Executive Summary / Key Takeaways

• Strategic Transformation: Sonnet BioTherapeutics is undergoing a radical business combination, pivoting from a pure-play clinical-stage oncology biotech to a hybrid entity, Hyperliquid Strategies Inc. (HSI), which will hold a substantial reserve of HYPE cryptocurrency to fund its biotech pipeline.
• Differentiated Biotech Platform: Sonnet's proprietary Fully Human Albumin Binding (FHAB) technology offers a unique approach to immunotherapy, demonstrated by SON-1010's 10-fold extended half-life and promising early clinical responses in difficult-to-treat cancers like platinum-resistant ovarian cancer (PROC) and soft tissue sarcoma (STS).
• Enhanced Funding for Pipeline: The HYPE treasury strategy aims to provide significant capital, with HSI expected to hold approximately $888 million in HYPE tokens and cash at closing, potentially de-risking the funding of Sonnet's capital-intensive clinical development programs.
• High-Risk, High-Reward Profile: While the biotech assets present clinical upside, the new HYPE treasury introduces substantial volatility and regulatory uncertainty, making the combined entity a speculative investment with both significant growth potential and considerable downside risks.
• Key Milestones Ahead: Investors should monitor the closing of the business combination in H2 2025, along with anticipated topline efficacy data for SON-1010 in combination with trabectedin (H2 2025) and atezolizumab (Q4 2025), and the initiation of a Phase 2 trial for SON-80.00 (H2 2025).

From Biotech Promise to Crypto-Funded Future

Sonnet BioTherapeutics Holdings, Inc. (NASDAQ:SONN) began its journey in 2015 as a clinical-stage, oncology-focused biotechnology company, dedicated to innovating biologic medicines. Its foundational strength lies in the proprietary Fully Human Albumin Binding (FHAB) platform, a technology designed to revolutionize the delivery and efficacy of immunotherapies. This platform utilizes a fully human single-chain antibody fragment (scFv) that binds to human serum albumin (HSA), effectively "hitch-hiking" for targeted transport to tumor and lymphatic tissues. This mechanism is intended to improve drug accumulation in solid tumors and extend the duration of therapeutic activity, while also enabling glycosylation of interleukins in mammalian cell culture to reduce immunogenicity. A U.S. patent for FHAB in June 2021, with a continuation in June 2024, underscores its innovative edge.

The FHAB platform is the cornerstone of Sonnet's pipeline, which includes lead asset SON-1010 (Interleukin 12), SON-80.00 (Interleukin 6), and bifunctional constructs like SON-1210 (IL12-FHAB-IL15) and SON-1411 (IL18-FHAB-IL12). These candidates target a range of conditions from solid tumors to neuropathies, aiming to address significant unmet medical needs. However, like many early-stage biotechs, Sonnet has faced persistent challenges, including recurring operating losses and negative cash flows, which have raised substantial doubt about its ability to continue as a going concern. This financial reality has necessitated a bold strategic pivot, culminating in a definitive Business Combination Agreement (BCA) in July 2025 to transform the company into Hyperliquid Strategies Inc. (HSI), a public cryptocurrency treasury company that will also house Sonnet's biotech assets.

Technological Edge in a Competitive Landscape

Sonnet's FHAB technology offers a distinct competitive advantage in the crowded oncology immunotherapy space. Traditional recombinant human Interleukin 12 (rhIL-12) has historically been plagued by severe adverse effects at effective doses, limiting its therapeutic application. SON-1010, by linking IL-12 to the FHAB construct, has demonstrated a remarkable 10-fold extended half-life compared to rhIL-12 in preclinical data, suggesting improved tumor targeting and a more favorable safety profile. This extended half-life allows for higher, potentially more effective, maintenance doses while minimizing systemic toxicity, a critical differentiator against conventional cytokine therapies.

In the highly competitive biotechnology industry, dominated by giants like Bristol-Myers Squibb (BMY), Merck (MRK), Amgen (AMGN), and Roche (RHHBY), Sonnet's focused innovation provides a niche advantage. While these larger players boast extensive pipelines, vast commercialization experience, and robust financial health (e.g., BMY's 0.57 gross profit margin and 0.20 operating profit margin, MRK's 0.76 gross profit margin and 0.32 operating profit margin in 2024, compared to Sonnet's TTM gross profit margin of -95.19% and operating profit margin of -1405.87%), Sonnet's FHAB platform aims for superior targeting efficiency and reduced immunogenicity. This could translate to better efficacy and safety, potentially leading to higher average selling prices and improved margins in specific indications, thereby enhancing capital efficiency by reducing trial failures.

For instance, in platinum-resistant ovarian cancer (PROC), a notoriously difficult-to-treat indication with low response rates to existing immune checkpoint inhibitors (ICIs), SON-1010's ability to turn "cold" tumors "hot" by stimulating IFNγ and increasing PD-L1 expression is particularly compelling. This mechanism is designed to synergize with ICIs like atezolizumab, potentially offering a more potent therapeutic option where current treatments fall short. This targeted approach positions Sonnet to carve out market share in areas where broader, less precise therapies may struggle.

Clinical Progress and Financial Realities

Sonnet's clinical pipeline has shown encouraging signs, despite the company's constrained financial position. The lead asset, SON-1010, is progressing in multiple trials:

• SB101 (Solid Tumors): The Phase 1 monotherapy dose escalation successfully completed in December 2024, with interim data in March 2025 showing clinical benefit (stable disease at four months) in 54% of evaluable patients and a partial response (PR) in one patient with soft tissue sarcoma at the highest dose (1200 ng/kg). An expansion cohort combining SON-1010 with trabectedin for soft-tissue sarcomas is fully enrolled, with topline safety data expected in H2 calendar year 2025.
• SB221 (PROC with Atezolizumab): This Phase 1b/2a study, in collaboration with Roche, established an MTD of 1200 ng/kg for SON-1010 in combination with atezolizumab. Interim data in April 2025 revealed a strong safety profile and, significantly, two of three PROC patients at the MTD achieved partial responses. The Safety Review Committee (SRC) recommended an E7 cohort with a 25% higher maintenance dose (1500 ng/kg) before proceeding to the randomized Phase 2a portion. Topline efficacy data from this combination study are anticipated in Q4 2025.

Beyond SON-1010, the company's SON-80.00 (IL-6) program for Chemotherapy-Induced Peripheral Neuropathy (CIPN) and Diabetic Peripheral Neuropathy (DPN) saw its ex-U.S. Phase 1b/2a study (SB211) put on hold due to business priorities. However, a strategic license agreement with Alkem Laboratories Limited (ALKEM) in October 2024 for DPN in India provides a pathway forward, with Alkem initiating a Phase 2 trial in H2 calendar year 2025. The bifunctional SON-1210 (IL12-FHAB-IL15) is also advancing, with an investigator-initiated Phase 1b/2a study in pancreatic cancer expected to dose its first patient in H2 calendar year 2025. Conversely, the SON-3015 program has been placed on hold for expense reduction.

Financially, Sonnet reported a net loss of $10.43 million for the nine months ended June 30, 2025, compared to $4.31 million for the same period in 2024. Research and development expenses increased by $1.70 million to $6.20 million, reflecting ongoing clinical trial costs. Collaboration revenue saw a significant jump to $1.00 million for the nine months ended June 30, 2025, primarily from the Alkem Agreement, a notable increase from $18,626 in the prior year.

Despite these efforts, cash on hand was a mere $0.30 million as of June 30, 2025, with projections indicating this, even with recent financings, would only fund operations into February 2026. This stark reality underscores the urgent need for substantial additional financing.

The HYPE Treasury Strategy: A Bold New Chapter

In a transformative move, Sonnet entered into a definitive Business Combination Agreement (BCA) on July 11, 2025, with Rorschach I LLC and Hyperliquid Strategies Inc. (HSI). This transaction is designed to create a new public cryptocurrency treasury company, HSI, which will hold a significant reserve of HYPE, the native token of the Hyperliquid Layer-1 blockchain. At closing, HSI is expected to hold approximately 12.6 million HYPE tokens, valued at $583 million, along with at least $305 million in gross cash, totaling an assumed closing value of $888 million. This strategic pivot is a direct response to the capital-intensive nature of biotech development and the company's recurring liquidity challenges.

The HYPE treasury strategy aims to provide a robust, potentially non-dilutive funding mechanism for Sonnet's biotech assets, which will continue development as a wholly-owned subsidiary of HSI. This move is supported by prominent strategic investors, including Paradigm, Galaxy Digital, and Pantera Capital, signaling institutional interest in the Hyperliquid ecosystem. The Hyperliquid blockchain, with its HyperCore and HyperEVM components, supports high-speed perpetual futures and spot order books, and HYPE has rapidly ascended to become the 13th-largest cryptocurrency by market capitalization as of July 6, 2025. This indicates a burgeoning market with institutional demand for HYPE exposure, which HSI aims to capitalize on.

The "so what" for investors is profound: this combination offers exposure to both the high-growth, high-risk digital asset market and the long-term potential of Sonnet's innovative biotech pipeline. Legacy Sonnet stockholders will receive Contingent Value Rights (CVRs) tied to the future value of the biotech assets, providing a mechanism to participate in the original biotech thesis.

Risks and Outlook

While the HYPE treasury strategy offers a potential lifeline, it introduces a new layer of significant risks. The extreme volatility of HYPE and the broader digital asset market means that HSI's financial results and stock price will be highly susceptible to rapid fluctuations. The regulatory landscape for cryptocurrencies remains uncertain, with potential for new laws, enforcement actions, or classification of HYPE as a security, which could impose additional compliance burdens or severely impact its value. Custody risks, including loss of private keys or cyberattacks, and the potential for HYPE holdings to be treated as unsecured claims in insolvency, are also considerable. Furthermore, the adoption of ASU 2023-8.00 will lead to fair value accounting for HYPE, introducing significant earnings volatility, and unrealized gains could trigger the 15% Corporate Alternative Minimum Tax (CAMT).

Beyond the crypto pivot, Sonnet continues to face the inherent risks of biotech development, including clinical trial failures, regulatory hurdles, and the need for further substantial financing beyond the initial HSI capital. The company's Nasdaq listing compliance, though recently regained, remains under monitoring. The completion of the business combination itself is subject to customary closing conditions, including stockholder approval, and any delays or failures could incur significant costs.

Looking ahead, the second half of calendar year 2025 is critical. The anticipated closing of the business combination with HSI will fundamentally reshape the investment profile. Concurrently, key clinical data readouts for SON-1010 in combination with trabectedin and atezolizumab, along with the initiation of the SON-80.00 Phase 2 trial, will provide crucial insights into the biotech pipeline's progress. These milestones will be pivotal in validating both the scientific promise of Sonnet's FHAB platform and the financial viability of the new HYPE-backed strategy.

Conclusion

Sonnet BioTherapeutics stands at a unique crossroads, embarking on a transformative journey that marries its innovative oncology pipeline with a bold cryptocurrency treasury strategy. The FHAB platform, with its demonstrated ability to enhance drug delivery and extend therapeutic half-life, offers a compelling scientific foundation, particularly in challenging indications like platinum-resistant ovarian cancer. However, the traditional biotech funding model proved unsustainable, necessitating the strategic pivot to Hyperliquid Strategies Inc. and its HYPE reserve.

This new investment thesis presents a dual opportunity: exposure to the potential of cutting-edge immunotherapies, now potentially better capitalized, alongside participation in the volatile yet rapidly evolving digital asset market. While the HYPE treasury offers a novel solution to funding challenges, it introduces a complex array of risks, from market volatility to regulatory uncertainty. Investors considering SONN must weigh the significant upside potential of a well-funded, differentiated biotech pipeline against the inherent speculative nature and regulatory headwinds of its new cryptocurrency treasury. The coming months, with the expected closing of the business combination and critical clinical data readouts, will be instrumental in shaping the narrative for this uniquely positioned company.