Novartis: Chinook Acquisition Brings Two New Rare-Disease Drugs at a Fair Price

Novartis’ NOVN $3.5 billion acquisition of Chinook Therapeutics (including $0.3 billion of contingent milestone payments) brings two late-stage rare kidney disease drugs that should help drive long-term sales growth. Since we believe Novartis largely paid a fair price for Chinook and the deal size was relatively small, we don’t expect the transaction to have a major impact on our fair value estimate or wide moat rating. However, the acquisition provides Novartis with two phase 3 drugs, atrasentan and zigakibart in immunoglobulin A nephropathy (IgAN, a rare kidney disease) with potentially pivotal data later in 2023. In early studies, atrasentan and zigakibart showed encouraging efficacy data with reasonable side effects, setting up increased probabilities of approvals. The acquisition also complements Novartis’ growing efforts in rare diseases overall, including its own pipeline drug (iptacopan) also targeting IgAN. We like the rare-disease area, as pricing power tends to be very strong and payers typically allow for exceptionally high prices, partly because the small patient populations limit the overall cost of the drugs. We expect the deal to close later in 2023, even though U.S. antitrust regulators have been increasingly pushing back on acquisitions. Since limited treatment options exist for IgAN, we expect regulators to allow this acquisition.