{ "docId": "019dd923-622c-750b-8b97-6463cf2ae738", "docSlug": "be088263ccbf", "documentTitle": "Chinook Therapeutics Inc (KDNY)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2023-06-07 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 2, "pageCount": 10, "prevPage": 1, "nextPage": 3, "slideType": "executive_summary", "function": "expose_contradiction", "density": "dense", "nDataPoints": 6, "notes": "This is a research note from Muddy Waters Research, acting as a short-seller report.", "elementsJson": [ "headline_text", "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b97-6463cf2ae738/2", "deckHref": "/decks/019dd923-622c-750b-8b97-6463cf2ae738", "deckJsonHref": "/decks/019dd923-622c-750b-8b97-6463cf2ae738.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-6463cf2ae738#slide-2", "components": [ { "bbox": null, "kind": "callout", "text": "We adjust reported 2021 and 2022 revenues downward by -95.3% and -68.5%.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-2b61-7647-86f5-25c3d039b110", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.7, "x": 0.15, "y": 0.57 }, "kind": "paragraph", "text": "Chinook uses SanReno to overstate revenues and assets. Chinook recorded a non-cash investment of $41.2 million in SanReno at SanReno’s establishment in 2021. This was almost entirely based on the deemed value of the atrasentan and BION-1301 licenses Chinook contributed to SanReno. Chinook then misleadingly – possibly improperly – recorded revenue from SanReno of $41.2 million. Not only is the $41.2 million revenue figure effectively a round-trip of intangible assets (of suspect value), but it is questionable whether SanReno has substance. A credit report for SanReno, which should be based on mandatory financial reporting to the PRC government, shows that none of the purported investment funds from Chinook’s joint venture partners have actually been contributed to SanReno’s PRC entity. We see no indication that SanReno has an actual office in China, with only a serviced office mentioned in the credit report referenced infra. Even if the $40 million initial valuation of the SanReno investment were accurate (which would imply an $80 million total initial valuation for SanReno), the extra $1.2 million", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5ec2646a-07c2-48e9-bf03-d772e5b9145d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.7, "x": 0.15, "y": 0.13 }, "kind": "paragraph", "text": "Muddy Waters remains short Chinook Therapeutics Inc (NASDAQ:KDNY). In addition to distorting clinical trial data, Chinook has manipulated its financials. The misleading – if not improper – accounting, which seems an attempt to make Chinook appear more substantive than it is, primarily relates to transactions with its Chinese JV, SanReno Therapeutics. We adjust reported 2021 and 2022 revenues downward by -95.3% and -68.5%.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "8e1136f6-bb92-4c3f-ab23-be1474c83815", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.7, "x": 0.15, "y": 0.22 }, "kind": "paragraph", "text": "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.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b4bff19c-75af-41e6-a9a1-fad0b28d7acb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.7, "x": 0.15, "y": 0.34 }, "kind": "paragraph", "text": "Chinook, in our view, combines the odious attributes of 2020 SPACs, dubious accounting for related party transactions, and China shenanigans. Chinook went public via reverse merger with what was essentially a SPAC during the Great Dash for Trash of 2020, in which there seemingly was no exaggeration too great for any supposed growth story going public. Chinook’s largest investor at the time of its reverse merger was Versant Ventures, which is also an investor in SanReno. (Since Chinook went public in October 2020, Versant has sold 61.5% of its Chinook shares.) Chinook’s two largest current investors, Samsara BioCapital and Frazier Life Sciences, are also major investors in SanReno, creating a significant conflict of interest in how Chinook presents and accounts for the joint venture. It is telling that Chinook’s CMO, Alan Glicklich, departed the company in 2022 after having agreed to seemingly harsh confidentiality restrictions. (According to Glicklich’s LinkedIn, he has not gone to work elsewhere.)", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ff46a5d1-9750-4e8e-86e8-018d253c8492", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.7, "x": 0.15, "y": 0.83 }, "kind": "source-note", "text": "Footnotes 1-11 detailing sources for claims.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7d26050e-bb86-4200-9082-4fcccf488bde", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.7, "x": 0.15, "y": 0.09 }, "kind": "title", "text": "Chinook Therapeutics: SPAC Exaggerations, Misleading Accounting, and China Questions", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "812b9764-e03f-4e25-a597-b1ecd8943bc3", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 3, "from": 2, "beatId": "3de717f3-35a6-4c7d-aee8-66a17c541302", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "The Monster", "beatSlug": "overcoming-monster-the-monster", "evidence": "Chinook Therapeutics: SPAC Exaggerations, Misleading Accounting, and China Questions", "position": 0, "confidence": 0.8, "parentBeatName": "Hook", "parentBeatSlug": "hook" } ], "loops": [ { "to": 9, "from": 2, "name": "The Reveal", "slug": "05-the-reveal", "bestFor": "Product launches, strategic pivots, unexpected findings", "matchId": "009545be-21ff-414e-af6c-ab96f9e3c507", "evidence": "Comparison of reported and adjusted revenue", "position": 0, "objective": "Reveal the true financial performance of Chinook Therapeutics", "structure": "Setup the Question -> Build Suspense -> The Big Reveal", "confidence": 0.7, "description": "Build mystery and anticipation, then deliver a surprising or powerful conclusion" }, { "to": 10, "from": 2, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "6849d576-3f2a-4af6-a2ad-5069a2d1b999", "evidence": "Implications for investors", "position": 1, "objective": "Highlight the risks of not addressing accounting practices", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.6, "description": "Quantify what happens if the audience does nothing" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }