Novartis buys Chinook for $3.2 billion, latest in a string of big Canadian biotech buyouts

Novartis buys Chinook for $3.2 billion, latest in a string of big Canadian biotech buyouts

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The logo of the Swiss pharmaceutical company Novartis on a building in Basel.GABRIELE MONNET

Canada’s biotech sector made its latest blockbuster exit on Monday when Novartis AG agreed to buy Chinook Therapeutics Inc. KDNY-Q, the developer of a rare kidney disease drug, for $3.5 billion.

The Swiss drug giant has agreed to pay $40 a share, or $3.2 billion, for Nasdaq-listed Chinook, a 67% premium to its latest closing price. Chinook shareholders could receive an additional $4 a share if the company hits additional milestones under Novartis ownership en route to receiving regulatory approval.

We believe this transaction is excellent news for kidney disease patients and the programs we have created, Chinook Chief Executive Officer Eric Dobmeier said in a news release. The deal is expected to close in the second half of the year pending approval by Chinook investors and other closing terms.

The deal for the four-year biotech startup, which operates in Vancouver and Seattle and is domiciled in the latter, is one of the largest acquisitions to date in Canada’s life sciences industry. Follows a string of more than $1 billion acquisitions in recent years, including Clementia Pharmaceuticals Inc., Trillium Therapeutics Inc., the cardiovascular devices business of Baylis Medical Co. Inc., and the $2 billion acquisition of Montreal -cough treatment developer Bellus Health Inc. of GSK plc.

It highlights Big Pharma’s willingness to pay when they find a late-stage, clinically validated and truly differentiated asset, Bloom Burton analyst Antonia Borovina said in an interview.

The early stage life sciences sector has been hit hard by rising interest rates and inflation. The initial public offering market is all but dead, and the Nasdaq Biotechnology Index is down 1.6% so far this year after a 10.9% decline in 2022.

But it’s a forked market. Some 200 companies have traded below the value of their cash this year, and many are likely to run out of cash within the next year. Over 80% of companies that have gone public since 2021 are trading below their issue price.

But M&A activity in the biotech sector has soared since the slump the previous three years, with volume nearly $90 billion so far in 2023, up from $127 billion in the full year of 2022, according to Stifel. Nicolas & Co. The brokerage forecast that deal volumes will reach $208 billion this year, the third-highest level in the last decade.

And, unlike the IT industry, where acquisition volume is still depressed due to a gap between buyer and seller expectations, pharmaceutical giants are not looking for discounts or bargains, but for the highest quality drugs that they can add to their pipeline that they’ve been laughed at, Ms. Borovina said. They are willing to pay more for those drugs that have been validated.

Last year Chinook reported promising preliminary results for two drugs it is developing to treat a rare kidney disease known as IgA nephropathy or Berger’s disease. People with the disease, which causes inflammation and fibrosis in the kidneys, are typically diagnosed in adulthood, and half eventually experience kidney failure. There are an estimated 500,000 people with the disease in the United States, Europe and Japan, and millions more across Asia.

The Chinook studies showed that both the drugs atrasentan and zigkibart substantially reduced the level of protein in the patients’ urine, a key measure of their success, after six months. He will present more safety and efficacy data this week and is conducting a large study of the efficacy of atrasentan with a view to next year’s results.

There are only two therapies recently approved for Berger, and Ms. Borovina said kidney specialists have indicated the Chinooks drugs offer superior efficacy. She estimates that atrasentan has a 70% chance of receiving regulatory approval.

Novartis CEO Vasant Narasimhan said in a statement, “We are excited about this unique opportunity to address one of society’s most challenging healthcare problems, with the potential to offer patients additional much-needed treatment options.

Mr. Narasimhan is eager to raise the prospect of future blockbuster drugs after leading a push to cut costs and reshape Novartis to focus on fewer therapeutic areas and the most promising geographic regions. The company is set to become more dependent on its drug development fortunes after a planned spinoff of its Sandoz generics unit this year.

The Chinook acquisition is another win in Canada for San Francisco-based venture capital firm Versant Ventures, an early backer of BlueRock Therapeutics, which was acquired by Bayer AG for $1 billion in 2019; Repare Therapeutics Inc., publicly traded in 2020; and Ventus Therapeutics Inc., which raised more than $300 million and completed a 2022 development and licensing deal with Novo Nordisk.

Versant created and initially funded Chinook out of its Inception Discovery operation in Vancouver. It hired Mr. Dobmeier, an industry veteran, as CEO, licensed atrasentan from AbbVie Inc. in 2019, and went public via a reverse merger with the Nasdaq-listed company in 2020.

The deal comes as a blow to short seller Muddy Waters, who said in May that he took a position that Chinook’s stock would fall, based on his belief that its drugs would fail.

With a Reuters file.

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