Idorsia leaps 45% in market debut; Actelion spinoff looks like sure bet with J&J backing to boot. How to invest.

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Idorsia Ltd. (Allschwil CHE), the research-based spin-out from Actelion following the latter’s $30 billion acquisition by Johnson & Johnson (New Brunswick NJ), which has now been completed, started trading on the SIX Swiss stock exchange last week at 10 Swiss francs, and soon moved up and closed the week up 37% at 13.65 francs in Zurich, ThePharmaLetter reported.

@Idorsia is the research-based spin-out from @Actelion following acquisition by @JNJNews Click To Tweet

Shares closed Monday up another 8% at 14.45 francs. The former shareholders of Actelion received one Idorsia share for each Actelion share held on June 13. On June 16, 2017, 107.33 million Idorsia shares were being listed on SIX.

One trader, quoted by Reuters, said the stock had been trading over the counter the prior week at around 8 francs, the theoretical price given the difference between Actelion’s share price in Swiss francs and the $280 cash price J&J is paying for Actelion.

Jean-Paul Clozel, CEO of Idorsia and a co-founder of Actelion, commented: “Today we launch Idorsia, and we have a fantastic opportunity ahead. We are starting out with an experienced team of highly qualified professionals, a full research and development pipeline, state-of-the-art facilities, and nearly one billion Swiss francs [$1.03 billion] in cash–the ideal constellation for bringing research and development to successful medicines.”

Unabashedly sanguine, Clozel added: “We are off to a great start with the recent results with aprocitentan and cenerimod and are eagerly awaiting key results for our dual orexin receptor antagonist in the coming months. Beyond that we will be taking decisions on our Phase 1 pipeline assets before the end of the year, so we have a lot to look forward to.”

J&J, which will control up to 32% of Idorsia, intends to delist Actelion.

Steve’s Take:

Every once in a while a new equity becomes available to the public that screams “buy me.” I seldom say this, but in my opinion, Idorsia falls into that category, and rightly so. Some background.

Early this year, J&J finally sealed the deal to acquire Europe’s biggest biotech, Actelion, for a whopping $30 billion, reports Labiotech. Last week, all publicly held shares of Actelion have been acquired by J&J’s Swiss subsidiary Janssen, marking the official close of the deal. But while Europe lost its top biotech to big pharma, the agreement also involved the launch of a new company, Idorsia, which is endowed with Actelion’s discovery- and early-stage R&D assets.

The company has its hands on multiple patents and between 10 and 20 development projects in the pipeline from the former biotech sensation.

As Clozel recently commented at Bio€quity, “I really look forward to creating another Actelion with Idorsia.”

While we are waiting for the new biotech–which is backed with €930 million ($1 billion) in cash to start with–to become the next Actelion, consider the following.

“We have something like 20,000 patents,” Dr. Clozel confirmed.

On top of that, the company’s initial funding includes €530M from a convertible loan from J&J, which signals the US titan’s solid backing.

Here is a snapshot of Idorsia’s pipeline, compliments of Labiotech:

Idorsia isn’t waiting for the dust to settle on close of the Actelion deal. No, it’s already reporting success in its pipeline.

The first good news comes from ACT-132577, a candidate to treat resistant hypertension, says Labiotech. Patients with this condition continue to show uncontrolled hypertension despite being treated with three different classes of antihypertensive drugs. Co-developed by J&J’s subsidiary Janssen Biotech, the candidate has just successfully completed Phase 2 and Idorsia is now discussing the design of a Phase 3 study with health authorities.

The company also has new results for cenerimod, a drug that blocks white blood cells from leaving lymphoid organs in patients with systemic lupus erythematosus. The candidate has passed a Phase 2 safety study and is now ready to move into another Phase 2 trial to find the adequate dose to run a pivotal trial.

There are, of course, risks.

Idorsia is not expected to generate significant revenues any time soon, according to The Financial Times.

Although Idorsia was launched with around $1 billion in cash, running costs are likely to be about $80- $90 million per quarter and its pipeline of drugs under development may not generate sustainable revenues until 2020, analysts reckoned.

Still, Idorsia has royalty and collaboration agreements with J&J, itself no slouch bringing meds to the market.

“It is not so different from buying into a biotech start-up–the upside is you get an established team with record, the downside is the cost base,” said Peter Welford, pharmaceuticals analyst at Jefferies. “You’re buying an established company with more than 600 employees who have worked together over many years, almost all in Switzerland, hoping that they will be able to repeat the [Actelion] story and develop new drugs that create value.”

Bottom Line:

Buy this stock, but be patient. Product sales will take several years, at least.

Currently, this name can be acquired only on the SIX Swiss stock exchange (SW:IDIA). It’s easy, and here’s how for those of you unfamiliar with it.

Step 1:

Choose a brokerage firm or bank that’s able to execute orders to buy stock on the Swiss Exchange. Most major US brokerage firms can trade on the Swiss Exchange through a Swiss bank. Some online discount brokers also can place buy and sell orders on the Swiss Exchange.

Step 2:

Switzerland has liberal regulations for foreign investment, but you should check on your liability for paying Swiss taxes in addition to US taxes on any profits you may realize. Any purchase of foreign stock must be made in that country’s currency. This means you will have to pay an additional fee to exchange US dollars for Swiss francs.

Step 3:

Keep in mind the basics of foreign currency exchange and how it affects buying stock on the Swiss Exchange. When the Swiss franc is “strong” against the dollar, Swiss stocks are relatively more expensive. The reason this is important is that if the dollar strengthens while you hold a Swiss stock, the change in currency rates will cause you to receive fewer dollars for the Swiss francs–and this can turn a paper profit from stock appreciation into a net loss.

Step 4:

Execute your order via your brokerage or bank trading account. This is a much simpler process than it once was. Your broker needs only to enter your buy order using the SIX Swiss Exchange trading platform, and your trade is normally executed in seconds. As with other exchanges, you can place limit orders, buy on margin, and do all the other types of transactions you are used to.

Steve's Take: @Idorsia is a good buy for a high-risk portfolio with some serious patience Click To Tweet

Time will tell whether Idorsia decides to list on the US stock exchange via American Depositary Receipts (ADRs). But I would hazard it won’t be long, and I’ll keep you apprised.

Is this name suited for the risk-averse portfolio? No. But is the risk rational here at Idorsia’s inception as a public company? Even after its shares enjoyed an initial bump up, I say yes. There could be a lot more running room left for those with a high-risk portfolio and some serious patience.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.