DEFA14A: XOMA Royalty to Acquire LAVA Therapeutics for $1.24/Share

XOMA Royalty Corporation will acquire LAVA Therapeutics N.V. for a cash consideration of $1.16 to $1.24 per share plus a contingent value right, following a unanimous recommendation from LAVA's Board.

Summary

• XOMA Royalty Corporation has entered into a definitive share purchase agreement to acquire LAVA Therapeutics N.V. for a cash amount between $1.16 and $1.24 per share, plus one non-transferable Contingent Value Right (CVR) per share.
• The cash consideration consists of a Base Price Per Share of $1.16 and an Additional Price Per Share of up to $0.08, totaling a Cash Amount of up to $1.24 per share.
• The CVR represents the right to receive potential cash payments, including 100% of certain Additional Closing Net Cash Proceeds, 100% of Net Proceeds from any LAVA-1266 disposition prior to closing, 75% of Net Proceeds from any disposition of CVR Products after closing, and 75% of Net Proceeds from existing collaborations with Pfizer Inc. and Johnson & Johnson, all for a period ending on the 10th anniversary of the closing.
• LAVA's Board of Directors has unanimously determined that the transaction is in the best interests of the company and its sustainable success, recommending shareholders accept the offer and vote in favor of related resolutions.
• XOMA Royalty will commence a tender offer by August 15, 2025, with the closing subject to conditions including a minimum tender of 80% (or 75% in certain cases) of LAVA's outstanding shares and a minimum cash balance of $31,500,000 at closing.
• Following the tender offer, LAVA will undergo a corporate reorganization (Dutch statutory merger) to become a wholly-owned subsidiary of XOMA Royalty, after which LAVA will no longer be publicly traded, delisted from Nasdaq, and deregistered from the SEC.
• LAVA Therapeutics announced the discontinuation of its Phase 1 clinical trial of LAVA-1266 for acute myeloid leukemia and myelodysplastic syndrome, initiating the wind-down of the program.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the acquisition providing a clear exit and potential upside for shareholders, backed by a unanimous board recommendation. However, it is tempered by the discontinuation of a clinical program and the speculative, non-transferable nature of the CVRs.

Positives

• LAVA's Board of Directors unanimously approved the transaction, deeming it in the best interests of the company and its stakeholders.
• The transaction includes a cash component of up to $1.24 per share, providing immediate liquidity and a premium to shareholders.
• The Contingent Value Right (CVR) offers shareholders potential future upside from LAVA's partnered assets (with Pfizer and Johnson & Johnson) and any future out-licensing or sale of unpartnered programs.
• The acquisition is not subject to a financing condition, indicating XOMA Royalty's readiness to complete the transaction.

Negatives

• LAVA Therapeutics will discontinue its Phase 1 clinical trial of LAVA-1266 and wind down the program, indicating a halt in development for this specific asset.
• The Contingent Value Rights (CVRs) are non-transferable, limiting liquidity for holders who wish to monetize their CVRs before potential payments are made.
• The CVRs are highly speculative, with no assurance that holders will receive any payments, and do not represent any equity or ownership interest in XOMA Royalty or its affiliates.

Risks

• The possibility that various closing conditions set forth in the Purchase Agreement may not be satisfied or waived, including uncertainties as to the percentage of LAVA's shareholders tendering their shares in the Offer.
• The possibility that competing offers will be made, potentially disrupting the current transaction.
• The risk that the Transactions may not be completed in a timely manner, or at all, which could adversely affect LAVA's business and share price.
• Significant costs associated with the Transactions.
• The risk that any shareholder or other litigation in connection with the Transactions may result in significant costs of defense, indemnification, and liability.
• The risk that activities related to the CVR Agreement may not result in any value to LAVA's shareholders.
• The possibility that prior to the completion of the Transactions, LAVA's or XOMA's business may experience significant disruptions due to transaction-related uncertainty.
• The effects of disruption from the transactions on LAVA's business and the fact that the announcement and pendency of the Transactions may make it more difficult to establish or maintain relationships with employees, manufacturers, suppliers, vendors, or business partners.
• The occurrence of any event, change, or other circumstance that could give rise to the termination of the Purchase Agreement.
• Potential adverse effects on LAVA's business condition and results from general economic and market conditions and overall fluctuations in the United States and international equity markets, including as a result of inflation, heightened interest rates, recent and potential future pandemics and other health crises, and hostilities.

Future Outlook

The closing of the Transactions is expected in the fourth quarter of 2025. The CVRs offer potential future payments based on the success of LAVA's partnered assets and any future disposition of unpartnered programs, though there is no assurance that any payments will be made.

Management Comments

• Owen Hughes, CEO of XOMA Royalty, stated, 'We believe the structure of this transaction has the potential to benefit both LAVA and XOMA Royalty shareholders over time. We are adding economics related to LAVA's partnered programs investigating the utility of gamma delta bispecific antibodies, which hold significant promise for patients.'
• Steve Hurly, CEO of LAVA, commented, 'The Purchase Agreement with XOMA Royalty announced today is the result of a thorough and wide-ranging strategic review process, conducted with the support of our legal and financial advisors, aimed at maximizing shareholder value while participating in the sustained success of LAVA's business.'

Industry Context

This acquisition highlights the growing trend of royalty aggregators like XOMA Royalty acquiring biopharmaceutical companies to expand their portfolios of milestone and royalty economics. For LAVA Therapeutics, a clinical-stage biopharmaceutical company, this transaction provides an exit strategy and a mechanism to monetize its assets, particularly its partnered gamma delta T cell engager programs, while discontinuing an unpartnered clinical program (LAVA-1266). This move allows XOMA to gain exposure to promising therapeutic candidates without direct R&D costs, aligning with its business model of acquiring future economics from licensed assets.

Comparison to Industry Standards

• The acquisition by a royalty aggregator (XOMA Royalty) of a biopharmaceutical company (LAVA Therapeutics) is a common strategy in the biotech industry for monetizing drug development assets, particularly those with existing partnerships.
• The inclusion of a Contingent Value Right (CVR) is a standard mechanism in biotech acquisitions to bridge valuation gaps and allow selling shareholders to participate in the future upside of specific drug candidates, such as LAVA's partnered programs with Pfizer (EGFRd2, PF-8046052) and Johnson & Johnson (JNJ-89853413).
• The discontinuation of the LAVA-1266 program, while a negative for that specific asset, is a strategic decision often seen in M&A to streamline pipelines and focus resources on more promising or commercially viable programs, or to reduce ongoing costs for the acquiring entity.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to the risk of shareholder litigation in connection with the Transactions, which could result in significant costs of defense, indemnification, and liability.

Related Party Transactions

• Certain of LAVA's directors and executive officers (collectively, the Support Agreement Parties), holding approximately 0.5% of outstanding shares, entered into tender and support agreements with XOMA Royalty, agreeing to tender their shares into the Offer.

Stakeholder Impact

• Shareholders: Will receive cash consideration and CVRs, providing an immediate return and potential future upside from specific assets. Those not tendering will receive the same consideration via post-offer reorganization.
• Employees: Employment contracts are expected to remain in force, but the LAVA-1266 program will be wound down, potentially impacting employees associated with that program. Management changes are planned for the Board.
• Customers/Partners: The announcement and pendency of the Transactions may make it more difficult to establish or maintain relationships with business partners, though existing collaborations (Pfizer, J&J) are central to the CVR value.

Next Steps

• XOMA Royalty to commence a tender offer by August 15, 2025.
• LAVA Therapeutics to hold an extraordinary general meeting (EGM) for shareholder approval of resolutions related to the transaction and corporate reorganization.
• Following the tender offer and a subsequent offering period, LAVA will undergo a corporate reorganization (Dutch statutory merger) into New Topco.
• LAVA's shares will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934.
• LAVA will initiate the wind-down of the LAVA-1266 program.

Key Dates

Recommendation

For LAVA Therapeutics (LVTX) shareholders, the recommendation is to hold shares until the tender offer commences and then tender them into the offer. The acquisition price of $1.16 to $1.24 per share plus a CVR provides a defined exit value. The CVR offers speculative upside, but its non-transferable nature limits immediate liquidity. For XOMA Royalty (XOMA) shareholders, this acquisition represents a strategic expansion of their royalty portfolio, which aligns with their business model, but the long-term value depends on the success of the acquired assets and the CVR payouts.

Keywords

Biotech, Acquisition, Tender Offer, Contingent Value Right, Oncology, Gamma Delta T Cell, LAVA Therapeutics, XOMA Royalty, Biopharmaceutical, Merger