Executive Summary / Key Takeaways

• HilleVax, a clinical-stage biopharmaceutical company, is undergoing a profound strategic transformation, shifting from an independent vaccine developer to a pending acquisition by XOMA Royalty Corporation (XOMA), following the clinical failure of its lead infant norovirus vaccine candidate, HIL-214.00.
• The company's financial performance in the first half of 2025 reflects significant cost-cutting measures, with net losses dramatically reduced to $11.3 million from $87.5 million in the prior year, driven by the discontinuation of the HIL-214.00 infant program and substantial workforce reductions.
• The core investment thesis now centers on the terms of the XOMA merger, which offers shareholders $1.95 per share in cash plus a non-tradeable Contingent Value Right (CVR), the value of which is uncertain and contingent on future events.
• While HilleVax possesses Virus-Like Particle (VLP) technology and an in-licensed hexavalent norovirus candidate (HIL-216.00), its competitive position as an independent entity has been fundamentally altered, with future value tied to the successful closing of the XOMA transaction and the realization of the CVR.
• Significant risks remain, including the potential failure to complete the XOMA merger, the uncertainty of the CVR's value, and the challenges of employee retention and operational continuity during this transition.

Setting the Stage: HilleVax's Mission and Technological Foundation

HilleVax, Inc. operates as a clinical-stage biopharmaceutical company dedicated to developing and commercializing novel vaccines. The company's primary focus has been on addressing the substantial global burden of norovirus infection, which is estimated to cause nearly 700 million cases of illness and over 200,000 deaths worldwide annually, alongside significant economic and social costs. This unmet medical need underpins HilleVax's initial strategic direction.

At the heart of HilleVax's approach is its Virus-Like Particle (VLP) technology. VLPs are non-infectious, self-assembling protein structures that mimic the outer shell of viruses but lack the genetic material necessary for replication. This design allows VLPs to elicit a strong immune response, making them highly immunogenic while generally maintaining a favorable safety profile. HilleVax's lead candidate, HIL-214.00, a VLP-based vaccine, previously demonstrated clinical proof of concept in preventing moderate-to-severe acute gastroenteritis (AGE) from norovirus infection in adult subjects, exhibiting a consistent safety and immunogenicity profile across multiple prior studies. The strategic intent behind this technology is to develop effective preventive measures against a widespread and debilitating pathogen.

In the broader biopharmaceutical landscape, HilleVax's niche focus on norovirus vaccines and its VLP technology position it against a diverse array of competitors. Larger, diversified pharmaceutical giants like Pfizer (PFE) and Johnson & Johnson (JNJ) command vast resources, extensive R&D pipelines, and established global distribution networks, often exhibiting consistent revenue growth and high profitability. Takeda Pharmaceutical Company (TAK), a former partner, also maintains a significant presence in vaccines, including norovirus development efforts, benefiting from its global reach and experienced R&D capabilities. Innovative players like Moderna (MRNA) leverage cutting-edge mRNA platforms for rapid vaccine development, offering advantages in speed and adaptability. Novavax (NVAX) stands as a closer peer, also utilizing recombinant protein and VLP technologies, with a strategic emphasis on unmet infectious disease needs.

HilleVax's strength lies in its targeted innovation for norovirus, potentially allowing for greater agility in R&D for this specific pathogen. However, its smaller scale and early-stage status inherently mean it lags behind these larger competitors in terms of market positioning, manufacturing scale, and financial metrics such as revenue growth and profitability. The company's focused approach, while enabling specialized efficacy, also exposes it to higher funding risks and the intense competitive pressures from rivals with more robust financial health and broader portfolios.

A Journey of Clinical Promise and Pivotal Setbacks

HilleVax's journey began in 2019, with its formal incorporation in March 2020. Early efforts concentrated on foundational activities: organizing, staffing, business planning, and capital raising. A significant milestone was the in-licensing of HIL-214.00 from Takeda Vaccines, Inc. in July 2021, granting HilleVax exclusive worldwide rights (excluding Japan) to develop and commercialize the vaccine. This agreement included upfront consideration of common stock, a warrant, and cash payments totaling $5 million. The company further bolstered its financial position with an Initial Public Offering (IPO) in May 2022, raising approximately $209.5 million in net proceeds.

Following the IPO, HilleVax initiated the NEST-IN1 Phase 2b clinical trial in May 2022, evaluating HIL-214.00's safety, immunogenicity, and efficacy in infants. Positive interim immunogenicity results were reported in December 2022, offering a glimmer of hope. In January 2024, HilleVax expanded its pipeline by in-licensing HIL-216.00, a hexavalent VLP norovirus vaccine candidate, from Chengdu Kanghua Biological Products Co., Ltd. for rights outside Greater China, involving an upfront payment of $15 million. This move signaled a continued commitment to the norovirus space.

However, July 2024 marked a critical turning point. Top-line data from the NEST-IN1 trial revealed that HIL-214.00 did not meet its primary endpoint of efficacy against moderate or severe AGE events due to specific norovirus genotypes in infants. No clinical benefit was observed across secondary endpoints, despite a consistent safety and immunogenicity profile. This outcome led to the immediate discontinuation of further development of HIL-214.00 in infants, prompting a significant strategic re-evaluation.

In response to the NEST-IN1 setback, HilleVax implemented drastic cost-cutting measures, including workforce reductions that impacted approximately 80% of its employees, with these reductions completed by January 2025. The company also fully repaid its $26.2 million term loan facility with Hercules Capital (HTGC) in July 2024, incurring a final payment of $28.5 million including fees, thereby eliminating its debt obligations. These actions, while painful, were necessary to conserve capital and explore alternative paths forward. The strategic shift was further underscored by impairment charges totaling $9.3 million on its right-of-use assets and $7.3 million on property and equipment during 2024, reflecting the diminished value of assets tied to the discontinued program.

The Financial Re-calibration: Leaner Operations Amidst Strategic Shift

The financial results for the first half of 2025 clearly illustrate HilleVax's dramatic re-calibration. The company reported a net loss of $5.3 million for the three months ended June 30, 2025, a substantial improvement from the $40.7 million loss in the same period of 2024. For the six months ended June 30, 2025, the net loss narrowed to $11.3 million, down significantly from $87.5 million in the prior year. This sharp reduction in losses is a direct consequence of the strategic pivot and aggressive cost management.

Research and development (R&D) expenses saw the most significant decline, dropping by $25.3 million in the second quarter and $49.3 million in the first half of 2025 compared to the respective periods in 2024. This was primarily due to the discontinuation of the HIL-214.00 infant program, a $14.7 million impact in Q2 and $27.6 million in H1, coupled with $7.2 million (Q2) and $15.3 million (H1) in reduced personnel-related expenses from workforce reductions. General and administrative (G&A) expenses also decreased by $2.5 million in Q2 and $5.3 million in H1 2025, reflecting lower personnel and professional service costs. Notably, there were no impairment charges in 2025, contrasting with the $8.2 million recorded in the first half of 2024. The $15.3 million in-process R&D expense in H1 2024, related to the Kangh License, also did not recur in 2025.

As of June 30, 2025, HilleVax maintained a cash, cash equivalents, and marketable securities balance of $159.5 million. Net cash used in operating activities for the six months ended June 30, 2025, was $13.5 million, a substantial reduction from $62.8 million in the same period of 2024, reflecting the lower burn rate post-restructuring. Investing activities for H1 2025 resulted in $82.3 million used, primarily due to purchases of marketable securities ($111.3 million) partially offset by sales and maturities ($35.0 million). The company did not engage in any financing activities during the first half of 2025, having completed its at-the-market offering and underwritten public offering in 2023 and early 2024, respectively. The accumulated deficit stood at $547.2 million as of June 30, 2025, underscoring the company's history as a development-stage entity without product revenue.

The XOMA Merger: A New Chapter with Contingent Upside

The most significant recent development, fundamentally reshaping HilleVax's future, is the Agreement and Plan of Merger with XOMA Royalty Corporation, announced on August 4, 2025. This agreement outlines the acquisition of all HilleVax's outstanding common stock by XOMA for a price of $1.95 per share in cash, plus one non-tradeable Contingent Value Right (CVR). The acquisition is anticipated to close in September 2025.

Concurrently with the merger agreement, HilleVax delivered notice to Takeda on August 1, 2025, terminating the Takeda License for HIL-214.00. This termination is expected to be effective six months after the notice, with no material early termination penalties. This move further streamlines HilleVax's operations and removes future milestone and royalty obligations related to HIL-214.00, aligning with the company's new strategic direction under the XOMA merger. Additionally, HilleVax entered into a sublease agreement for a portion of its Boston facility on July 31, 2025, expected to commence around November 1, 2025, for a term of three years and two months, further optimizing its asset utilization.

For investors, the XOMA merger represents a near-term liquidity event for the cash component and a speculative, contingent upside through the CVR. The CVR's value is entirely dependent on the occurrence of specific future events, and there is no assurance that any payments will be made, meaning the CVR could expire valueless. This structure shifts the investment thesis from HilleVax's direct vaccine development success to the realization of value through this acquisition mechanism.

Competitive Dynamics and HilleVax's Evolving Position

HilleVax's competitive standing has evolved dramatically with its strategic pivot. Prior to the XOMA merger, HilleVax's VLP technology and focused R&D on norovirus presented a specialized approach to a significant global health problem. Its VLP technology, while not unique in the industry (e.g., Novavax also employs it), offered the potential for targeted efficacy and a strong immunogenic profile, which could have translated into competitive advantages in specific market segments. However, HilleVax's smaller scale, limited operating history, and reliance on external funding inherently placed it at a disadvantage against larger, more established players.

Compared to Takeda, a former partner and a global biopharmaceutical company with a broad vaccine portfolio, HilleVax lacked the extensive global presence, diversified pipeline, and robust cash flow generation. Against mRNA innovators like Moderna, HilleVax's VLP platform offered a different technological approach, potentially with benefits in vaccine stability or administration, but without the rapid development cycles and platform adaptability that characterize mRNA technology. When contrasted with Novavax, a peer in VLP technology, HilleVax was still in earlier stages of operational experience and market presence. The sheer scale and financial muscle of Pfizer and Johnson & Johnson meant HilleVax could not compete on broad market reach, manufacturing capacity, or extensive R&D budgets.

The XOMA merger fundamentally alters HilleVax's competitive position as an independent entity. XOMA Royalty Corporation's business model is centered on acquiring and managing royalty streams, not direct vaccine development. This means HilleVax, as an independent developer, is effectively exiting the direct competitive race in vaccine development. The value proposition for HLVX shareholders now hinges on XOMA's ability to realize value from HilleVax's remaining assets or contingent rights, rather than HilleVax's ability to independently bring a vaccine to market. The in-licensed HIL-216.00 candidate, while still part of the portfolio, will likely be managed under XOMA's strategic framework, or its future development will be subject to XOMA's decisions. This transition highlights the intense competitive pressures and high-risk nature of clinical-stage biopharmaceutical development, where even promising technology can face significant hurdles.

Outlook and Key Investment Considerations

HilleVax's immediate outlook is dominated by the pending acquisition by XOMA. Management believes its existing cash, cash equivalents, and marketable securities of $159.5 million as of June 30, 2025, will be sufficient to meet anticipated cash requirements through at least the next 12 months. This liquidity runway provides a buffer as the merger process unfolds. The company also expects to complete the sale of $0.6 million in lab equipment by the third quarter of 2025, with no material losses anticipated.

The primary consideration for investors is the successful completion of the XOMA merger, which is expected in September 2025. The terms of the merger, offering $1.95 per share in cash plus a CVR, define the immediate investment thesis. The CVR represents a contractual right to contingent cash payments upon the occurrence of certain events, but its non-tradeable nature and the inherent uncertainty of these events mean it carries significant risk and may ultimately expire valueless.

Several risks could impact this outlook. The merger may not close within the anticipated timeframe or at all, which could lead to a decline in HLVX's stock price, potential termination fees of up to $2.5 million to XOMA (or a $1 million expense reimbursement if XOMA terminates due to a Minimum Cash Condition failure), and even the possibility of a company dissolution and liquidation. The company's significant workforce reductions, leaving only 12 full-time employees as of August 4, 2025, pose challenges for employee retention and operational continuity during the transition. Furthermore, the merger agreement imposes restrictions on HilleVax's business activities, potentially limiting its ability to pursue other strategic opportunities or respond to market dynamics. Litigation related to the proposed merger also remains a possibility, which could incur significant costs and divert management attention.

Conclusion

HilleVax stands at a critical juncture, having transitioned from an ambitious clinical-stage vaccine developer to a company on the cusp of acquisition. The failure of its lead infant norovirus vaccine candidate, HIL-214.00, necessitated a dramatic strategic pivot, characterized by aggressive cost-cutting, asset divestment, and ultimately, the agreement to be acquired by XOMA Royalty Corporation. This transformation underscores the inherent risks and capital intensity of biopharmaceutical development.

The core investment thesis for HLVX is now inextricably linked to the XOMA merger, offering shareholders a defined cash component and a speculative CVR. While HilleVax's VLP technology and its pursuit of norovirus vaccines addressed a significant global health need, the company's competitive standing as an independent entity proved challenging against larger, more resourced rivals. The future value for HLVX shareholders will largely depend on the successful and timely completion of the XOMA transaction and the eventual realization of any value from the contingent rights, rather than the independent advancement of its vaccine pipeline. Investors must carefully weigh the certainty of the cash consideration against the highly contingent and uncertain nature of the CVR, alongside the operational and execution risks associated with the merger process itself.