Novartis (NVS) on Monday said it would pay $3.5 billion to acquire a company specializing in kidney disease. Chinook Therapeutics (KDNYMore), biotech stocks soared nearly 60%.
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Wedbush analyst Laura Chico said in a report that the partnership makes sense for both companies. Novartis’ most advanced kidney disease drug is iptacopan. However, the company recently closed one study and noted that patient enrollment has been slower than expected in two other studies.
Meanwhile, Dr. Chinook is working on two experimental treatments for a kidney-damaging disease known as immunoglobulin A nephropathy (IgAN). These drugs are called atrasentan and BION-1301. These drugs could strengthen Novartis’ cardio-renal pipeline, Chico said.
“Overall, nephrology is a neglected but attractive area for investors given its acceptance of regulatory surrogacy (research objectives), increased awareness of disease pathways, and expanding patient populations. We are watching,” he said. “Novartis’ iptacopan overlaps with Chinook’s atrasentan and BION-1301, but the prospects for IgAN development are broad, with two recent approvals.”
On the stock market today, biotech stock Chinook surged 58.3% to close at 37.98. Novartis shares fell 0.9% to 100.
67% premium for biotech stock Chinook
Under the terms of the agreement, a Novartis subsidiary will acquire all outstanding shares of the biotechnology stock at a price of $40 per share. Wedbush’s Chico said this would value Chinook shares at a 67% premium.
Chinook shareholders will also receive two contingent value rights worth $2 per share. These benefits will be paid if atrasentan gets approval for IgAN and a kidney disease called localized segmental glomerulosclerosis.
The boards of directors of both companies have already approved the transaction, which Chinook expects to close in the second half of 2023.
Chico says investors will get more attention going forward Travele Therapeutics (TVTX), ardeliks (ARDX) and Vera Therapeutics (Bella), all working to treat kidney disease.
He has an outperform rating on biotech stock Chinook and has raised his price target to 42 from 36.
Follow Allison Gatlin on Twitter. @IBD_AGatlin.
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