during the second and third quarters of 2020. Notwithstanding these delays, PBI's regulatory expenditures continued to increase in absolute terms.
Supporting detail for each year is provided in the annual regulatory expenditure reports enclosed as Enclosure A and the general ledger extracts enclosed as Enclosure B.
3.3 Breakdown by Product Line
PBI's regulatory expenditures during the period 2017 through 2020 were allocated across PPC's three key product families commercialized by PBI, as well as a portfolio of legacy compounds. The following paragraphs describe the regulatory expenditure profile of each product line.
Veritaxol (Oncology). Veritaxol is PPC's blockbuster oncology compound and represents the single largest source of revenue for both PPC globally and PBI in its non-Americas territory. In the tax year 2020, Veritaxol generated global net sales of approximately $3.12 billion, of which approximately $1.34 billion was attributable to non-Americas net sales managed by PBI. Given Veritaxol's commercial significance, it commanded the largest share of PBI's regulatory expenditures during the period under examination. PBI's Veritaxol-related regulatory activities included initial market authorization applications in newly entered markets, label extension submissions based on new clinical indications approved during the examination period, post-marketing commitments and safety studies, and ongoing variation and renewal procedures across multiple jurisdictions. The detailed allocation of expenditures to Veritaxol is set forth in the annual regulatory expenditure reports in Enclosure A.
Imvara (Immunology). Imvara is PPC's principal immunology product and represents PBI's second-largest revenue stream in non-Americas markets. In the tax year 2020, Imvara generated global net sales of approximately $1.87 billion, of which approximately $790 million was attributable to non-Americas net sales managed by PBI. PBI's regulatory activities with respect to Imvara included market authorization applications, label variations reflecting updated clinical data, pharmacovigilance filings, and regulatory submissions in connection with new formulation approvals. Imvara accounted for the second-largest share of PBI's regulatory expenditures during the examination period.
Cerulon (Rare Disease). Cerulon is a specialized rare disease product that is commercialized under orphan drug designations in multiple jurisdictions. In the tax year 2020, Cerulon generated global net sales of approximately $620 million, of which approximately $280 million was attributable to non-Americas net sales managed by PBI. PBI's regulatory expenditures for Cerulon reflect the unique regulatory pathways applicable to orphan medicinal products, including orphan designation applications, conditional marketing authorization submissions, and compliance with post-authorization efficacy studies required as conditions of orphan drug approval in the European Union and other jurisdictions. Although Cerulon's total regulatory expenditure was smaller in absolute terms than that of Veritaxol or Imvara, the per-market cost of regulatory submissions was often higher due to the specialized nature of orphan drug regulatory requirements.
Legacy Compounds. In addition to the three principal product families described above, PBI's territory includes a portfolio of legacy compounds (i.e., pharmaceutical products with a vintage predating PBI's 2012 incorporation) that were licensed from PPC to PBI under a separate intercompany license agreement. PBI pays a royalty of 4.5% of net sales to PPC for the use of these legacy compound intangibles. These legacy compounds continue to be marketed in certain non-Americas territories and generate ongoing regulatory maintenance expenditures, including renewal fees, periodic safety update reports, and compliance with evolving regulatory requirements. The regulatory expenditures attributable to legacy compounds are included in the aggregate figures set forth in Section 3.1 and are separately identified in the annual regulatory expenditure reports in Enclosure A.
3.4 Country Markets
During the period 2017 through 2020, PBI submitted regulatory filings and/or maintained active product registrations in 68 country markets. These 68 country markets span the EMEA (Europe, Middle East, and Africa) and APAC (Asia-Pacific) regions and represent the full geographic scope of PBI's regulatory responsibilities under its non-Americas mandate.
PBI's regulatory activities in these 68 country markets included interactions with a wide range of national and supranational regulatory authorities, including the European Medicines Agency ("EMA"), the United Kingdom's Medicines and Healthcare products Regulatory Agency ("MHRA"), the Pharmaceuticals and Medical Devices Agency ("PMDA") of Japan, the Therapeutic Goods Administration ("TGA") of Australia, the Health Sciences Authority ("HSA") of Singapore, the National Medical Products Administration ("NMPA") of the People's Republic of China, and numerous other national competent authorities across Europe, the Middle East, Africa, and the Asia-Pacific region.
PBI made independent pricing and market entry decisions across all 68 country markets. Market entry sequencing — the strategic determination of the order in which PBI would seek regulatory approval and commercial launch in specific countries — was decided by PBI's management team in Dublin, based on considerations including market size, reimbursement landscape, competitive dynamics, regulatory timelines, and distribution partner readiness. These decisions were reviewed and approved at PBI board meetings held in Dublin, as reflected in board meeting minutes previously produced to the examining team.
A complete country-by-country schedule identifying all 68 markets, the products registered in each, dates of initial registration, the applicable regulatory authority, and a summary of PBI expenditures attributable to each market is enclosed as Enclosure D.
Section 4: Description of Enclosed Documents
PPC is enclosing with this response six sets of documents, designated Enclosures A through F. Each enclosure is described below.
Enclosure A — PBI Annual Regulatory Expenditure Reports (2017–2020)
Enclosure A consists of four internal management reports prepared by PBI's regulatory affairs team in Dublin, Ireland, summarizing PBI's annual regulatory expenditures for each of the tax years 2017, 2018, 2019, and 2020. Each report presents PBI's regulatory expenditures organized by functional category, including: (i) dossier preparation costs; (ii) regulatory consultant fees; (iii) submission fees paid to regulatory authorities; (iv) pharmacovigilance costs; (v) post-marketing study costs; and (vi) administrative costs attributable to the regulatory affairs function. These reports are prepared annually by PBI's regulatory affairs team and are maintained in the ordinary course of PBI's business at its registered office in Dublin. The reports are utilized by PBI management for budgeting, resource allocation, and strategic planning purposes. Four reports are enclosed, one for each tax year under examination.
Enclosure B — PBI General Ledger Extracts — Regulatory Expenditure Accounts (2017–2020)
Enclosure B consists of extracts from PBI's general ledger for the cost center accounts associated with regulatory expenditures. PBI's general ledger is maintained at its registered office in Dublin, Ireland, and the underlying banking records are maintained with PBI's principal Irish bank, Glenmore Bank Ireland plc. The enclosed extracts cover the four tax years 2017 through 2020 and include line-item detail sufficient to reconcile the individual expenditure entries to the aggregated totals presented in the annual regulatory expenditure reports in Enclosure A. The general ledger extracts reflect expenditures denominated in euro, consistent with PBI's functional currency.
Enclosure C — Regulatory Submission Log
Enclosure C consists of PBI's master regulatory submission log, which is maintained by PBI's regulatory affairs department in Dublin on a continuous basis. The enclosed log covers all regulatory submissions made by PBI during the period 2017 through 2020 and is organized by: (i) product (Veritaxol, Imvara, Cerulon, and legacy compounds); (ii) country and/or regulatory authority to which the submission was directed; (iii) type of submission (including initial market authorization applications, Type IA, Type IB, and Type II variations, renewals, pharmacovigilance periodic safety update reports, and other regulatory filings); (iv) date of submission; and (v) status of the submission as of the date of this response (approved, pending, or withdrawn).
The regulatory submission log demonstrates PBI's independent management of regulatory strategy and its direct, ongoing interaction with foreign regulatory authorities across 68 country markets. The volume and geographic breadth of submissions reflected in this log are indicative of the substantive nature of PBI's regulatory affairs function in Dublin.
Enclosure D — Country Market Schedule
Enclosure D consists of a schedule listing all 68 country markets in which PBI held active product registrations or submitted regulatory filings during the period 2017 through 2020. For each country market, the schedule identifies: (i) the products registered or for which registration was sought; (ii) the date of initial product registration in that market; (iii) the name of the applicable national or supranational regulatory authority; and (iv) a summary of PBI's regulatory expenditures attributable to that market during the examination period. This schedule was prepared by PBI's regulatory affairs team specifically in response to IDR No. 15 based on data extracted from PBI's internal records.
Enclosure E — Sample Invoices and Expenditure Documentation
Enclosure E consists of a representative sample of invoices, vendor contracts, and internal expense approval records supporting the regulatory expenditures reported in Enclosures A and B. The sample has been selected to include documentation from each of the four tax years under examination and to represent each of the principal categories of regulatory expenditure identified in Section 3.1 of this letter. The sample includes, among other items:
(a) Invoices from third-party regulatory consultants engaged by PBI to assist with dossier preparation and regulatory submissions in specific country markets;
(b) Receipts and fee confirmations reflecting submission fees and application charges paid directly to foreign regulatory authorities;
(c) Contracts and invoices relating to post-marketing safety studies and pharmacovigilance activities conducted at PBI's direction; and
(d) Internal expense approval forms reflecting PBI management's review and authorization of regulatory expenditures.
All documents in Enclosure E are produced as Bates-numbered documents, bearing the prefix "PPC-IDR15-" followed by sequential numbering. The Bates range for Enclosure E is PPC-IDR15-000001 through PPC-IDR15-002847. A Bates index is provided at the beginning of Enclosure E for the examining team's convenience.
Enclosure F — PBI Organizational Charts — Regulatory Affairs Function (2017–2020)
Enclosure F consists of four annual organizational charts for PBI's regulatory affairs department, one for each tax year 2017 through 2020. These organizational charts show the headcount of PBI's regulatory affairs function in each year, the reporting lines from individual regulatory affairs personnel to PBI's Managing Director, Aidan Naughton, and the functional responsibilities of each position within the department. The organizational charts demonstrate that PBI employed dedicated regulatory affairs personnel in Dublin throughout the examination period, with decision-making authority over non-Americas regulatory strategy vested in PBI's Dublin-based team. The charts also reflect the growth in PBI's regulatory affairs headcount over the four-year period, consistent with the expansion of PBI's regulatory activities described in Section 3 of this letter.
Section 5: Relevance to PBI's Economic Substance and Transfer Pricing Positions
While PPC reserves all rights to present its transfer pricing positions in full at the appropriate stage of the examination, PPC respectfully notes that the enclosed documentation is directly relevant to PBI's economic substance and to PPC's transfer pricing positions for the tax years under examination.
The documentation enclosed with this response demonstrates that PBI performs substantive DEMPE functions — specifically, functions relating to the Development, Enhancement, Maintenance, Protection, and Exploitation of intangible assets — in the regulatory domain. In particular, PBI's regulatory activities constitute "Maintenance" and "Protection" functions within the meaning of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as those terms are understood in the context of Treasury Regulation § 1.482-4 and § 1.482-7. PBI's regulatory activities maintain the value of PPC's product intangibles by ensuring that market authorizations remain in force across 68 country markets, and they protect the value of those intangibles by ensuring compliance with evolving regulatory requirements that, if not satisfied, could result in the suspension or withdrawal of market authorizations.
PBI's cumulative regulatory expenditure of €47.2 million across 68 country markets during the examination period reflects genuine operational activity and economic substance in Ireland. These expenditures were incurred by PBI in its own name and for its own account, were managed by PBI's Dublin-based regulatory affairs team under the direction of PBI's Managing Director, and were subject to the oversight of PBI's board of directors at board meetings held in Dublin.
The documentation also supports PBI's role as the IP-holding company and commercialization principal for non-Americas territories under the cost-sharing arrangement (the "CSA") that became effective on July 1, 2012. Under the CSA, PBI assumed the risks and obligations associated with non-Americas commercialization, including the obligation to bear the costs of regulatory activities necessary to obtain and maintain market authorizations in its territory. The enclosed documentation demonstrates that PBI has fulfilled this obligation and has done so through the exercise of independent judgment and entrepreneurial decision-making, as evidenced by, among other things, the 42 board meetings held in Dublin during 2017 through 2020 at which regulatory strategy was a recurring agenda item.
Section 6: Privilege Reservation
PPC has produced with this response all non-privileged documents identified as responsive to IDR No. 15 following a diligent search of PPC's and PBI's records as described in Section 1 above.
PPC expressly reserves all rights under the attorney-client privilege, the work-product doctrine (as articulated in Hickman v. Taylor, 329 U.S. 495 (1947), and codified in Federal Rule of Civil Procedure 26(b)(3)), and any other applicable privilege or protection, including the tax practitioner privilege under Internal Revenue Code § 7525. Production of the enclosed documents does not constitute a waiver of any such privilege or protection with respect to any document, whether produced or withheld.
To the extent that any documents identified as potentially responsive to IDR No. 15 have been withheld on the basis of privilege, such documents will be identified on the privilege log that PPC is maintaining in connection with this examination. PPC will supplement the privilege log as appropriate.
PPC further notes that certain economic analyses and valuation work are being prepared by Whitmore Valuation Group LLC at the direction of counsel, Calderwood & Harkness LLP, pursuant to a Kovel arrangement. The Kovel engagement letter (C&H Kovel Letter Reference: 1018-00009-KV) was executed on June 20, 2022, and materials prepared by Whitmore Valuation Group LLC in connection with that engagement are protected by the attorney-client privilege and the work-product doctrine. See United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). No materials prepared under the Kovel arrangement are included in this production, and PPC reserves all rights with respect to such materials.
Section 7: Reservation of Rights
PPC's production of documents in response to IDR No. 15 does not constitute a waiver of any objections that PPC may have, now or in the future, to the scope, relevance, or propriety of IDR No. 15 or any other information document request issued in connection with this examination. PPC specifically reserves all rights to challenge any proposed adjustments that the Internal Revenue Service may assert in connection with the examination, including, without limitation, PPC's rights under:
(a) Internal Revenue Code § 482 and the regulations thereunder;
(b) Treasury Regulation § 1.482-1(b)(1) (arm's-length standard);
(c) Treasury Regulation § 1.482-1(d) (best method rule and comparability analysis);
(d) Treasury Regulation § 1.482-4 (methods to determine taxable income in connection with a transfer of intangible property);
(e) Treasury Regulation § 1.482-7 (methods to determine taxable income in connection with a cost sharing arrangement); and
(f) All other applicable provisions of the Internal Revenue Code, Treasury Regulations, tax treaties, and judicial authorities.
PPC further reserves all rights under applicable procedural and administrative provisions, including, without limitation, the right to seek competent authority relief under applicable income tax treaties and the right to pursue any available administrative and judicial remedies.
The production of documents in response to IDR No. 15 does not constitute agreement by PPC with any position that the Internal Revenue Service has taken or may take regarding PPC's transfer pricing methodology, the cost-sharing arrangement between PPC and PBI, PBI's economic substance, or any other issue arising in the examination. PPC's positions on all substantive issues are reserved in full.
Section 8: Contact Information and Closing
We trust that the foregoing narrative and the enclosed documents are responsive to the requests set forth in IDR No. 15. Should Revenue Agent Dunleavy or any member of the examining team have questions regarding this response or the enclosed documents, or should the examining team wish to discuss the enclosed materials in greater detail, please do not hesitate to contact the undersigned or Garrett Simmons at the contact information provided below.
Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-7214
Email: lcross@calderwoodharkness.com
Garrett Simmons Lead Associate, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-7338
Email: gsimmons@calderwoodharkness.com
We are available to arrange a conference call or an in-person meeting at the examining team's convenience to address any questions that may arise from the enclosed materials. PPC remains committed to cooperating fully with the examination and to providing the examining team with the information necessary to complete its review in an efficient and timely manner.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Leonard Cross Partner, Tax Department 1735 Market Street, Suite 3100 Philadelphia, PA 19103
cc: (by email and first-class mail, as indicated)
Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550 (via email)
Deborah Staines, General Counsel, Penterra Pharmaceuticals Corp., 2200 Independence Boulevard, Princeton Junction, NJ 08550 (via email)
Supervisory Revenue Agent Gerald Meskill, Team Manager, IRS Large Business & International Division, Exam Team LB&I-NE-TP-2022-00641 (via first-class mail)
Sylvia Hartwell, Billing Partner, Calderwood & Harkness LLP (via email)
Garrett Simmons, Lead Associate, Calderwood & Harkness LLP (via email)
Leila Nazari, Working Associate, Calderwood & Harkness LLP (via email)
Enclosures:
Enclosure A: PBI Annual Regulatory Expenditure Reports (2017–2020) — 4 reports
Enclosure B: PBI General Ledger Extracts — Regulatory Expenditure Accounts (2017–2020)
Enclosure C: PBI Regulatory Submission Log (2017–2020)
Enclosure D: Country Market Schedule — 68 Country Markets
Enclosure E: Sample Invoices and Expenditure Documentation (Bates Nos. PPC-IDR15-000001 through PPC-IDR15-002847)
Enclosure F: PBI Organizational Charts — Regulatory Affairs Function (2017–2020)
Tax Year | Regulatory Expenditures (€) | Year-over-Year Change
2017 | €10,100,000 | —
2018 | €11,300,000 | +11.9%
2019 | €12,600,000 | +11.5%
2020 | €13,200,000 | +4.8%
Total | €47,200,000 | —

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