Eyeing the booming renal therapeutics market, Swiss pharmaceutical giant Novartis AG plans to spend up to $3.5 billion on Chinook Therapeutics. The deal marks the latest in a string of high-profile mergers and acquisition (M&A) deals in the pharma sector over the past roughly half year.

Chinook’s kidney disease specialization in the Novartis M&A equation

At the heart of the deal is Chinook’s specialization in precision medicines for kidney disease.

The rising prevalence of chronic kidney disease, which affects roughly 10% of the global population, according to the National Kidney Foundation, underscores the urgency of addressing renal disorders.

The growing prevalence of diabetes, a core contributor to the rise of renal disorders, has stimulated the market for therapies for chronic kidney disease.

Centerview Partners LLC and MTS Health Partners, L.P. are serving as financial advisors for the deal while Fenwick & West LLP is providing legal counsel to Chinook.

“We are incredibly proud of the work that Chinook has done to pursue new and innovative treatments to help patients experiencing kidney diseases,” said Doug Cogen of Fenwick & West. “Having worked with Chinook and its senior leadership for several years, Fenwick is excited about this important milestone for the company and the expanded possibilities of new renal disease treatments resulting from this deal.”

This acquisition is a continuation of Novartis’ recent pattern of acquisitions. The company has purchased 11 firms over the past five years, which include The Medicines Company for $9.7 billion in 2019, Gyroscope Therapeutics Ltd. for $1.5 billion in December 2021, and Cadent Therapeutics, Inc. for $770 million in December 2020, among others.

According to McKinsey, pharma firms tend to pursue M&A for three central reasons: innovation, economies of scale and portfolio realignment. Novartis is hitting all three points with the Chinook acquisition. This investment allows Novartis to integrate the R&D machinery of a smaller, more nimble firm, tap economies of scale in drug development and manufacturing, and realign their product portfolio to focus on the quickly growing renal therapeutics market segment.

Putting the Novartis M&A activity into context

This acquisition comes amidst an M&A surge within the pharma sector in 2023. Prominent examples include deals such as Pfizer’s $43 billion purchase of Seagen in March and Merck’s $11 billion acquisition of Prometheus Biosciences.

According to GlobalData, there were 393 M&A deals in Q1 in 2023 worth a total value of $72.1 billion. So far, the largest recent deal was Pfizer’s acquisition of Seagen for $43 billion.

While M&A deals dropped in 2022, the pharma sector more than doubled its M&A activity from 2005 to 2019, according to McKinsey.