deCODE Re-Emerges: Can a Genomics Platform Model Work in Diagnostics?

Full article reprinted from Start Up - January/February 2010

deCODE Genetics has emerged from bankruptcy with a streamlined, diagnostics-oriented business model. In the near term, the privately held firm expects to offer its genomics discovery capabilities on a service basis, echoing the original genomics platform specialists of the late 1990s, including deCODE itself, which did largely unsuccessful technology deals focused on using genetic insight to generate therapies. The difference? It is now using genetic information to assess disease risk and better manage patient health, a strategy it thinks will succeed as the field of personalized medicine diagnostics continues to gain traction. Read more...

deCODE Re-Emerges: Can a Genomics Platform Model Work in Diagnostics?

Full article reprinted from Start Up - January/February 2010

Armed with $3 million in cash and cleared from bankruptcy, deCODE genetics Inc. has re-emerged with a streamlined, diagnostics-oriented business model. In the near term, privately held deCODE genetics Inc. expects to offer its genomics discovery capabilities on a service basis to partners seeking to develop gene-based diagnostics and otherwise use genetic information for assessing disease risk and managing therapy.

deCODE was revitalized in January by Saga Investments LLC, a consortium formed by Polaris Ventures and ARCH Venture Partners, original investors in the company way back in 1996. Saga has paid roughly $14 million for deCODE's assets, including $10.9 million under a November 2009 debtor-in-possession loan agreement that was designed to carry the company through the bankruptcy process, the bulk of which has already been spent. Coincident with the deal, deCODE named Earl "Duke" Collier, Jr., a longtime executive at Genzyme Corp., as CEO to work alongside co-founder and former president and CEO Kári Stefánsson, MD, who remains as executive chairman and president of research.

deCODE's troubles stemmed from a combination of factors including a fragmented set of operations ranging across gene-based drug and diagnostics discovery and development as well as, more recently, consumer genomics. As an Iceland-based company, it was also especially sensitive to the impact of the global financial downturn, which hit that country's banking industry very hard. Plus, deCODE had unfortunately arranged for Lehman Brothers to manage its money: the Wall Street firm converted the cash into auction-rate securities, which it had agreed to buy back one week before it declared bankruptcy, leaving deCODE with essentially worthless paper. "The amount of money we lost there equals the investment that Saga made in re-establishing the company," says Stefánsson. "It was not a trivial loss."

But the fundamental issue was the business strategy.

In terms of diagnostics development, deCODE was probably founded about six years too early, says Stefánsson, because until recently, SNP chip and sequencing technologies have not been robust enough to make the kinds of discoveries needed to be able to develop diagnostics. "We ended up with a legacy problem from having to raise money to propel us through the time when the technology wasn't quite ready. However, we utilized that time well, so when, finally, SNP chip technology arrived, we led the world and have continued to do so." Along the way, however, the company had cobbled together an infrastructure that included drug discovery and development efforts.

Collier, a deCODE board member, had expressed some interest in leading the company more than a year ago. But he also recognized that the "old deCODE had a lot attached to it," says Terry McGuire, general partner at Polaris. "I don't think he was prepared to jump into that." With a simplified business model, however, he became interested, according to McGuire.

If there's a silver lining within the cloud that's been hanging over deCODE, it's that the company moves forward with a much streamlined operating model. Coincident with the bankruptcy filing, deCODE sold its Emerald BioSystems Inc. and Emerald BioStructures Inc. operations, which deCODE had acquired via its 2002 merger with MediChem Life Sciences Inc. to Beryllium LLC, effectively ending its participation in drug discovery. Two months earlier, it had also shut down its Woodridge, IL, chemistry site, which had also come via MediChem. It also shelved three pipeline compounds--DG051, a leukotriene A4 hydrolase inhibitor in Phase II; DG041, an anti-platelet compound; and DG071, a PDE4 inhibitor. (Saga now owns them and the surrounding IP, with deCODE retaining a small interest should Saga sell or license them off within two years.)

What remains is deCODE's foundational discovery capability, based on its extensive genetic profiling and ancestral knowledge of the Icelandic population. Indeed, despite its financial difficulties, deCODE has continued to discover and publish new genomic associations relevant to assessing disease risk and pharmacogenomics.

In the near term, as the field of personalized medicine diagnostics continues to gain traction, deCODE expects to partner with product developers that need companion diagnostic data in order to effectively sell their drugs and devices.

"We are in a classic moment of translational activity," says Collier, referring to the emergence of personalized medicine generally. Ultimately, large amounts of information will be conveyed "in one fell swoop to large amounts of people at reasonable prices," he says. "But in the meantime, I think it'll still be a step-by-step, test-by-test world in which the business model will be to sell a specific test to diagnose a specific situation with a specific patient. Over the next few years, that's where we will be proceeding." That said, he's also mindful of the opportunity to sell large amounts of genomic information in an efficient way to consumers, or at least large groups of people--"wholesale rather than retail." deCODE will also continue to develop the way in which data are presented both to lay people and to those in the health care system via its deCODEme consumer genomics program. But it has not gained much traction in that market. "I don't think that our big emphasis over the next few quarters or years will be on consumer genomics," says Stefánsson.

If on a smaller scale of dealmaking, the new model echoes that of genomics platform specialists such as Millennium Pharmaceuticals Inc. (now Millennium: The Takeda Oncology Co., a subsidiary of Takeda Pharmaceutical Co. Ltd.), Celera Corp., Myriad Genetics Inc., and Curagen Corp. (now a division of Celldex Therapeutics Inc.), which did technology deals in the latter part of the 1990s focused on using genetic insight to generate therapies. ( See "Genotyping and the High-Throughput Legacy," START-UP)

Despite the information those companies generated, as an organizing principle for high-throughput drug discovery, the efforts failed. But instead of aiming at drug development, "the second decade will be how to take genetic information for better patient health," says McGuire, "and the first order for that is diagnostics." From a monetization perspective, "it's going to be easier than it had been for Myriad and Millennium and deCODE," he believes. deCODE's positioning is also unique: companies looking to partner in this way might turn to an academic center like The Broad Institute, or possibly a genetics firm like Navigenics Inc. Academic centers tend to march to their own drummers, whereas most genomics diagnostics firms, such as Genomic Health Inc., are highly specialized by therapeutic area. And the sequencing companies appear content to sell instruments and steer away from also developing content. So there may not be much dealmaking competition.

With genetics expanding into the realm of diagnosing and monitoring patients and the information increasingly becoming a part of a patient's medical record, the types of companies that may want the information deCODE has also goes beyond drug developers. For example, payors like Medco Health Solutions Inc. and CVS Caremark Corp. have recently extended their pharmacogenomics programs to include genetic test management. ( See "Medco Buys DNA Direct, Adding Genetic Testing Guidance and Decision Support Capacity," IN VIVO , February 2010.) Providers of health care IT might also be partnering candidates.

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Companies mentioned in this article:

CVS Caremark Corp.

Celera Corp.

Celldex Therapeutics Inc.

CuraGen Corp.

Genomic Health Inc.

Genzyme Corp.

Medco Health Solutions Inc.

Myriad Genetics Inc.

Takeda Pharmaceutical Co. Ltd.

Millennium Pharmaceuticals Inc.

Millennium Pharmaceuticals Ltd.

Millennium: The Takeda Oncology Co.

deCode genetics EHF

deCode genetics Inc.

MediChem Life Sciences Inc.

Emerald BioStructures Inc.

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No publication reviews leading edge companies and technology better than START-UP. Each issue of START-UP profiles the most important new product companies, identifies the hottest technology areas, reviews funds flowing into private companies and investment trends, and reports on university tech transfer licensing. Industries covered: pharmaceuticals, biotechnology, medical equipment & devices, and in vitro diagnostics.