Novartis said Monday it would pay $3.5 billion to buy kidney disease-focused Chinook Therapeutics, and the biotech stock rocketed almost 60%.
The deal makes sense for both companies, Wedbush analyst Laura Chico said in a report. Novartis' most advanced kidney-disease drug is iptacopan. But the company recently ended one study and noted slower-than-expected patient enrollment in two others.
Meanwhile, Chinook is working on two experimental treatments for the kidney-damaging disease known as immunoglobulin A nephropathy, or IgAN. It calls these drugs atrasentan and BION-1301. These drugs could bolster Novartis' cardio-renal pipeline, Chico said.
"Overall, we see nephrology as overlooked but an attractive area for investors given acceptance of surrogate (study goals) by regulators, increasing awareness of disease pathways and expanding patient populations," she said. "While Novartis' iptacopan overlaps with Chinook's atrasentan and BION-1301, the IgAN development landscape is broad and also holds two recent approvals."
On today's stock market, biotech stock Chinook catapulted 58.3% to close at 37.98. Novartis stock sank 0.9% to 100.
67% Premium On Biotech Stock Chinook
Under the terms of the deal, a Novartis subsidiary will acquire all outstanding shares of the biotech stock at $40 per share. That values Chinook shares at a 67% premium, Wedbush's Chico said.
Chinook shareholders also will receive two contingent value rights worth $2 per share apiece. They will be paid out if atrasentan wins approvals in IgAN and a kidney disease called focal segmental glomerulosclerosis.
Both company boards have already approved the deal, which Chinook expects to close in the second half of 2023.
Chico says investors will now likely pay closer attention to Travere Therapeutics, Ardelyx and Vera Therapeutics, all of which are working on kidney disease treatments.
She has an outperform rating on biotech stock Chinook, and raised her price target to 42 from 36.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
