Amgen Parties Like It's 1999

December 11, 2012 Amgen parties like it’s 1999

Jacob Plieth

Remember when biotech mania was driving the sector to market outperformance, and genomic analysis promised to usher in an age where newly developed drugs would target the specific genetic mutations underlying disease? No, not 1999 but 2012.

Amgen’s $415m acquisition of the Icelandic pariah DeCode Genetics, announced yesterday, is a bet specifically on the promise of genomic data to transform the way drug discovery is done. As the industry celebrates a year of surging share prices but looks to an uncertain 2013 it is worth reflecting on the fact that Amgen has rejected the dogma of simply buying in new drugs to bulk out the pipeline; the throwback to those heady turn-of-the- century days will please and frighten in equal measure.

Back then, the young DeCode was one of many businesses jostling for attention on the back of sentiment around the human genome project, and like many it would go on to complete an IPO in 2000, raising $173m. But the road was rough, and yesterday’s buyout was the end of a journey that included political skirmishes, an aborted foray into drug development and bankruptcy proceedings.

Private equity win

Amgen has bought the DeCode business from Saga Investments, a private consortium including Polaris Venture, Arch Venture and the sequencing company Illumina. It is hard to gauge Saga’s precise return, but it is a safe bet that the private equity group has not walked away empty-handed.

Saga was actually an early venture capital backer of DeCode when that company was founded in 1996, and cashed out after the 2000 IPO. DeCode’s market cap at one point exceeded $1bn, but crashed to just $15m as the company collapsed under a $300m mountain of debt nine years later, leading to a Nasdaq delisting and a filing for Chapter 11 bankruptcy protection.

Saga was present here too, as one of the providers of the debt, and it stepped into DeCode equity a second time when in 2010, just two months after Chapter 11, it bought DeCode’s Iceland-based subsidiary – effectively its operating business – from the administrators. The remaining legal entity was liquidated, along with its debt pile.

In effect, therefore, the purchase out of bankruptcy protection resembled something of a debt-for-equity swap, where equity holders lost everything and the operating business was picked up by its main creditor.

Remarkably, DeCode’s founder, Kari Stefansson, remained its CEO through the bankruptcy proceedings and into the new company, right up to the present day. Mr Stefansson is set to remain at the helm of the business as it enters its new incarnation as an Amgen subsidiary.

Amgen’s gamble

So what is Amgen buying and why? Basically, a research engine – nothing more – based on a genomic database that DeCode had amassed from its study of the genetic makeup of Iceland’s small, superbly documented and relatively homogeneous population.

UBS highlighted this unique collection of gene variant data as having the potential to define links to disease and drug response. Amgen hopes to use the database to find and validate targets for future development, as well as identifying promising drug candidates earlier and avoiding R&D spend on those likely to fail.

The analysts pointed to two Amgen assets, the anti-PCSK9 hyperlipidaemia project AMG145 and the anti- sclerostin bone repair agent romosozumab, as having been identified through human genetics work. DeCode’s recently published scientific papers have related to discoveries made in the genetic basis of Alzheimer’s disease, autism and schizophrenia.

Indeed, the company claims to have fully sequenced the genomes of 2,500 Icelanders – equivalent to nearly 1% of the country’s population. But this work – specifically the combining of genetic data with patients' health records – had earlier led to fierce local opposition on grounds of alleged infringement of accepted medical, scientific and commercial standards. It was only thanks to Icelandic legislation that a national health database could be created, and it was central to DeCode’s business that parliament granted the company access to these records. As this Icelandic genetic record now falls into the hands of a US multinational the debate can only become more heated.

This must surely be a key concern for Amgen, and no doubt the company will do everything possible to assuage local fears about ethics. The other cautionary message from the DeCode saga is for equity investors, or at least those who periodically come down with the kind of biotech fever that swept like wildfire at the start of the new millennium. It runs thus: few apart from the most sophisticated investors come out on top, and those who put money in at IPO almost always lose.

To contact the writer of this story email Jacob Plieth in London at [email protected] or follow @JacobEPVantage on Twitter.