Carson Block’s Muddy Waters wager against a hedge fund favorite, Chinook Therapeutics Inc., took a hit Monday after Novartis AG agreed to buy the drug developer in a deal for up to $3.5 billion.
(Bloomberg) — Carson Block’s Muddy Waters wager against a hedge fund favorite, Chinook Therapeutics Inc., took a hit Monday after Novartis AG agreed to buy the drug developer in a deal for up to $3.5 billion.
With the stock surging 58%, its best day since 2015, short sellers betting against Chinook are looking at paper losses of $58 million, according to data from S3 Partners. Monday’s rally erased bearish investors’ gains for the year and put them on track for a mark-to-market loss of roughly $56 million for 2023.
Read more: Novartis Bets $3.5 Billion on Chinook’s Rare Disease Drugs
The move comes less than a month after Muddy Waters announced it was short the company, which lists well-known biotech investors — including Baker Bros Advisors LP and OrbiMed Advisors LLC — among its holders. That short report sent shares down 18% in one day.
The contrarian bet hinged on Chinook’s lead product, atrasentan, a drug being developed for the treatment of rare kidney diseases. Muddy Waters alleged that the company obscured trial data and that the drug was unlikely to be approved by US regulators.
Last week shares fell another 4.8% as Muddy Waters doubled down on its short position, releasing a second report on Chinook. That report claims that in addition to issues with atrasentan, Chinook misrepresents its financial data to investors.
“We are confident that the drug is inefficacious and will never be brought to market in the US.” Carson Block said in an interview. He didn’t disclose if any changes were made to his short position in Chinook.
Chinook declined to comment.
Muddy Waters likely isn’t the only short seller with a bet against Chinook. Short selling in the company increased in 2023 with traders adding $48 million to short positions even as the stock price rose over the last 30 days, according to Ihor Dusaniwsky, managing director of analytics at S3.
(Updates stock move at market close in second paragraph.)
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