November 17, 2009 / 6:41 AM / 9 years ago

UPDATE 3-Icelandic gene pioneer Decode files for bankruptcy

* To sell substantially all of its assets

* Lists assets of $69.9 million, debt of $313.9 million

* Shares plunge around 83 percent (Recasts with CEO interview, share drop, background)

By Ben Hirschler

WASHINGTON, Nov 17 (Reuters) - Iceland’s Decode Genetics Inc DCGN.O, a pioneer in genetic research, has filed for bankruptcy protection, weighed down by debts after 13 years of failing to make a profit.

Shares in the group plunged around 83 percent on Tuesday as the Reykjavik-based company warned any recovery for shareholders was highly unlikely.

Decode blazed a trail in personal genomics by trawling Iceland’s unique genetic heritage, which has changed little since the Vikings arrived more than 1,000 years ago, to work out the links between genes and common diseases.

Its scientists have published prolifically on genetic mutations linked to schizophrenia, cancer and other diseases. But its drug development programs stalled and the company’s DNA tests for diseases have not brought in much cash.

A final blow came last year after company funds managed by Lehman Brothers were invested in U.S. auction-rate securities, the market for which seized up during the credit crisis.

Decode’s fall is the second setback this year for the once high-flying Icelandic drugs sector. It follow the collapse in April of attempts to sell Iceland’s Actavis, one of the world’s biggest generic drugmakers, adding to the problems facing an economy already slammed by the global financial crisis.

Despite the bankruptcy filing, Decode Chief Executive Kari Stefansson — a tall, bearded figure whose own Viking ancestry is clear — insists the science behind his company will live on.

Commercially, though, he admits the project may have been premature.

“The company was probably founded about five years too early,” he said in a telephone interview.

GENOME PROJECT

Decode went public on a wave of euphoria about genetics as then-President Bill Clinton announced the completion of a working draft DNA sequence of the human genome in 2000.

Translating that gene promise into new drugs has proved far harder and more time-consuming than expected.

“At the the time we started out there was very substantial support for long-term investment by biotech companies. But when we were halfway through development of our first compound, the market lost patience with long-term investment like that,” Stefansson said.

Many other genomics companies have fallen by the wayside over the years, though one — Human Genome Sciences Inc HGSI.O — may finally be set to hit the jackpot after developing the first new drug for lupus in 50 years. [ID:nN30423138]

Decode has filed for Chapter 11 bankruptcy and has struck a deal to sell its Iceland-based subsidiary to Saga Investments LLC, comprising a group of investors that includes some of its original venture capital backers.

The sale, subject to court approval, must first go through an auction process.

The assets, which includes the Islensk Erfdagreining unit that runs Decode’s giant DNA biobank and its drug discovery and development programs, will be sold off under section 363 of the U.S. Bankruptcy Code.

Under this section, a “stalking horse” makes the lead bid at auction and creates a floor for the bidding, in exchange for certain protections that often include break-up fees.

“We expect to come out of this process by the beginning of January,” Stefansson said.

In a filing with the U.S. Bankruptcy Court for the District of Delaware, Decode listed total assets of $69.9 million and total debt of $313.9 million as of June 30.

The company saw its market value plunge last year during the nadir of the financial crisis and has struggled to pay interest on its senior convertible notes. It closed its Woodridge, Illinois, facility in September, cutting about 60 jobs.

The case is In re: deCODE Genetics Inc, U.S Bankruptcy Court, District of Delaware, No. 09-14063.

Additional reporting by Ajay Kamalakaran in Bangalore; Editing by Lincoln Feast, Mike Nesbit, Phil Berlowitz

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