Executive Summary / Key Takeaways

• From Clinical Pipeline to Royalty Vehicle: LAVA Therapeutics has abandoned its clinical-stage immuno-oncology business through systematic program discontinuations and a 71% workforce reduction, positioning itself as a passive royalty stream via a pending acquisition by XOMA Royalty Corporation (XOMA), fundamentally altering the risk/reward profile from execution risk to transaction completion risk.

• Cash Preservation at All Costs: With zero revenue in Q3 2025 and $49.7 million in cash, the company has slashed R&D expenses by 73% while increasing G&A by 73% to facilitate the XOMA transaction, creating a binary outcome where shareholders receive either $1.04 per share plus contingent value rights (CVRs) or face potential liquidation with uncertain distributions.

• Validated Platform Despite Clinical Setbacks: The Gammabody platform retains strategic value evidenced by $67.5 million in cumulative payments from Johnson & Johnson (JNJ) and Pfizer (PFE) partnerships, suggesting CVRs tied to future milestones could materialize even as internal R&D ceases entirely.

• Critical Dependencies: The investment thesis hinges entirely on two factors: successful completion of the XOMA tender offer by Q4 2025 and subsequent milestone achievements from existing collaborations, with no internal value creation possible given the complete wind-down of operations.

Setting the Scene: The End of the Operating Company

LAVA Therapeutics N.V., founded in 2016 and headquartered in the Netherlands, began as a clinical-stage immuno-oncology company built around its proprietary Gammabody platform. The technology aimed to revolutionize cancer treatment by engineering bispecific antibodies that engage gamma delta T cells, offering a potentially simpler alternative to complex cell therapies. For years, the company advanced multiple programs, secured partnerships with pharmaceutical giants, and built a pipeline targeting hematologic and solid tumors. That operating model is now extinct.

By September 2025, LAVA had reduced its workforce to just 10 full-time employees, a 71% cut from prior levels, retaining only those essential for SEC reporting and supporting the XOMA transaction. The company generates zero revenue from product sales and has discontinued all clinical trials, including LAVA-1207 in December 2024 and LAVA-1266 in August 2025. This is not a temporary pause but a permanent strategic pivot. The board's February 2025 decision to evaluate strategic alternatives marked the beginning of the end for LAVA as an independent R&D organization, culminating in the August 2025 share purchase agreement with XOMA Royalty Corporation.

The industry structure explains why this transformation became necessary. Gamma delta T cell therapies represent a niche within immuno-oncology, competing against both allogeneic cell therapy approaches from companies like Adicet Bio (ACET) and established bispecific antibodies from larger players. While LAVA's platform offered theoretical advantages in manufacturing simplicity and off-the-shelf administration, clinical execution faltered. The competitive landscape evolved rapidly, with significant advancements in multiple myeloma and chronic lymphocytic leukemia treatments making it increasingly difficult for a small player to justify independent development. The decision to wind down reflects a pragmatic acknowledgment that the cost of competing outweighed the probability of success.

Technology and Strategic Differentiation: A Platform Seeking a Home

LAVA's Gammabody platform engineered bispecific antibodies to selectively activate Vγ9Vδ2 T cells, eliciting innate-like anti-tumor responses without MHC restriction . This approach differed materially from direct competitors like Adicet Bio and IN8bio (INAB), which develop allogeneic cell therapies requiring complex ex vivo engineering and infusion logistics. The antibody-based modality promised scalable manufacturing, faster time to market, and potentially broader therapeutic windows by sparing healthy tissues.

The technology's value proposition found validation through major pharmaceutical partnerships. Johnson & Johnson contributed an $8 million upfront payment in May 2020, followed by $9.5 million in milestones through October 2024, including a $5 million payment for filing a Phase 1 trial for JNJ-89853413 targeting CD33-positive hematologic cancers. Pfizer provided a $50 million nonrefundable upfront payment in October 2022 for PF-08046052 targeting EGFR-positive tumors, plus a $7 million clinical development milestone in March 2024. These partnerships, totaling $67.5 million in recognized revenue, demonstrated that larger players saw sufficient promise in the platform to commit substantial capital, even as LAVA's internal programs struggled.

Why does this matter for the XOMA transaction? The CVR structure explicitly captures 75% of net proceeds from the J&J and Pfizer collaborations, meaning shareholders retain exposure to these programs' success without bearing further R&D costs. The platform's validation by sophisticated partners suggests these CVRs have non-zero value, distinguishing LAVA from a simple cash shell. However, the complete wind-down of internal programs eliminates any optionality from future platform improvements, making the CVRs the sole source of potential upside.

Financial Performance: The Anatomy of a Wind-Down

LAVA's Q3 2025 financial results reveal a company in terminal operating decline but actively managing its balance sheet for the transaction. Revenue from contracts dropped to zero from $7 million in the prior year period, reflecting the absence of new milestone achievements and the completion of prior collaboration payments. This revenue collapse would typically signal distress, but here it represents a deliberate strategic choice to cease all value-creating activities beyond supporting existing partnerships.

Operating loss narrowed to $7.6 million from $11.3 million year-over-year, a 33% improvement driven entirely by cost elimination rather than operational efficiency. Research and development expenses plummeted 73% to $2.2 million, directly resulting from discontinuing the LAVA-1207 and LAVA-1266 clinical trials and terminating lease arrangements in Utrecht and Den Bosch. Conversely, general and administrative expenses surged 73% to $5.3 million, reflecting legal and professional fees associated with the XOMA transaction. This cost structure inversion—slashing value-creating R&D while spending heavily on deal completion—confirms the company's singular focus on the acquisition.

Cash management becomes the only relevant operational metric. The company burned $30.3 million in operating activities over nine months while generating $40.4 million from investment maturities, ending September with $49.7 million in cash. Management asserts this provides at least twelve months of runway, but this assurance carries limited weight given the company's stated intention not to raise additional capital and its complete dependence on transaction completion. The $5.2 million gain on loan extinguishment from RVO in March 2025 provided a one-time boost, but such non-recurring items cannot mask the underlying reality: without the XOMA deal, the company faces dissolution.

The XOMA Transaction: A Binary Path Forward

The August 2025 share purchase agreement with XOMA Royalty Corporation defines the entire investment case. Under the amended terms, shareholders receive $1.04 in cash per share plus one contingent value right representing potential future payments. The CVR entitles holders to 100% of any Closing Net Cash exceeding a determined amount, 75% of net proceeds from the J&J and Pfizer collaborations, and 100% of a $6.33 million tax reserve minus liabilities. This structure effectively separates the investment into a near-cash component and an option on partnership success.

Transaction conditions create specific hurdles. XOMA must secure tender of at least 75-80% of outstanding shares, and LAVA must deliver at least $24.5 million in Closing Net Cash, reduced from the original $31.5 million requirement in the October amendment. This amendment signaled both parties' commitment to closing but also acknowledged potential cash depletion during the extended offer period. Each additional extension consumes more cash, potentially compromising the net cash condition and creating a self-reinforcing risk of failure.

The timeline remains urgent. XOMA expects closure in Q4 2025, but the offer period has already been extended multiple times. If the transaction fails, LAVA's board may pursue dissolution and liquidation, where cash available for distribution would depend heavily on timing and amounts reserved for contingent liabilities. The $0.75 million termination fee payable to XOMA under certain circumstances further tilts incentives toward completion but also represents a potential cash drain if the deal collapses.

What does this mean for shareholders? The investment becomes a binary proposition. Successful completion delivers $1.04 plus potential CVR payments from J&J and Pfizer milestones. Failure likely results in liquidation distributions well below $1.04 after accounting for wind-down costs, legal fees, and liability reserves. The 10 remaining employees have no capacity to restart operations or pursue alternative strategic transactions, making the XOMA deal the only viable path forward.

Competitive Context: Platform Differentiation in a Crowded Field

LAVA's competitive positioning shifts dramatically when viewed through a royalty lens rather than an operating company lens. Direct competitors like Adicet Bio, IN8bio, and TC BioPharm (TCBP) continue burning cash to advance their own gamma delta T cell therapies, all competing for limited investor capital and clinical trial resources. These companies maintain full R&D organizations, clinical pipelines, and manufacturing ambitions, bearing complete execution risk for potential rewards.

LAVA's bispecific antibody approach offered theoretical advantages against these cell therapy competitors. While Adicet Bio and IN8bio must navigate complex ex vivo cell engineering, supply chain logistics, and infusion center dependencies, LAVA's antibody format promised standard biologics manufacturing and direct administration. This simplicity could have enabled faster development timelines and lower costs had clinical execution succeeded. The platform's design to specifically target tumor cells while sparing healthy tissues aimed to reduce off-target toxicities that plague both cell therapies and traditional bispecifics.

Indirect competitors like Amgen's (AMGN) Blinatumomab and Gilead's (GILD) Yescarta represent established standards in hematologic cancers. These therapies have years of clinical data, reimbursement codes, and physician familiarity. LAVA's gamma delta approach sought to differentiate by leveraging a distinct T cell subset with potentially broader tumor recognition, but the discontinued trials never generated the data needed to prove superiority. For the CVRs, this competitive reality means J&J and Pfizer must demonstrate clear advantages over these entrenched alternatives to achieve commercial success and trigger milestone payments.

The broader industry trend toward allogeneic and off-the-shelf therapies actually favors LAVA's modality, suggesting the platform's conceptual merit remains valid even if the company's execution failed. This validates XOMA's interest in acquiring the royalty streams while avoiding further development risk. For shareholders, it means the CVRs represent exposure to a differentiated technology that larger partners may still successfully commercialize, unlike a failed platform with no partnership interest.

Risks and Asymmetries: What Can Go Wrong

The most material risk is transaction failure. The XOMA deal depends on securing 75-80% tender and maintaining $24.5 million in net cash. Large shareholders selling during the offer period could derail the minimum condition, while extended timelines could erode cash below the threshold. If the transaction collapses, LAVA would remain liable for significant transaction costs, and management's focus would be diverted from any remaining strategic alternatives. The company's own filings state bluntly: "There can be no assurances that the XOMA Transaction will be successfully consummated."

CVR value remains highly uncertain. The J&J and Pfizer programs are early-stage, with no guarantee of clinical success, regulatory approval, or commercial adoption. The CVR agreement explicitly warns: "If no CVR Proceeds become payable prior to the Expiration Date, holders will not receive any payment, and the CVRs will expire valueless." This creates a scenario where shareholders receive only $1.04 per share despite the platform's prior validation, representing a significant discount to the company's recent cash per share value.

The complete absence of internal programs eliminates any upside optionality. Unlike a traditional biotech that might rebound with positive data, LAVA has no capacity to generate new value. The 10 remaining employees cannot restart research, pursue new partnerships, or respond to competitive threats. This makes the CVRs the sole source of potential upside, concentrating risk in two external programs completely outside shareholder control.

Mitigating factors include the strong cash position, the partners' continued development activities, and XOMA's explicit commitment to closing. The October amendment reducing the net cash condition demonstrates flexibility, and XOMA CEO Owen Hughes stated: "We are committed to closing this transaction and look forward to working collaboratively with the LAVA team to further define LAVA's cash forecast in an expeditious manner." This suggests both parties are actively managing toward completion.

Valuation Context: Pricing a Binary Outcome

At $1.74 per share, LAVA trades near its cash value with the CVRs representing a free option on partnership success. The company holds $49.7 million in cash against a market capitalization of $45.8 million, implying the market assigns negative value to the operating business and the CVRs. This valuation reflects extreme skepticism about both transaction completion and future milestone payments.

The XOMA offer of $1.04 cash per share plus one CVR provides a reference point. The $1.04 component represents a 40% discount to the current stock price, suggesting either the market expects higher CVR value or doubts the offer's fairness. The CVRs' potential value depends on multiple variables: any excess cash above the $24.5 million threshold, 75% of J&J and Pfizer collaboration proceeds, and $6.33 million from a tax reserve. Given the company's annualized burn rate of approximately $40.4 million (based on $30.3 million in operating activities over nine months) and ongoing transaction costs, the excess cash component appears limited, making collaboration milestones the primary CVR value driver.

Peer comparisons illustrate the alternative valuation framework. Adicet Bio trades at 0.42 times book value with $103 million in cash but continues burning $25-30 million quarterly on internal programs. IN8bio trades at 0.58 times book with only $10.7 million in cash, facing imminent funding constraints. TC BioPharm trades at 0.09 times book with critical cash shortages. LAVA's 3.61 price-to-book ratio appears rich by comparison, but this reflects the cash-heavy balance sheet and pending transaction rather than ongoing operations.

For an unprofitable, pre-revenue company, traditional metrics like price-to-earnings are meaningless. The relevant valuation framework centers on cash per share, burn rate, and probability-weighted CVR payments. LAVA's 12.27 current ratio and $49.7 million cash provide downside protection if the transaction fails, while the CVRs offer uncapped upside should J&J or Pfizer achieve commercial success. This creates an unusual risk/reward asymmetry where the stock trades like a cash-rich shell with a free call option on partnered programs.

Conclusion: A Winding Path with a Single Destination

LAVA Therapeutics has completed its transformation from an independent biotech to a transaction vehicle. The systematic elimination of clinical programs, reduction to 10 employees, and exclusive focus on the XOMA acquisition leave no ambiguity: this is no longer a company that develops drugs. Instead, it represents a pure-play bet on transaction completion and the ultimate success of its pharmaceutical partnerships.

The investment case distills to a simple proposition: shareholders receive $1.04 per share in cash plus CVRs if the tender offer succeeds, or face uncertain liquidation distributions if it fails. The $49.7 million cash position provides a floor on downside, while the J&J and Pfizer collaborations offer potential upside through milestone payments captured in the CVRs. This binary outcome demands investors assess two variables: the probability of transaction completion and the likelihood of partnered program success.

For those willing to accept the risk of transaction failure, the stock offers exposure to a validated gamma delta T cell platform at a price near net cash. For those seeking traditional biotech upside, the story has ended. The coming months will determine whether LAVA's legacy becomes a series of milestone payments to CVR holders or a cautionary tale about clinical execution in a competitive landscape. Either way, the company as an operating entity has ceased to exist, and the market is now pricing only the residual value of its past partnerships.