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Hitt og þetta 8. apríl 2006

DJ TALES OF THE TAPE: DeCode Could Soon Reap Genetic Rewards

NEW YORK (Dow Jones)--After a decade of building a genetic database for drug development that now includes about half the adult population of Iceland, deCode Genetics Inc. (DCGN) is expected to soon obtain approval for a late-stage trial of a drug aimed at preventing heart attacks.

But the Reykjavik company still has no commercial products 10 years after its start-up, and its stock is down sharply from its high in January. Drug development is notoriously risky, and short interest in deCode recently equaled about 10% of its float.

Chief Executive and founder Kari Stefansson says gene-based drug discovery suffers from "a certain lack of credibility" among investors. That's because despite long-standing efforts of numerous biotech concerns, no company, thus far, has succeeded in commercializing a drug based on genetic research.

Stefansson, a 56-year-old former Harvard neurology professor and native Icelander, expects deCode will have drugs on the market by 2009 or 2010, and diagnostic products within two years.

"We will become profitable the first year we bring a drug to market," Stefansson said.

Many of deCode's drug targets address large potential markets. For instance, earlier this year, the company announced the discovery of a gene that sharply raises the risk of getting Type 2 diabetes.

DeCode has five programs in drug development, including preclinical programs for a pain medication and follow-on programs in heart-attack treatment, in addition to three already in the clinic.

The company is also aiming to develop diagnostic tests, and says it has isolated genetic factors that provide further drug targets in stroke, arterial disease, asthma, prostate cancer and a number of other diseases.

"I'm convinced this will all come out in the wash in the next year or two," Stefansson said. "The value of our programs far exceeds the market capitalization of our company," which is about $463 million.

But in the meantime, Stefansson said cash burn is certain to increase because of higher research and development costs, and the company will need an infusion of capital. The company expects to offer cash-burn estimates for 2006 at mid-year.

The company's cash and investments totaled $155.6 million at year-end, down from $198.3 million a year earlier. Research and development expense grew to $43.7 million in 2005, from $24.9 million in 2004.


Heart-Attack Study To Be Closely Watched

Now, Wall Street is focused on deCode's pending launch of its Phase III trial of its DG-031 heart-attack drug. The study will last about two-and-a-half years.

"That's clearly the landmark trial they'll be doing," said Robin Campbell, a London-based analyst with Jefferies & Co.

Valuing a company with no earnings is a dicey challenge. "You have to look into the future and through their clinical development," Campbell said in an interview. "It doesn't always work, but that's how you try to do it."

Despite the risk, Campbell, who disclosed no conflicts, maintains a buy rating on deCode and an $11 price target.

DeCode traded recently at $8.18, down 24% from its 52-week high in January of $10.77. In comparison, the Dow Jones Biotechnology Index is down 2% in the past three months.

Janney Montgomery Scott analyst Brian D. Rye said the pending Phase III launch "will be the key to near-term share price performance," but he's neutral on the stock and said it's fairly valued.

Difficulties with the launch, an unsuccessful outcome, or discouraging interim results would hurt deCode shares, Rye said recently in a research note that disclosed no conflicts.

For the pending trial, deCode now has more than 3 million doses of the drug stockpiled, and Stefansson says approval for the trial from the Food and Drug Administration is imminent.

"We're ready to rock and roll," Stefansson said.

DeCode plans to focus the study on African-American heart patients who carry a gene variant that deCode found increases their risk of heart attack by more than two-and-half times that of control groups. White Americans with the variation have a 16% greater risk of heart attack than average, according to deCode.

By focusing the study on those at highest risk, deCode believes it can conduct a small trial with a higher chance of a successful outcome. If the trial succeeds, Stefansson said it will show the drug corrects a biochemical flaw that "underlies the risk of heart attack in other ethnic groups."

Despite deCode's lack of products to date, the company's scientific approach is "absolutely solid," said Daniel Rader, a researcher at the University of Pennsylvania who collaborated with deCode on recent discoveries related to diabetes and heart attacks.

"The only question is how long will it take" to develop products based on those discoveries, Rader said.

Rader expects a test for the heart-attack gene will emerge from his research with deCode within five years, enabling doctors to more aggressively treat patients at risk. Related drug development will take more time.

"Undoubtedly this will lead to new therapies, but once you have a target, it takes a long time to find a compound," Rader said, adding that related drug development may require eight to 10 years.


Key Asset: The Genetic History Of Iceland

DeCode bases its research on the fact that Iceland's population of nearly 300,000 people may be among the most genetically homogenous in the world.

The country was settled in about the year 900 by a small number of Vikings and their Irish slaves. A series of calamities in the form of disease and famine resulted in little net population growth during most of its first thousand years of existence.

Along with its genetic database that includes more than 100,000 volunteers, the company has genealogy data covering the entire present-day population and stretching back about 1,000 years.

DeCode clusters patients in its database affected by any disease into large extended families, mapping their genes and homing in on small segments of particular chromosomes that large numbers of related patients share to a higher degree than might be expected by chance.

More detailed analysis of these regions can isolate the key genes conferring risk of a particular disease.

"The big guys in our industry have failed completely" at genetic-based drug development," Stefansson said. "But I think our database is going to be a spectacular instrument."

- John Seward; 201-938-5400; AskNewswires@dowjones.com

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