• Klaus Meitinger

"Idorsia will be our legacy."

(Reading time: 9 - 18 minutes)

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entrepreneurship. The couple Martine and Jean-Paul Clozel sold their first start-up - the biopharmaceutical company Actelion - for $30 billion in 2017. "We didn't sell, we were bought," the founders specify, "that's a huge difference." In the successor company Idorsia, the two want to continue researching unknown drugs, continuing what they started at Actelion. "Idorsia should be like Actelion, only more successful, better and made to last."

Our entrepreneurial goals have always been very clear," says Jean-Paul Clozel. "We want to discover things that others haven't discovered. We want to see how the projects we've started turn out. We want to commercialize them ourselves. In short - we want to continue on our paths. That's why we want our company to last 100 years. Or longer."

Indeed, when the Clozel couple talk about the prospects for their biotech company Idorsia, founded in 2017, it sounds a bit like the antithesis of most companies in the sector. "A lot of biotech companies are forced to scramble because they don't have enough time or enough money. They can't develop or even optimize all the interesting projects. But research takes time. We sometimes work on a development for 25 years. Our scientists should not feel any pressure. They should be able to focus on their work and dig deeper - even if it takes time."

Martine and Jean-Paul Clozel, it quickly becomes apparent, have dedicated their lives to drug discovery. The two met as 18-year-old first-year medical students at the University of Nantes. "Even then, in addition to studying medicine, we wanted to spend weekends learning everything necessary to do research - the techniques, statistics. We had common interests, the same goal, the same vision," Martine recalls.

After graduating, Jean-Paul, a cardiologist by training, joined Roche Holding. Later his wife follows him. Martine Clozel discovers an active substance to treat high blood pressure in the lungs - Tracleer. But Roche does not believe in its potential and does not want to pursue the project. There is, as so often in the industry, too little time, too little money, too little patience. "Time and again, promising approaches are simply not pursued. We were 40 years old at the time and wanted to work on our ideas for at least another 20 years. There was no other option but to set up a company ourselves," explains Jean-Paul Clozel.

Together with three colleagues, they founded Actelion in 1997. Tracleer later becomes a blockbuster under the name Bosentan, and the IPO is also a great success. But at the same time, the couple now experience the constraints of the biotech industry first-hand in their own company. The constant search for funds to finance research and commercialisation. The dilution of their own stake. "We simply didn't have the funds at the time. In the end, our stake was just under five percent."

Then, in 2011, something happens that is to shape them to this day. The UK offshoot of US hedge fund manager Elliott Advisors tries to take over the firm. "It was as if someone wanted to take your child away from you," Clozel told the Neue Zürcher Zeitung at the time. Even now, you can tell how deeply this affected him. "The hedge fund wanted to exploit a weakness to make a quick buck. He wanted to force us to sell at a price of 30 francs. We would then have lost everything we had worked for over many years. Our work would have remained unfinished again."

After clarifying discussions with shareholders, Elliott's intentions were explained and his presentation questioned. The shareholder general meeting that followed then shot down the activist's proposals. Elliott subsequently sold his position below 40 francs per share and departed.

In the years that followed, Actelion celebrated further triumphs in its operating business. Martine Clozel develops two more blockbusters as Chief Scientific Officer. As CEO, Jean-Paul brings the company up to world level - 2500 employees, over two billion francs in sales. But in the back of his mind remains a thought: "With five percent, you're too small to permanently steer the fortunes of a company in your favor."

When US pharmaceutical giant Johnson & Johnson shows interest in Actelion in the second half of 2016, this concern seems to be confirmed. But what comes next is, in retrospect, a stroke of entrepreneurial genius. "Johnson & Johnson was only interested in the current revenue generators and wanted to pay 30 billion dollars for them, 280 Swiss francs per share. For us, that would have meant a very, very big check."

But enjoying life as billionaires at 60-plus is out of the question for Martine and Jean-Paul Clozel. "It also seemed unfair to us. After all, all the employees had a share in this success, not just us. Besides, we wouldn't have got on with our story again. Who knows how many projects Johnson & Johnson would have stopped after a sale. So we looked for another solution."

In the end, Johnson & Johnson agreed to give Actelion's entire research and development department to a "newco" headed by Martine and Jean-Paul Clozel and their management team. And to provide this with a billion dollars in liquidity. "This offer was good for everyone - for the shareholders, for the employees, for us. Nobody lost their job. And we were able to finish the Actelion project - develop our large pipeline of interesting compounds and see how the results improve patients' lives."

Jean-Paul Clozel remembers the search for a name for the new company very well. "Because absolute secrecy was mandatory, we couldn't risk looking for a name for the new company and publicly checking to see if it was available. We had a few reserve names for future drugs at Actelion at the time. Johnson & Johnson allowed us to use one for the future company. That was Idorsia."

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Idorsia - a fake name that doesn't really mean anything. For Martine and Jean-Paul Clozel, it means everything. Because it's a chance, on the second try, to build a company that will stay and never again be troubled by stock market activists.

Under the terms of the deal, the two will receive 3.9 percent of Idorsia and one billion Swiss francs in cash for their Actelion stake. Following Idorsia's IPO on June 16, 2017, the pair thus quickly increase their stake to 26 percent. They later increase this further and also pull in all future funding rounds. "We invested most of what we received from Johnson & Johnson. At Actelion, we were small shareholders at the end and had no say. At Idorsia, we have 29 percent today. And we want to remain controlling shareholders."

Her statement to all those who are betting that a takeover à la Actelion could be on the cards at some point sounds crystal clear: "Don't buy our shares. We will take this company from one generation to the next. And then into the next. This time, we'll carry the story forward."

In fact, the starting position this time is very different from 20 years earlier when Actelion was founded. "After all, we didn't have to start from scratch. We had a billion francs in cash, 650 researchers, a pipeline of ten product candidates and a huge drug library of chemical compounds - the results of 20 years of research. It was an incredible scientific treasure," Jean-Paul explains. "Idorsia," Martine says at the time, "should be like Actelion, only even more successful, even better."

Where do the two themselves see the most important success factor? "The biggest risk in our industry is that decisions are based on management principles and not on scientific findings," explains Jean-Paul Clozel. It's not business that should drive science, he says, it's the other way around: "Science drives business."

This principle is so important because at some point in the life of a biotech company there is always what Jean-Paul Clozel describes as "financial interference". "Let's say a drug works in two doses. The high dose, of course, has a higher price. Which is to be favored? I've seen big companies go after the highest profit. But the answer is so simple. Science proves what is best for the patient. Another example is when drug development reveals minor side effects. The financial analysts say how important the product is to the future of the company and that it must continue. Science, however, says forget it."

Of course, Jean-Paul Clozel explains, doing that consistently isn't always easy. "Martine and the others on the team spend weeks analyzing the data. And really try to see what is - not what they want to see. They have to forget what's good for themselves in the short term, for the company or the share price. Wishful thinking doesn't count - only pure science. Because this helps the patient and, à la longue, the company and the stock price."

Idorsia's management philosophy is also somewhat different from other companies. "In many companies, ideas come from the top and cascade down. Then the company necessarily has to be organized around that person. That's not my approach." Jean-Paul Clozel sees himself more as an enabler, someone who is there to remove obstacles from his employees' paths. "The boss with us," he smiles, "has many duties and few rights."

Then he tells of a project he personally wanted to stop 15 years ago. "But again and again the team said: 'No, no, we should continue it.' I replied: 'Why, you're not succeeding and it's not making any progress.' - 'But we've found another approach.' And you know what: In fact, they've now discovered something interesting. If I were an authoritarian CEO, the project would never have led to this breakthrough discovery."

To what exactly? "I'm afraid I can't say, it's still a secret."

In the biopharma industry, the entrepreneur further explains, it's a bit like football. "If you have the best players and give them the necessary freedom, you may not always win. But you are just more likely to win. We have a very experienced team that has been together for more than ten years now. That's pretty special."

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Indeed, the team has achieved impressive results over the past four years. Efficacy studies (phase 3) have yielded positive results for two drugs - regulatory approval has been filed with health authorities. Three projects are in pivotal Phase 3, with two compounds in Phase 2, where initial assessments of safety and efficacy in patients are being made. Three are in Phase 1, where healthy volunteers are being tested to determine whether the compound is tolerable and whether the findings obtained in animal studies can also be observed in humans. And one has just completed Phase 1.

One game, however, Idorsia just lost. In October, the company reported that the efficacy trial of its drug lucerastat for treating adult patients with Fabry disease failed to meet its designated primary objective. Fabry disease is a rare genetic disorder. Over time, changes in the nervous system cause pain, especially in the hands and feet. The symptoms of Fabry disease affect patients' life expectancy and quality of life. After six months of treatment with lucerastat, no reduction in pain was observed, but there are signals indicating biological activity.

"Unfortunately, there is just a lot of unknown in our business," nods Jean-Paul Clozel, "the moon is better studied than the human body. That's why we can never be sure what will happen. We've only ever won when we hold in our hands the letter from the regulatory authority giving us permission to sell the drug. But this game is not over yet. We are now evaluating the results of a follow-up study. Before the end of the year, we will decide whether to continue or stop the trial. And it will be the same as always: science before business."

He does not see this as a threat to the medium-term goals. In two to three years, Idorsia wants to bring at least three drugs to market, build up a pipeline that is expected to generate annual sales of five billion Swiss francs, and - above all - break even.

Currently, the company has three really hot irons in the fire. In the decisive phase 3 of the approval process, for example, is a drug for therapy-resistant high blood pressure - aprocitentan. "Millions of people suffer from the fact that existing drugs do not work sufficiently. So when all other solutions are too weak, we have a drug that can help," Martine Clozel outlines. In addition, the company still has eight candidates in the various approval phases.

High hopes are also pinned on the two products for which Idorsia has already presented successful efficacy studies (phase 3). For example, the approval of clazosentan, a drug against sudden spasmodic vasoconstriction, is currently being reviewed by the Japanese authorities. This complication often emerges three to four days after successful surgery for a brain hemorrhage. "Patients can then die or parts of their brain lose function. So far, there is no drug against this. Clazosentan has been proven to prevent this spasm. That is unique," explains Martine Clozel.

Things will get particularly exciting for the research couple in the first quarter of 2022, when Martine and Jean-Paul are expecting letters from the American regulatory authorities for their most important product - the sleeping pill daridorexant. Martine Clozel is also particularly proud of it because its development is typical of their type of drug development. "We already had a promising approach at Actelion in 2011, but we stopped it because it interacted with other drugs. It wasn't an easy decision at the time, because of course the share price dropped significantly. A year later we had a successor. But it didn't seem optimal. And I wanted the optimal drug. It took us ten years to test 30,000 variants. There was always something we weren't completely satisfied with. Now, with daridorexant, we have the perfect solution."

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"It's just a bit like my hobby," nods the passionate fly fisherman Jean-Paul Clozel, "we need patience, have to be optimistic. And convinced that one day the moment will come when the fish will catch the fly." With daridorexant, the two are certain, the fish will snap.

Patients who suffer from insomnia have three problems: they don't fall asleep, they don't sleep through the night, and they wake up too early. Those who don't get enough sleep don't perform well during the day. "Research shows that a certain substance prevents sleep," explains Martine Clozel, "so the first thing was to find a molecule that would suppress its activity. It had to act fast enough to allow the patient to fall asleep quickly. The duration of action had to be long enough for the patient to sleep through the night. But above all, it had to be short enough to avoid hangover symptoms the next morning. This was an optimization task. We manipulated the molecular structure until it worked." "Daridorexant actually showed an improvement in objective and subjective sleep measurements. Patients report almost an hour more sleep - without being sleepy in the morning. This is extremely rare. For the first time, their daytime performance has actually improved," adds Jean-Paul Clozel.

Currently, Idorsia is not only preparing for a positive decision from Silver Spring in the US state of Maryland. The documents have also been submitted to the European, Swiss and Canadian regulatory authorities. Subsidiaries have already been established in five key European markets - France, Germany, the UK, Italy and Spain. "We need to be prepared. Because even after approval, a lot can go wrong. There are countless good drugs where the marketing flopped. Doctors have to like it, patients have to like it," Jean-Paul Clozel lists. In the case of his products, the leap of faith that the pair of researchers have earned over decades should help. "Doctors know that Idorsia works strictly according to the rules of science, does good research and makes sensible decisions. I think they respect us for that."

A success for daridorexant would be a big step toward breaking even and becoming financially independent in the foreseeable future. That's exactly what's required for the couple's entrepreneurial dream to come true. "After all, we can't keep adding capital forever." Currently, Idorsia is not yet financed to break-even. "But," says Jean-Paul Clozel, "we are close. Very soon, the question of where we get fresh capital will no longer be relevant." Then the entrepreneurial life's work of Martine and Jean-Paul Clozel will be secure.

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Her way - that's how Martine Clozel researches.

Idorsia specializes in the discovery, development and commercialization of small molecules. The company primarily addresses chronic diseases. "These are usually not curable. Affected people suffer from them their whole lives. We are looking for a completely new drug, a small pill that solves the problem," explains Marine Clozel.

So the first step is to find an interesting target. "This could be, for example, a certain protein that, if its activity is modulated, can normalise a biological process in the body - with a positive effect for patients.

Then we look for a substance that can be used to change the activity of a target involved in a pathological process. At Idorsia, we have a library of hundreds of thousands of different chemical compounds. We're testing those."

The most promising starting point is then optimized, he said. "The target and the compound go together like a lock and a key," Martine Clozel further explains, "We manipulate the molecular structure of the compound and send it back to our biologists or pharmacologists who test in an interactive process. With each cycle, the compound is further optimized until it eventually becomes a novel drug that will help patients with diseases of high unmet medical need."

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Family Business - The Clozel Way.

Idorsia, while publicly traded, is more of a family business in spirit. And therefore also confronted with the challenges typical there - how is succession regulated, how does cooperation within the family work?

"We have a strict rule," explains Martine Clozel: "When we are at work, we forget that we are married. Then we are employees like everyone else. And when we're at home, we forget that we work together."

The couple also has strong opinions on succession. "First of all, I hate succession plans. Planning means that everything is predefined. Very rarely, however, does it turn out the way you planned. Therefore, the most important aspect for me as CEO is to set up the company so that it works just as well without me. That's what I try to do every day," explains Jean-Paul Clozel.

Jean-Paul Clozel explains the fact that his adult children play no role in the company as follows: "I don't think it's a good idea to work with your own children. They are a different generation, they see things differently. They should live their own lives. I'm very proud that they've started companies themselves and are successful with them - and not because they're Mr. and Mrs. Clozel's children."

One question then naturally suggests itself: What happens to the Idorsia stock in the long run? "Right now, the shares are ours, not the children's. For the next few years, it will stay that way. But one day we will have to find a solution. The good thing about Switzerland is that there are no inheritance taxes. That makes it easier for us to pass on the business. We already have a few ideas about that. But one thing is incontrovertible: we will make sure that these shares cannot be sold."

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// How to invest in Idorsia.

Swiss biopharma company Idorsia made its stock market debut in June 2017 at an issue price of ten francs. The initial listing was at 12.52 francs. Mainly due to the massive purchases of the Clozel couple, the share price then rose very quickly above 25 francs and reached its peak in January 2020 at 34 francs.

Since then, the share has gone downhill. Most recently, the failure of Lucerastat, the drug against Fabry disease, weighed on the share price. Analysts had estimated its value at around three francs per share.

At the current price of around 16.00 euros, the company's market capitalization is now only around 2.8 billion euros. That's not much if the plans of the Clozel couple work out. A rough idea is given by analyses of the research house Octavian from Zurich. They estimate the potential cumulative sales of daridorexant and the blood pressure drug aprocitentan alone - if the latter successfully completes phase 3 - at well over three billion US dollars annually from 2027.

In the short term, news about daridorexant is likely to drive the stock price trend. "I knew from the beginning that the stock market would not trust us until we could show the world that we were economically successful," commented Jean-Paul Clozel. "As a shareholder, I also always hated it when management said: 'Trust us.' The market wants to see results. Let's wait and see what happens when we start our marketing efforts at Daridorexant and then a lot of people learn more about it. We're preparing for that. Don't worry - this is a matter of months, not years."

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Author: Klaus Meitinger