Icelandic biotech DeCode Genetics filed for Chapter 11 bankruptcy Nov. 16, likely signaling the end of one of the last surviving firms created during the genomics bubble at the end of the previous decade.
There was no greater symbol of the bubble than DeCode's July 2000 initial public offering, in which it raised $160 million. DeCode aimed to use insights gleaned from studying the unique genetic makeup of Icelanders to produce diagnostic products. Like most of its classmates from the dawn of the genomic era, DeCode spent hundreds of millions of dollars trying to turn the genetic data pouring forth from the Human Genome Project into viable businesses.
In addition to bringing to market several DNA-based lab tests and a consumer testing service called DecodeMe, the firm expanded into therapeutics and pushed three compounds into the clinic.
2009 has been a tough year for small biotechs. But a recent thaw in the public markets - especially investors' willingness to participate in follow on offerings - has brought a renaissance of sorts to the sector (The 'IN VIVO Blog,' Oct. 8, 2009). DeCode will not be among the resurrected. After accumulating more than $700 million in deficits in its 13 years of operation, the company is now in Chapter 11. It plans to sell off its genomics and drug businesses to a U.S. firm, Saga Investments.
Saga has already lent DeCode $6 million to stay afloat during the bankruptcy case, which kicks off Nov. 18 with a hearing in a U.S. court in Delaware. It could lend the troubled biotech as much as $11 million before proceedings are finished, according to court filings.
Even as DeCode lines up Saga as a potential buyer it must also attempt to auction the assets. In this situation, Saga acts as "stalking horse" setting a floor for the bidding. If the sale goes through, DeCode faces liquidation, which means recompense for shareholders would be "highly unlikely," the firm said Nov. 17 in a press release.
Saga is backed by two venture firms, Polaris Ventures and Arch Venture Partners, who were significant investors in DeCode's early years. Polaris general partner Terry McGuire resigned from DeCode's board last December, but the reason remains unclear. DeCode's brief regulatory filing at the time said the company was unaware of any disagreement between it and McGuire. McGuire's assistant referred all calls to DeCode. Attempts to reach DeCode officials were unsuccessful.
In filings with the court, DeCode reported $70 million in assets and $314 million in debt. Its largest shareholders are T. Rowe Price, with 7.5 million shares, the Icelandic bank Ny Landsbanki Islands, with 3.5 million shares, and CEO Kari Stefansson, with 2.6 million shares. Stefansson is co-founder and the only CEO the firm has ever had. He has been chairman since 1999.
DeCode recently failed to pay rent owed on both its Reykjavik headquarters and its Illinois chemistry facility. In September, the biotech shut down operations in Illinois, laying off 60 people in the process. DeCode is also burdened by debt: it failed to meet a semi-annual payment on $230 million in 3.5% notes it sold in 2004 and 2006.
Bankruptcy documents show how DeCode's demise was hastened by the global financial crisis. In 2008, Lehman Brothers had put $30 million of DeCode's cash into auction-rate securities against DeCode's cash management instructions. The firm tried but could not restructure its 3.5% notes. ('The Pink Sheet' DAILY, April. 2, 2009.) And a financial advisor that it retained in August 2008, the Stanford Group, collapsed six months later amid federal investigations of massive fraud.
The more personal effects of the bankruptcy were also on display in the documents. For example, the company is petitioning to pay its employees less than half of their accrued but unused vacation time.
-Alex Lash ( a.lash@elsevier.com )
This article is reprinted from "The Pink Sheet" DAILY –Nov 17, 2009
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