Novartis buys Chinook for $3.5 billion in race to treat rare kidney disease

June 12 (Reuters) – Novartis ( NOVN.S ) said it has agreed to buy U.S. biotech company Chinook Therapeutics ( KDNY.O ) for up to $3.5 billion to boost its pipeline of late-stage drug development, and increase the stake in the race for a rare treatment for kidney disease.

Seattle-based Chinook̵[ads1]7;s shareholders will receive $3.2 billion, or $40 per share, in cash under the agreed deal, plus a contingent value right worth up to $300 million, subject to certain regulatory achievements, Novartis said on Monday.

The upfront payment represents a 66.7% premium to Chinook’s closing price on Friday. Chinook’s shares were at $40.1 in premarket trading on Monday.

Novartis CEO Vas Narasimhan is eager to raise the prospect of future blockbusters after leading a push to cut costs and reshape the Swiss drugmaker to focus on fewer therapeutic areas and the most promising geographic markets.

Chinook, whose shares closed at $23.99 on Friday, has a lead compound designed to treat IgA Nephrophathy, or IgAN, a rare disease that can lead to kidney failure in young adults that has attracted a number of developers and is already the target of the drug candidate developed by Novartis.

Narasimham has previously said he would primarily look at deal targets worth less than $5 billion.

The transaction is expected to close in the second half of 2023, Novartis said in a statement.

Chinook expects to see the pivotal reading in the fourth quarter of this year of a clinical trial in the third and final stage of development of oral drug candidate atrasentan to treat IgAN.

Chinook is also working on zigakibart, another experimental injectable IgAN treatment, and plans to start a Phase 3 study in the third quarter of 2023.

Narasimhan won a major victory this year when breast cancer drug Kisqali, one of two new drugs critical to the group’s sales growth, was shown to help a wider group of patients in a study.

The other drug showing promise is iptacopan, which is being tested against a number of rare genetic disorders, including IgAN and another kidney disease.

Companies working on potential IgAN treatments include Roche(ROG.S), Vera Therapeutics(VERA.O), Ionis(IONS.O), Omeros(OMER.O) and unlisted HI-Bio.

IgAN is a progressive autoimmune disease that mainly affects young adults and can lead to kidney failure requiring dialysis or organ transplantation. No targeted treatment options are available, Novartis said.

In the United States, IgAN affects up to 21 people per million per year, with a higher rate among Asian populations. IgAN is the most common cause of kidney failure in Caucasian young adults, Novartis added.

Novartis is set to become more reliant on its drug development fortunes as it plans to spin off its generics division Sandoz in the second half of 2023.

Chinook shares fell, but quickly recovered, last month when short seller Muddy Waters said it bet the stock would fall because atrasentan was unlikely to reach market maturity.

Muddy Waters said last week that it remained short on Chinook.

Additional reporting by Miranda Murray; Editing by Kim Coghill, Sonali Paul and Alexander Smith

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