Evaluating the HilleVax Acquisition: Shareholder Value, Fairness, and Strategic Implications for Long-Term Investors

The recent acquisition of HilleVax, Inc. (NASDAQ: HLVX) by XOMA Royalty Corp. has sparked intense debate among investors and analysts. With a cash offer of $1.95 per share plus contingent value rights (CVRs), the deal raises critical questions about its fairness, the strategic rationale for XOMA, and the long-term implications for HilleVax's shareholders. For long-term investors, the key lies in dissecting the financial terms, the company's current trajectory, and the risks embedded in the CVR structure.

The Financial Offer: A Premium or a Discount?

HLVX's stock plummeted to $1.64 per share in July 2024 after the NEST-IN1 trial failed to meet its primary endpoint, triggering a securities class-action investigation. The $1.95 per share cash offer, therefore, represents a 19% premium over the post-trial price. However, this premium must be contextualized against HilleVax's dwindling cash reserves. As of March 31, 2025, the company held $159.5 million in liquidity, down from $303.5 million in 2023. The acquisition's $102.95 million minimum cash condition suggests XOMA is acquiring a shell with limited operational runway, not a thriving R&D engine.

The CVR component, tied to future monetization of norovirus vaccine assets and savings from the Boston headquarters lease, introduces upside potential. Shareholders could receive 90% of net proceeds from asset sales or sublease savings within two years. Yet, these outcomes are speculative. For instance, the failure of the NEST-IN1 trial in infants—a key market segment—casts doubt on the commercial viability of HIL-214. Even if XOMA pursues development in adults, the path to approval remains uncertain.

Strategic Implications: XOMA's Motivation and HilleVax's Future

XOMA Royalty Corp. is a niche player in the biotech royalty space, specializing in monetizing intellectual property and cash-generating assets. Its acquisition of HilleVax aligns with a strategy of acquiring underperforming biotech assets at a discount and extracting value through structured exits. For HilleVax's shareholders, this means a pivot from long-term R&D to asset realization.

The deal's structure—no financing contingency, a fixed cash offer, and CVRs—reflects XOMA's risk mitigation. By avoiding R&D bets on HIL-214, XOMA prioritizes liquidity over innovation. Meanwhile, HilleVax's termination of the Takeda HIL-214 license and the sublease of its Boston facility to Stellaromics further underscore a shift toward cost-cutting over growth.

Long-term investors must weigh whether XOMA's approach serves HilleVax's interests. While the immediate cash offer provides certainty, it also signals the end of HilleVax's independent R&D ambitions. For investors who believe in the potential of norovirus vaccines, the CVRs offer a sliver of hope—but only if XOMA can secure partnerships or asset buyers willing to take on the program's risks.

Risks and Controversies

The acquisition is not without controversy. The Pomerantz LLP investigation into potential securities fraud could delay the tender offer or reduce its value. Additionally, the CVRs are non-transferable and contingent on events beyond HilleVax's control, such as market demand for norovirus vaccines or sublease terms. If these milestones fail to materialize, the CVRs may become worthless.

The termination fee of $2.475 million (reduced to $990,000 in certain cases) also raises eyebrows. Critics argue this fee could deter rival bidders, limiting shareholder value. However, given HilleVax's weak financial position and lack of alternatives, the fee may be a necessary cost to finalize the deal.

Investment Advice: Accept, Hold, or Walk Away?

For long-term investors, the decision hinges on risk tolerance and conviction in the CVR's potential. The cash offer provides a clear exit at $1.95 per share, which is a modest but safe premium. However, those who believe in the norovirus vaccine market—and XOMA's ability to unlock value—might hold for the CVRs.

Given the high uncertainty around the CVRs and the ongoing legal risks, a cautious approach is prudent. Investors should monitor the tender offer's progress and the SEC filings for updates. If the CVRs' upside appears realistic, holding might be justified. Otherwise, accepting the cash offer and reallocating capital to more stable biotech ventures could be the wiser choice.

Conclusion

The HilleVax acquisition by XOMA Royalty Corp. is a textbook example of a value-extraction play. While the cash offer provides immediate liquidity, it also signals the end of HilleVax's independent growth story. For long-term investors, the deal's fairness is a mixed bag: a reasonable premium now, but uncertain upside later. Strategic implications suggest XOMA's focus is on asset monetization, not innovation—a reality that may disappoint those who once bet on HilleVax's R&D potential.

As the tender offer unfolds, shareholders must decide whether to cash out for modest gains or gamble on a future that hinges on XOMA's ability to navigate the biotech landscape. In a market where certainty is rare, the path of least risk may be the most prudent.