Executive Summary / Key Takeaways

• LAVA Therapeutics is undergoing a profound strategic transformation, shifting from an independent clinical-stage immuno-oncology company focused on its proprietary Gammabody platform to a potential acquisition by XOMA Royalty Corporation (XOMA). This transition aims to maximize shareholder value for its remaining assets.
• The core investment thesis hinges on the successful completion of the XOMA acquisition, which offers shareholders a cash payment of $1.16 per share, potentially an additional $0.08 per share, and a Contingent Value Right (CVR) tied to future monetization of the LAVA-1266 program and existing collaborations with Pfizer (PFE) and Johnson & Johnson (JNJ).
• Recent operational shifts include the discontinuation of the LAVA-1207 and LAVA-1266 clinical programs and significant restructuring efforts, including workforce reductions and lease terminations, aimed at conserving capital and streamlining operations ahead of the proposed acquisition.
• Financially, LAVA reported no revenue from contracts with customers for the six months ended June 30, 2025, a significant decline from $7 million in the prior year, reflecting the halt in internal development. The company's cash and short-term investments of $56.20 million as of June 30, 2025, are projected to fund operations for at least the next 12 months, assuming the XOMA transaction proceeds.
• Key risks include the potential failure of the XOMA acquisition to close due to unmet conditions (such as the 80% minimum tender condition or the $31.50 million Closing Net Cash Condition), the CVRs expiring valueless if no proceeds are generated, and the challenges of employee retention amidst uncertainty.

The Strategic Pivot: From Independent Innovation to Value Maximization

LAVA Therapeutics N.V., founded in 2016 in the Netherlands, has historically positioned itself as a clinical-stage immuno-oncology company dedicated to transforming cancer treatment through its proprietary Gammabody platform. This innovative technology develops bispecific antibodies designed to engage and leverage the potency and precision of gamma delta (gδ) T cells, aiming to orchestrate a robust, natural anti-tumor immune response and improve outcomes for cancer patients. The Gammabody platform's core differentiation lies in its potential for superior targeting precision, which could lead to more effective treatments and faster innovation cycles in drug development. While specific quantifiable performance metrics are not publicly detailed, the strategic intent is to enable higher pricing power for specialized therapies and improved margins by reducing development risks.

The company's journey has been marked by strategic collaborations, notably with Johnson & Johnson (JJ) and Pfizer, Inc. These partnerships have been crucial for advancing its pipeline, including JNJ-89853413 for hematologic cancers and PF-08046052 for EGFR-positive tumors. However, LAVA Therapeutics has consistently incurred net losses since its inception, with an accumulated deficit of $187.10 million as of June 30, 2025, underscoring the capital-intensive nature of drug development.

In a significant strategic shift, LAVA's board of directors adopted a restructuring plan in February 2025 to conserve capital and explore strategic alternatives, including a potential sale or business combination. This culminated in a definitive Share Purchase Agreement with XOMA Royalty Corporation on August 3, 2025. This proposed acquisition, which includes a tender offer for all outstanding common shares, represents a pivotal moment, signaling a transition from an independent drug developer to a potential asset monetization vehicle. The transaction offers shareholders $1.16 per share in cash, with a potential additional cash amount of up to $0.08 per share, plus one contingent value right (CVR) per share.

Operational Streamlining and Program Rationalization

In preparation for the proposed acquisition and as part of its broader restructuring, LAVA Therapeutics has undertaken significant operational adjustments. The company discontinued its LAVA-1207 clinical trial in December 2024, a program targeting prostate-specific membrane antigen-expressing cancers, after it did not meet internal benchmarks. This decision was not related to safety concerns. Further rationalization occurred on August 4, 2025, with the announcement to discontinue the Phase 1 clinical trial of LAVA-1266 for acute myeloid leukemia and myelodysplastic syndrome and initiate its wind-down. These discontinuations reflect a strategic focus on conserving capital and streamlining operations, particularly as the company evaluates its remaining assets for shareholder value maximization.

The restructuring plan initiated in February 2025 included a reduction of approximately 30% of the global workforce. Subsequent initiatives in April and May 2025 involved terminating operating lease arrangements for laboratory and office spaces in Utrecht and Den Bosch, Netherlands, and further workforce reductions, with all remaining Netherlands employees' positions eliminated by July 31, 2025. These actions have led to restructuring and impairment charges totaling $3.23 million for the six months ended June 30, 2025, recorded across research and development and general and administrative expenses. The company anticipates completing the actions associated with its Restructuring Plan by the end of 2025 and does not expect to incur significant additional costs for workforce reduction or contract terminations.

Financial Performance and Liquidity in Transition

LAVA Therapeutics' financial performance for the first half of 2025 reflects its strategic pivot and the discontinuation of internal clinical programs. For the six months ended June 30, 2025, the company reported no revenue from contracts with customers, a stark contrast to the $7 million recognized in the same period of 2024. The prior year's revenue included a $7 million clinical development milestone payment from Pfizer for PF-08046052. This absence of revenue highlights the company's current reliance on its existing cash reserves and the potential future monetization of its partnered assets.

Operating expenses have seen a notable decrease, primarily driven by the strategic restructuring. Research and development expenses for the six months ended June 30, 2025, were $8.90 million, down from $11.60 million in the prior year. This $2.71 million reduction was largely due to the discontinuation of the LAVA-1207 clinical trial, partially offset by ongoing expenses for the LAVA-1266 program before its wind-down, and severance payments related to restructuring. General and administrative expenses also decreased to $6 million from $6.80 million year-over-year, benefiting from reduced patent-related costs and lower insurance and facility expenses.

A significant financial event was the full waiver of a $5.20 million Innovation Credit loan balance from the Netherlands Enterprise Agency (RVO) in March 2025, which resulted in a non-cash gain on extinguishment of borrowings. This contributed to a total other income, net, of $3.06 million for the six months ended June 30, 2025, compared to $2.68 million in the prior year. Despite these cost reductions and the loan waiver, the company reported a net loss of $12.12 million for the six months ended June 30, 2025, compared to a net loss of $8.91 million in the same period of 2024.

As of June 30, 2025, LAVA Therapeutics held $56.20 million in cash, cash equivalents, and short-term investments. Management believes these resources are sufficient to fund operations for at least the next 12 months from the August 13, 2025, filing date, assuming the XOMA transaction proceeds.

Cash used in operating activities for the six months ended June 30, 2025, was $25.40 million, primarily driven by the net loss and changes in operating assets and liabilities. Net cash provided by investing activities was $12.70 million, largely from maturities of investments offsetting new purchases.

Competitive Landscape and Strategic Positioning

LAVA Therapeutics operates within the highly competitive immuno-oncology market, a sector characterized by high research and development costs, stringent regulatory hurdles, and the need for specialized expertise. While LAVA's Gammabody platform offers a unique approach by engaging gamma delta T cells, positioning it as a specialized innovator, it faces formidable competition from larger, more established biopharmaceutical companies such as Bristol-Myers Squibb (BMY), Merck (MRK), Regeneron (REGN), and Amgen (AMGN).

These larger competitors possess extensive resources, broad oncology portfolios, and established market presence, often demonstrating stronger revenue growth, higher profitability margins, and robust cash flow generation from their commercialized products. For instance, BMY and MRK benefit from blockbuster checkpoint inhibitors and extensive R&D capabilities, while REGN and AMGN excel in antibody-based therapies and global expansion. LAVA's strength lies in its targeted innovation and adaptability within the niche of gamma delta T-cell therapies, which could potentially offer more precise immune responses for specific tumor types. However, its smaller scale and reliance on partnerships for development and commercialization mean it lags in overall financial performance, market share capture, and operational efficiency compared to its well-resourced rivals.

The proposed acquisition by XOMA highlights LAVA's strategic response to this competitive environment, seeking to unlock value from its intellectual property and partnered programs rather than continuing independent, capital-intensive clinical development. This move acknowledges the challenges of competing directly with industry giants on scale and broad pipeline development. The CVR mechanism, which ties future payments to the success of its Pfizer and JJ collaborations and any disposition of the LAVA-1266 program assets, reflects an attempt to monetize its technological advancements through strategic partnerships.

Outlook and Critical Risks

The immediate outlook for LAVA Therapeutics is largely defined by the proposed acquisition by XOMA. Management anticipates a decrease in expenses and capital requirements as the company pursues these transactions and explores strategic alternatives for its remaining programs. A decision regarding the exercise of the buy-up option for increased Pfizer royalties is expected as early as 2026, contingent upon the receipt of clinical data.

However, significant risks cloud this outlook. The XOMA acquisition is subject to several conditions, including a Minimum Condition requiring at least 80% of outstanding shares to be tendered and a Closing Net Cash Condition of at least $31.50 million. Failure to satisfy these conditions could result in the transaction not closing, leaving LAVA responsible for significant transaction costs and diverting management's focus without realizing any benefits. Furthermore, the consideration for shareholders, particularly the CVRs, is highly contingent. These CVRs may expire valueless if no net proceeds are generated from the disposition of LAVA-1266 assets or from the Pfizer and Johnson & Johnson collaborations within the specified timeframe.

The company also faces risks related to employee retention during this period of uncertainty, as cash conservation activities and the pending transaction may lead to attrition and impact morale. If the XOMA transaction does not materialize, LAVA would require substantial additional funding, which may not be available on acceptable terms, potentially forcing the company to delay or cease its research and development activities or even pursue a dissolution and liquidation, where shareholders could lose a significant portion of their investment.

Conclusion

LAVA Therapeutics stands at a critical juncture, transitioning from an independent clinical-stage biotech to a company seeking value realization through acquisition. The proposed XOMA transaction offers a defined path for shareholders to potentially monetize their investment, albeit with a significant portion of future value tied to the contingent performance of its partnered assets and the disposition of discontinued programs. While the company's Gammabody platform represents a differentiated technological approach in immuno-oncology, the financial realities of competing in a capital-intensive industry have necessitated a strategic pivot.

The success of this investment hinges on the timely and successful completion of the XOMA acquisition and the subsequent monetization of the underlying assets tied to the CVRs. Investors must carefully weigh the immediate cash consideration against the speculative nature of the CVRs and the inherent risks associated with the transaction's closing conditions and the potential for a complete loss of investment if the deal falters and liquidation ensues. LAVA's story is now one of strategic exit and asset optimization, rather than independent drug development, making the execution of the XOMA deal the paramount factor for its near-term investment thesis.