Sonnet BioTherapeutics (NASDAQ: SONN) announced a transformative $888 million business combination with Rorschach I LLC to form Hyperliquid Strategies Inc. (HSI), pivoting from biotech to a cryptocurrency treasury strategy focused on HYPE tokens. The new entity will hold 12.6 million HYPE tokens (valued at ~$583 million) and $305 million in cash, aiming to be the largest U.S.-based public company holding HYPE, the native token of the Hyperliquid Layer-1 blockchain.
The deal, backed by investors like Atlas Merchant Capital, Paradigm, Galaxy Digital, and others, includes a $5.5 million private placement and conversion of $2 million in convertible notes. Sonnet’s stock surged significantly, with pre-market gains reported between 153% and 300%, settling around $9.64 to $19.67. Post-merger, Sonnet will operate as a wholly owned HSI subsidiary, continuing biotech development (e.g., SON-1010), while shareholders receive contingent value rights (CVRs) tied to biotech assets.
The transaction, expected to close in the second half of 2025, positions HSI as a leader in crypto treasury management, though HYPE’s volatility and regulatory uncertainties pose risks. The $888 million business combination between Sonnet BioTherapeutics (SONN) and Rorschach I LLC to form Hyperliquid Strategies Inc. (HSI) has significant implications for Sonnet’s shareholders, the biotech and crypto industries, and the broader market.
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Sonnet’s shift from a clinical-stage biotech focused on oncology (e.g., SON-1010) to a hybrid entity with a primary focus on managing a HYPE token treasury is unprecedented. HSI aims to be the largest U.S.-based public company holding HYPE tokens, valued at ~$583 million of the deal’s total. This positions HSI as a novel player bridging traditional finance and decentralized finance (DeFi).
Sonnet’s biotech operations will continue as a wholly owned subsidiary, with ongoing development of assets like SON-1010. Shareholders will receive contingent value rights (CVRs) tied to biotech milestones, preserving some exposure to potential upside in oncology but subordinating it to the crypto strategy.
SONN’s stock surged 153% to 300% in pre-market trading on July 14, 2025, with prices ranging from $9.64 to $19.67, reflecting investor enthusiasm for the crypto pivot. However, HYPE’s volatility (historically significant for altcoins) could lead to sharp fluctuations in HSI’s valuation post-merger. The $305 million cash component and $5.5 million private placement provide HSI with substantial liquidity to manage its treasury and potentially expand crypto holdings. This could attract institutional investors seeking crypto exposure through a public company.
The pivot introduces high risk due to HYPE’s price volatility, regulatory uncertainties in crypto (e.g., SEC oversight), and the untested nature of a biotech-crypto hybrid model. Biotech investors may face dilution or reduced focus on Sonnet’s original pipeline. The deal reflects growing mainstream acceptance of cryptocurrencies, with HSI leveraging a public company structure to offer regulated exposure to HYPE. This could inspire similar pivots by other small-cap firms seeking to capitalize on crypto market trends.
Sonnet’s move may signal challenges in biotech funding, as small-cap biotechs often struggle with high R&D costs and long timelines. Pivoting to crypto could be a strategy to unlock capital, but it risks alienating biotech-focused investors. The transaction, expected to close in H2 2025, requires shareholder approval and regulatory clearance. Crypto’s evolving regulatory landscape (e.g., potential SEC classification of HYPE as a security) could complicate or delay the merger.
CVRs tied to biotech assets introduce complexity, as their value depends on uncertain milestones, potentially leading to disputes among shareholders. Long-term SONN shareholders, who invested in its oncology pipeline, may view the pivot as a betrayal of the company’s original mission. The relegation of biotech to a subsidiary and reliance on CVRs for future biotech gains could frustrate those expecting direct R&D progress. Some may sell shares to avoid crypto-related risks.
New investors, particularly those bullish on HYPE and Hyperliquid’s Layer-1 blockchain, are likely driving the stock surge. They see HSI as a unique vehicle to gain exposure to crypto via a public company, potentially attracting speculative capital from DeFi advocates. A smaller group may support the hybrid model, seeing diversification benefits in combining biotech’s long-term potential with crypto’s high-reward (but high-risk) profile.
Supporters argue HSI’s $583 million HYPE treasury and $305 million cash reserve create a strong foundation for growth, especially if HYPE appreciates. Backing from firms like Paradigm and Galaxy Digital adds credibility, and the stock’s surge reflects market optimism. Skeptics highlight the risks of HYPE’s volatility, regulatory hurdles, and the unproven track record of blending biotech and crypto. Biotech purists may argue that Sonnet is abandoning its core competency, while crypto critics may see HSI as a speculative gamble.
Industry peers may view Sonnet’s pivot as a sign of desperation or a lack of confidence in its pipeline, potentially impacting perceptions of small-cap biotechs broadly. DeFi advocates may welcome HSI as a bridge between traditional and decentralized finance, but some may question the need for a public company to hold HYPE when investors can directly buy tokens on Hyperliquid. The dual focus on crypto treasury management and biotech R&D could strain resources and leadership attention.
The Sonnet-Rorschach combination is a bold, polarizing move that could redefine how public companies engage with cryptocurrencies. It offers significant upside potential if HYPE appreciates and biotech assets deliver, but it also introduces substantial risks due to market volatility, regulatory uncertainty, and the challenge of managing a hybrid business model. The divide among stakeholders—biotech loyalists versus crypto speculators, cautious traditionalists versus risk-tolerant innovators—will shape HSI’s trajectory.