Carson Block’s Muddy Waters Capital announced it is short Chinook Therapeutics, a Seattle-based biopharmaceutical company focused on treating kidney diseases.
With a market cap of $1.4 billion, the Nasdaq-listed stock is down over 15% year-to-date as of May 16. The hedge fund firm says it believes it is unlikely that Chinook’s lead product candidate, atrasentan, will be approved by the FDA, in a report titled “Chinook Therapeutics: Too Little, Too Late.”
“We conclude that atrasentan is inefficacious for chronic kidney disease,” Muddy Waters officials said. “We also conclude that atrasentan has been shown to be harmful to patients’ cardiovascular health.” The investment team’s 36-page report leans heavily on data from various sets research to lay out a case for potential harmful effects of the drug, which is the leading product candidate for the biopharma company.
The short follows Block’s publicized major short position in dLocal, a Uruguay-headquartered payments processing company. He played up the position at the Sohn Conference in London last year.
Given that a growing number of the population is suffering from chronic kidney disease, such a medication would be a game changer for millions of patients. Chinook bought the rights to develop atrasentan from AbbVie in January 2020. Muddy Waters accuses both companies of manipulating research findings to obscure poor trial results.
Yet, even if the drug’s efficacy and FDA trial results weren’t in dispute, Muddy Waters finds another obstacle in the form of a competing drug: Travere Therapeutics’ Filspari (sparsentan), which was granted orphan drug designation in the U.S. and Europe before receiving accelerated FDA approval in February for IgA nephropathy — the same condition targeted in Chinook’s Phase II trial.
Additionally, Muddy Waters points to a history of heart failures and excess mortality with Chinook’s atrasentan, while sparsentan has no such reported side effects.
It is unclear how large of a short, Muddy Waters has in play with Chinook, but the largest shareholders in the stock at the end of the first quarter include: BlackRock, Frazier Life Sciences Management, OrbiMed, Adage Capital Partners and Suvretta Capital Management.