Former Chinook Board Member Indicted in $3.2B Novartis Acquisition Insider Trading Scandal

The pharmaceutical industry has been rocked by allegations of insider trading related to Novartis' $3.2 billion acquisition of Chinook Therapeutics in 2023. The U.S. Department of Justice (DOJ) has charged five individuals, including a former Chinook board member, with securities fraud and conspiracy in connection with the high-profile buyout.

Insider Trading Charges Shake Pharmaceutical Sector

Rouzbeh "Ross" Haghighat, who served on Chinook's board of directors during the acquisition, stands at the center of the controversy. The DOJ alleges that Haghighat received confidential information about Novartis' plans to acquire Chinook in May 2023, including sensitive deal terms. Prosecutors claim he used this insider knowledge to purchase securities and tip off four co-defendants: Bruce Haghighat, Kristyn Pearl, Fabio Sabzevari, and James Roberge.

The group allegedly profited over $600,000 from their illicit activities. Haghighat faces one count of securities fraud, 16 counts of insider trading, and two counts of conspiracy. If convicted, he could face up to 25 years in prison for the securities fraud charge alone, with each count of insider trading carrying a potential 20-year sentence.

Matthew Galeotti, head of the DOJ's Criminal Division, emphasized the seriousness of the charges, stating, "Securities fraud and insider trading distort our financial markets and disadvantage Americans who play by the rules."

Novartis Acquisition and Drug Development Progress

The $3.2 billion Chinook acquisition, which closed in August 2023, was a strategic move by Novartis to bolster its kidney disease portfolio. The Swiss pharmaceutical giant paid an 83% premium to Chinook's 60-day volume-weighted average stock price, underscoring the value placed on the biotech's pipeline.

Central to the deal was atrasentan, an endothelin A receptor antagonist developed for the treatment of IgA nephropathy (IgAN). In October 2023, Novartis announced positive topline results from the Phase III ALIGN study, demonstrating that atrasentan significantly reduced urinary protein levels in IgAN patients.

These promising interim data led to the accelerated approval of atrasentan, now branded as Vanrafia, by regulatory authorities in April 2024. The full dataset from the ALIGN study is expected to support the drug's full approval, potentially cementing Novartis' position in the kidney disease market.

Industry Implications and Ongoing Investigations

The insider trading scandal has sent shockwaves through the pharmaceutical industry, raising questions about the integrity of high-stakes mergers and acquisitions. In response to the indictment, Haghighat resigned from his position as chairperson of Sernova Biotherapeutics' board of directors earlier this week.

As the legal proceedings unfold, industry observers are closely monitoring potential ramifications for future deals and corporate governance practices. The case underscores the critical importance of maintaining strict confidentiality during merger negotiations and the severe consequences of exploiting privileged information for personal gain.