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Designer genes
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May 11, 1998: 2:29 p.m. ET
Icelandic startup DeCode takes a homegrown approach to genomics
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SAN FRANCISCO (The Red Herring) - Kari Stefansson cuts an imposing figure. In an earlier era, the stern, 6-foot-5-inch Viking might have splattered brains instead of studying them. But after graduating from the University of Iceland, he left the country and became a professor of neurology and neurosciences at Harvard Medical School and the University of Chicago. Stefansson returned to Iceland to found DeCode Genetics, a genomics startup.
For the past eight years, the Human Genome Project, an international effort to map roughly 100,000 pairs of human genes, has made remarkable progress. Researchers have identified single genes associated with diseases like cystic fibrosis, Duchenne muscular dystrophy, myotonic dystrophy, neurofibromatosis, and retinoblastoma. (For more on the genome project, see our interview with one of its directors.) According to Jean-François Formela of Atlas Venture, an investor in DeCode, genomics is more important than the Internet.
Ecogenomics
Building on genetic techniques like positional cloning and sequencing, companies like Millennium Pharmaceuticals and Human Genome Sciences (HGS) have developed tools to identify disease-prone genes and to sequence their nucleotides and proteins. These tools have been snapped up by large pharmaceutical companies for use in the design of new drugs.
But DeCode maintains that the commercial value of these tools is wearing thin. The Human Genome Project is scheduled to be completed in 2005, and DeCode claims that the technology behind positional cloning and sequencing tools has become a commodity. A high-profile company like Affymetrix, which makes chips and hardware for genetic analysis, would almost certainly reject this. But Stefansson, DeCode's CEO, says that Millennium and HGS are trying to reposition themselves as pharmaceutical companies to differentiate themselves from their competitors.
He argues that these companies lack access to one essential resource--a homogeneous population. To understand why genes mutate, geneticists need to compare the genes of healthy and diseased people. But because everyone's genetic makeup is different, it takes a lot of time and money to distinguish harmless genetic variations from detrimental mutations. Relatively homogeneous populations can streamline this process, but finding large, isolated groups of people to study has been difficult.
Cold storage
One exception, according to DeCode, is Iceland. The country was settled in the ninth century by a small group of Vikings from present-day Sweden, whose descendants remained almost completely isolated from outsiders until World War II. As luck would have it, they kept extensive genealogical records, and their medical system eventually became extremely advanced. (Genealogy is still a popular hobby among Iceland's population of 277,000, and the country has had centralized health care since 1915.) DeCode has taken advantage of this homogeneity to compile a database comprising hundreds of years of Icelandic genealogy as well as more recent information about the medical history, disease symptoms, resource use, and treatment outcomes of the country's families. The company asserts that its database gives researchers a depth of understanding about gene-based diseases that tools companies cannot match.
DeCode claims that it proved the value of the Icelandic population database when it took just three months--instead of an industry average of 15 years--to locate the gene for familial essential tremor, a hereditary disease that causes shaking in 5 to 10 percent of the world's elderly population. In February the company landed a $200 millionplus research-and-development contract with the pharmaceutical giant HoffmannLa Roche to study 12 common cardiovascular, neurologic, and metabolic diseases. Its agreement with HoffmannLa Roche is one of the biggest genomics deals ever, DeCode maintains.
Still, DeCode plans to sell more than research to pharmaceutical conglomerates. Because pharmaceutical sales account for only 8 percent of the total cost of health care, DeCode will offer access to its database to health care companies like health-maintenance organizations interested in designing cost-effective, customized treatments for patients based on their genetic makeups.
Poolitics
Brian Atwood of Brentwood Venture Capital sees limitations in DeCode's approach. Brentwood is an investor in Incyte Pharmaceuticals, a rival genomics company. Despite the high degree of inbreeding within the Icelandic population, Atwood thinks that the amount of interbreeding is still high compared with that of mice or fruit flies, which can be bred more narrowly. Leaving aside the science behind DeCode's approach, he says DeCode's narrow population base could prove limiting: he wonders about the applicability of DeCode's research to ethnic groups like African-Americans or Hispanics.
DeCode is not generating any revenues right now, but it is growing quickly: Stefansson predicts that the company will almost double its staff of 110 by the end of the year and anticipates breaking even by the end of 1999. The company has no shortage of believers. In December 1996 DeCode raised $11.5 million from Atlas Venture, Advent International, Polaris Venture Partners, and others. DeCode is talking to bankers and anticipates going public later this year.
Stefansson concedes that DeCode has no exclusive right to Iceland's genealogical records, but he sounds almost like one of his ancient forebears when he claims that it would be very difficult for other companies to obtain access to them. "The natives here tend to respond very angrily to intruders from the outside," he says. No outsider, Stefansson has returned to his home country to marshal its most precious asset. And nothing comes between Stefansson and Iceland's genes.
Decode Genetics at a glance
CEO Kari Stefansson
Location Reykjavík, Iceland
Phone +354/570-1900
Web www.decode.is
Founded 1996
Employees 110
Product Genealogical database and research services
Partner HoffmannLa Roche
Competitors Affymetrix, Human Genome Sciences, Incyte Pharmaceuticals, Mercator, Millennium Pharmaceuticals, Myriad
IPO date Late 1998
Financing $11.5 million
Investors Advent International, Alta Partners, Atlas Venture, Arch Venture Partners, Falcon Technology Partners, Medical Science Partners, Polaris Venture Partners
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