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Decode maps expansion
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November 29, 2000: 4:30 p.m. ET
Icelandic genomics company unveils new cancer, drug research units
By Staff Writer Martha Slud
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NEW YORK (CNNfn) - Dr. Kari Stefansson is a gene hunter, sifting through the human body's genetic makeup for knowledge about how genes may play a role in causing diseases ranging from schizophrenia to Alzheimer's to osteoporosis.
Now, armed with a hefty cash arsenal from a July initial public offering, Stefansson's Icelandic-based biotechnology company, Decode Genetics Inc. (DCGN: Research, Estimates), is planning an aggressive expansion. The company announced plans Wednesday to set up two new subsidiaries focused on cancer research and pharmacogenomics, the study of how a person's genetic composition affects how he or she responds to different medicines.
Already, the Reykjavik-based company has secured a $200 million deal with Switzerland's Roche Holding Ltd. to identify genes believed to be responsible for a slew of diseases, and the company also has a collaborative pact with prominent biotech equipment firm Affymetrix Inc. (AFFX: Research, Estimates) of Santa Clara, Calif.
In an interview with CNNfn.com on Wednesday, Stefansson said the latest move is the best way for the company to put its knowledge about the nature of human diseases to work while generating new markets for its products.
 "The fundamental idea was to create mechanisms to do business development in a focused manner," Stefansson said in an interview at the Robertson Stephens Medical Conference in New York. "This is the right way to go."
The four-year-old Icelandic biotech company has been riding the wave of the biotech boom this year. Decode went public in a July IPO, raising $198.7 million on the Nasdaq. The stock has been battered recently, however, and shares slipped $2.69, or 18 percent, to $12.94 at 4 p.m. ET Wednesday as investors digested news of the planned initiatives. That compares with a lifetime high of $31.50 a few months ago.
Decode is part of the intriguing field known as population genomics. The company uses the gene pool of Iceland's mostly homogenous population to research the inherited causes of common diseases. Most Icelanders are descended from a common group of ancestors who lived in relative isolation thousands of years ago. Decode says that the country's similar gene pool allows mutations in genes to stand out, helping researchers discover the genetic roots of disease.
The new cancer subsidiary, called Decode Cancer, will expand the company's ongoing research into different types of the disease to include all forms of cancer. Stefansson said that cancer research involves so much complex biology and different scientific expertise that it deserves a special focus within the company.
The second subsidiary, known as Encode, will focus on studies of the effectiveness of drugs according to a patient's individual genetic makeup. The unit already has been operating on a small scale since early 1999, with partners including pharmaceutical giants such as Anglo-Swedish drug company AstraZeneca PLC (AZN: Research, Estimates), Kenilworth-N.J.-based Schering-Plough Corp. (SGP: Research, Estimates)., Novartis (NVS: Research, Estimates) of Switzerland and Merck & Co. (MRK: Research, Estimates) of Whitehouse Station, N.J.
Decode's use of Icelandic genetic data in its research hasn't been without criticism. The company has come under fire by some critics for conducting its research without seeking the consent of its subjects. Iceland's government granted the company a license to use the nation's genetic data in its research.
But Stefansson says that attitudes have quickly changed, and that the company's approach and ethical considerations are now a model for others wishing to study the genetic makeup of specific groups or populations.
 "We became the center of the worldwide debate on the use of human genetics," he said. "Now that debate seems to have been settled and the rest of the world is following our example."
Before returning to his native Iceland to co-found Decode in 1996, Stefansson was a professor of neurology, neuropathy and neuroscience at Harvard University and director of neuropathology at Beth Israel Hospital in Boston. He also previously served on the faculty at the University of Chicago.
Stefansson said that he founded Decode based on the American business model, but that the company also is rooted in Icelandic culture, a country whose economy is still primarily based on fishing. Most of the company's employees are natives of Iceland.
"We are combining these two cultures – the old Icelandic culture with the new American culture," he said.
For the recently completed third quarter, Decode lost $7.6 million, or 18 cents per diluted share, on modest revenue of $5.6 million. The company isn't expected to become profitable until at least 2004, Stefansson said.
Revenue is expected to total roughly $22 million this year and $40 million in 2001. After that, the "revenue stream will really take off," Stefansson predicted, saying that most of the revenue is expected to come from subscriptions to the company's gene database by pharmaceutical companies, insurers and others. 
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DeCode Genetics
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