KDNY Stock Alert: Why Short Seller Muddy Waters Is Betting Against Chinook

Chinook Therapeutics (NASDAQ:KDNY) has been surging all day. Why? KDNY stock surged on news that multinational pharmaceutical giant Novartis (NYSE:NVS) will acquire the firm, which is known for kidney care and treatment.

With shares closing up by 58.3% today, it is easy to see why Chinook investors would be celebrating. However, not everyone is optimistic about its growth prospects. Short seller Muddy Waters maintained its stance that even if the deal closes, Chinook’s lead drug won’t make it to market. As such, the firm sees KDNY as a stock to short.

Muddy Waters founder Carson Block is a notorious short seller who has stood by his prediction, even as KDNY has surged on acquisition momentum. If his drug hypothesis proves correct, though, shares could quickly reverse course and lose any ground they have picked up. But what is the reason for his skepticism?

Let’s take a closer look.

What’s Happening With KDNY Stock

On June 6, 2023, Muddy Waters provided an update on its short stance on KDNY stock. It centered around the company’s lead drug candidate, atrasentan, a treatment for chronic kidney disease. As the short seller notes:

“In our initial report, we focused our concerns about Chinook on atrasentan, which we believe is highly unlikely to be approved by the FDA: We concluded that atrasentan a) is inefficacious for chronic kidney disease, and b) has been shown to be harmful to patients’ cardiovascular health.  We also discussed how AbbVie and Chinook seem to have systemically manipulated research findings and presentation on atrasentan to obscure these trial results.  This update shows a larger pattern of deception, extending beyond trial data to financial reporting.”

If these allegations wind up being true, they should be highly discouraging for Chinook investors. Even if the acquisition is successfully completed, KDNY stock will struggle if the drug suffers any setbacks. Of course, it is still unclear how atrasentan will be received by regulators as it moves forward. For now, KDNY stock is likely to keep rising on momentum from the acquisition.

On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.

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