Icelandic biotech feels the pinch
nature.com
deCode Genetics runs risk of losing stock-market listing.
By Meredith Wadman
It is not surprising to find an Icelandic business doing badly these days; the country has arguably been hit the worst of any in the current financial crisis. But the serious problems being felt at Iceland's deCode Genetics come more from US markets — from investment decisions made by its bankers, it says, and from a stock price that has plunged 54% since the beginning of September.
Looked at one way, the past month has been a good one for the firm. It identified three new schizophrenia-associated mutations (H. Stefansson et al. Nature 455, 232–236; 2008). It filed an application with the US Food and Drug Administration to begin human tests of a new drug for Alzheimer's disease. And earlier this week it reported in Nature Genetics the discovery of genetic variants associated with a risk of the cancer basal-cell carcinoma (S. N. Stacey et al. Nature Genet. advance online publication doi:10.1038/ng.234; 2008).
That latest announcement sent deCode's stock soaring — but only relatively so. As Nature went to press, it was trading at 53 cents a share. That puts its market capitalization (the number of shares multiplied by the price per share) at $32.8 million, which is below the $50 million minimum allowable by the NASDAQ stock exchange. If the company doesn't regain this minimum for a period of ten consecutive business days before 30 October, it will be delisted and lose access to NASDAQ investors.
"It's important that it keeps the NASDAQ listing," says Robin Campbell, a biotechnology-equities analyst at the London office of Jefferies International investment bank. "It's an important part of the well-being of the company from an investor and money-raising point of view."
Kári Stefánsson, the former Harvard professor who is founder and chief executive of the Reykjavik-based firm, attributes part of deCode's current travails not to the banking crisis devastating his native Iceland — that, he says, has driven down the company's local costs because of the currency devaluation — but to poor investments in auction rate securities by the US banks managing its money. "We have been seriously influenced by the American banking crisis and not the Icelandic," he says. "But we will survive. We are working on refinancing and restructuring the company. And we are fairly optimistic today that we will succeed."
Founded in 1996, the pioneering company drew early attention when the drug giant Roche provided $200 million to finance deCode's then-incipient gene-discovery efforts. More buzz was generated in the summer of 2000, when deCode went public at $18 a share and even spiked briefly at more than $31.
But being a frontrunner has exposed deCode to the growing pains of a field that isn't delivering as quickly as was once expected. Early in 2006, the firm's share price began a long, steady decline (see Chart). And the trend wasn't helped a few months later when a drug to prevent heart attacks ran into manufacturing trouble and the company had to suspend its late-stage clinical trial. Although the firm's personal-genomics division caught media attention when it was launched in November 2007, therapeutics and diagnostics are where investors are looking for the promise of serious returns.
Survival instinct
But analysts contend that, without more specifics about the firm's current restructuring efforts — which Stefánsson says he can't give under US Securities and Exchange Commission rules — it is hard to judge the company's prospects for survival. More details may emerge during the company's quarterly conference call with investors, which will occur in the next few weeks.
In assessing deCode's chances of survival, says Campbell, three considerations will be pivotal. Can the firm find a pharmaceutical-company partner to take forward the heart attack and thrombosis drugs that have stalled in clinical trials because deCode has all but run out of cash? Can it expand its diagnostics business quickly and significantly enough to regain investor confidence? And can it find the financial wherewithal to cope with impending debt repayment obligations of $238 million? If not, says Campbell, "it might find itself between a rock and a hard place".
Fatal or not, the firm's situation isn't unique. "There are a lot of biotechnology companies out there right now that are feeling pain and pressure," says David Mott, a general partner in the Chevy Chase office of New Enterprise Associates, a venture-capital firm in Maryland. Mott, a former chief executive of the biotechnology firm MedImmune, points out that MedImmune went from $50 million in market capitalization to $15 billion in a five-year-period. "A fundamental advance of the business can rekindle things," he says.
For his part, Stefánsson argues that deCode is being dramatically undervalued by investors. "The infrastucture of the company has never been stronger and we have never been more productive," he says. |
