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Idorsia: Charlie Munger-Style In Switzerland

In Switzerland, Idorsia comes across as one of the most promising ventures in the pharmaceutical industry. Headed and 25%-owned by accomplished scientists Jean-Paul and Martine Clozel, the company was spun-off from Actelion and listed shortly afterwards.

Focused on drug discovery, the Clozels founded Actelion twenty years ago and turned what started as a garage business into the largest biotech in Europe — delivering fast growth, annual sales of $2.5bn, consistent profits and spectacular research achievements.

The couple resisted countless buyout offers along the way, as well as a brutal activist push led by Elliott. Under pressure, they finally had to give in, and let J&J buy Actelion for $30bn. However, as a prerequisite for the deal, the Clozels required the research pipeline to be spun-off — so they could keep their hands on it.

The latter was transferred into a new company — Idorsia — which shares were distributed to Actelion’s shareholders in a tax-free transaction. J&J holds an initial 16% stake, plus the rights to get a further 16% via a convertible debt issue.

In Martine Clozel’s words, there’s material to build a second Actelion — and even “a better Actelion” — within Idorsia’s pipeline and its eleven blockbuster material compounds, of which four already reached late-stage development. It came as no surprise that the Clozels have actively bought shares in the open market since the listing begun.

Idorsia employs a highly regarded team of scientists and draws upon unmatched research infrastructures in Europe. Management is first-class, between the Clozels, chairman Jean-Paul Garnier — a former head of GSK — and chief financial officer Andre Muller, masterful at keeping costs in check and arranging favorable financing terms.

The company starts with one billion francs in cash — a cushion that should cover two to three years of expenses — and has already struck promising partnerships to help it fund its research efforts. Management plans to deliver three products to the market and develop a pipeline with a sales potential of $5bn over the next five years.

If the latter happens, the value of the company would grow at least tenfold from now. There is obviously no guarantee that Idorsia will become a second Actelion, however there’s a very tangible likelihood of that prospect to materialize given the fantastic teams, assets and partnerships in place.

Charlie Munger once said that if he had to start over, he would look for some “Sam Walton in the early days of Wal-Mart” type of entrepreneur to put his money at work.

That’s precisely what an investment in Idorsia is about.

(Long IDIA — largest position by far — at an average price of CHF15 a share.)

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