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

Canada’s biotechnology sector produced its latest blockbuster exit Monday as Novartis AG agreed to buy Chinook Therapeutics Inc. KDNY-Q, the developer of a rare kidney disease drug, for as much as US$3.5-billion.

The Swiss drug giant agreed to pay US$40 a share, or US$3.2-billion, for Nasdaq-listed Chinook, a 67-per-cent premium over its last closing price. Chinook shareholders could receive another US$4 a share if the company reaches further milestones under Novartis’s ownership on the way to receiving regulatory approval.

“We believe this transaction is great news for kidney disease patients and the programs we have built,” 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 conditions.

The deal for the four-year-old biotech startup, which has operations in Vancouver and Seattle and is domiciled in the latter, is one of the biggest acquisitions to date in Canada’s life sciences sector. It follows a string of US$1-billion-plus takeovers in recent years, including Clementia Pharmaceuticals Inc., Trillium Therapeutics Inc., Baylis Medical Co. Inc.’s cardiovascular device business and the pending US$2-billion takeover of Montreal-area cough treatment developer Bellus Health Inc. by GSK plc.

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

The early-stage life sciences sector has been hit hard by rising interest rates and inflation. The market for initial public offerings is all but dead, and the Nasdaq Biotechnology index is down 1.6 per cent so far this year after a 10.9-per-cent drop in 2022.

But it is a bifurcated market. Roughly 200 companies have traded below the value of their cash this year, and many are likely to run out of cash by next year. More than 80 per cent of companies that went public since 2021 are trading below their issue price.

But mergers-and-acquisitions activity in biotech has picked up sharply after slumping in the prior three years, with almost US$90-billion in volume so far in 2023, compared with US$127-billion in all of 2022, according to Stifel, Nicolas & Co. The brokerage has forecast that deal volumes will reach US$208-billion this year, the third-highest level of the past decade.

And, unlike the IT sector, where buyout volume is still depressed due to a gap between buyer and seller expectations, pharmaceutical giants “are not looking for discounts or deals” but “the most high-quality drugs they can add to their pipeline that have been derisked,” Ms. Borovina said. “They’re willing to pay more for those drugs that have been validated.”

Chinook last year 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-plus people with the disease in the U.S., Europe and Japan and millions more throughout Asia.

Chinook’s studies have shown that both drugs – atrasentan and zigakibart – substantially reduced the level of protein in the urine of patients, a key measure of their success, after six months. It is set to present more safety and efficacy data this week and is running a large efficacy trial for atrasentan due to yield results next year.

There are only two, recently approved therapies for Berger’s, and Ms. Borovina said kidney specialists have indicated that Chinook’s drugs offer “superior” efficacy. She estimates that atrasentan has a 70-per-cent chance of receiving regulatory approval.

Novartis CEO Vasant Narasimhan said in a statement: “We are excited by this unique opportunity to address one of society’s most challenging health care issues, with the potential to bring additional much-needed treatment options to patients.”

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 generic drugs unit this year.

The acquisition of Chinook 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 US$1-billion in 2019; Repare Therapeutics Inc., which went public in 2020; and Ventus Therapeutics Inc., which has raised US$300-million-plus and struck a development and licensing deal in 2022 with Novo Nordisk.

Versant created and initially funded Chinook out of its Inception Discovery operation in Vancouver. It brought on 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 is a blow to short seller Muddy Waters, which said in May that it had taken a position that Chinook shares would fall, based on its belief its drugs would fail.

With a file from Reuters.

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