Regulus Therapeutics' $1.7 Billion Deal with Novartis Faces Scrutiny: Is the Price Fair?

The proposed $800 million sale of regulus therapeutics (NASDAQ: RGLS) to Novartis (NVS) has ignited a legal firestorm. Kahn Swick & Foti, LLC (KSF), a litigation firm led by former Louisiana Attorney General Charles Foti, has launched an investigation into whether the transaction undervalues Regulus or fails to account for the full potential of its experimental drug farabursen. The deal’s structure—$7 per share in cash upfront plus a contingent value right (CVR) of another $7, payable only if farabursen secures regulatory approval—has raised red flags about fairness and transparency.

The Deal’s Structure and Risks

The transaction, announced April 30, 2025, values Regulus at $700 million upfront ($7.00 per share) plus a potential $900 million contingent payout via the CVR, bringing the total to $1.7 billion if farabursen gains regulatory approval for autosomal dominant polycystic kidney disease (ADPKD). ADPKD, a genetic disorder affecting 12.5 million people globally, is a major unmet medical need, and farabursen’s Phase 1b results showed promise in slowing kidney function decline.

However, the CVR’s dependency on regulatory success introduces significant uncertainty. If the U.S. FDA or European Medicines Agency reject farabursen, shareholders would receive only the upfront $7.00, a fraction of the potential upside. This asymmetry has led KSF to question whether Regulus’s board adequately disclosed risks or negotiated the best possible terms.

Legal Concerns and Shareholder Rights

KSF’s investigation centers on two key issues:
1. Valuation Fairness: The $7.00 per share represents a 274% premium to Regulus’s 60-day average stock price but only a 108% premium to its pre-announcement closing price. Critics argue this reflects the market’s skepticism about farabursen’s chances of regulatory approval, raising questions about whether the CVR adequately compensates shareholders for the risk.
2. Process Integrity: The firm is probing whether Regulus’s board conducted a thorough search for alternative buyers or rushed the process to favor Novartis. Given that Regulus had been exploring strategic alternatives since early 2025, the speed of the deal’s closure—moving from due diligence to exclusivity within months—could signal a failure to maximize shareholder value.

Parallel investigations by Halper Sadeh LLC mirror these concerns, with both firms emphasizing the right of shareholders to seek additional disclosures or enhanced terms through litigation.

Market Reaction and Strategic Context

Regulus’s stock surged 130% on the deal’s announcement, reflecting investor optimism about the upfront cash and Novartis’s resources to advance farabursen. However, the stock has since stabilized around $7.00, suggesting skepticism about the CVR’s likelihood of triggering.

For Novartis, the deal fits its strategy to bolster its renal disease pipeline. ADPKD is a high-potential market, with no approved therapies in the U.S. and annual treatment costs exceeding $100,000 per patient. If approved, farabursen could generate peak sales exceeding $1 billion, justifying the upfront payment even without the CVR.

The Path Forward

The transaction faces two hurdles: regulatory approval and shareholder tender. To close, Novartis must secure tender offers for over 50% of Regulus’s shares. If achieved, Regulus will become a wholly owned subsidiary by year-end 2025.

KSF urges shareholders to act swiftly, given the tender offer’s deadlines, to assert their rights if they believe the terms are unfair. The firm’s history—such as its $150 million settlement in the Ready Capital case—suggests it will push for transparency or additional compensation if flaws are found.

Conclusion: A Risky Gamble, But Is It Worth It?

The Regulus-Novartis deal hinges on farabursen’s success. With the FDA expected to review farabursen’s data by mid-2026, shareholders face a binary outcome: a $1.7 billion windfall or a $700 million payout. The premium to Regulus’s trading history suggests the market already prices in some probability of failure.

Critically, the CVR’s “all or nothing” structure may undervalue the drug’s incremental value if approved. For example, if farabursen gains conditional approval or achieves some, but not all, endpoints, shareholders might receive nothing despite the drug’s partial success. This misalignment could justify KSF’s scrutiny.

Investors should weigh the 274% premium against the CVR’s risks. While the deal offers immediate cash certainty, the contingent payout’s dependency on regulatory luck leaves shareholders exposed to outsized downside. For now, the market’s reaction—locking in gains at $7.00—hints that many see the CVR as too speculative to justify betting on.

As the investigation unfolds, Regulus’s shareholders will need to decide: accept the cash and walk away, or hold out for better terms. The clock is ticking.