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Decode, in 'Very Tough Spot,' Considering Alternatives for Staying in Business Beyond June

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Rising debt, the ongoing global financial crisis, and a complicated corporate structure have caused Decode Genetics to experience a cash crunch that has placed the company in a "very tough spot," company officials told investors this week.

The Reykjavik, Iceland-based diagnostic and drug developer has enough cash and equivalents on hand to continue operations until the end of June, and it is currently "engaged in negotiations" for several alternatives to bring in additional cash, Chief Financial Officer Lance Thibault said during a call announcing financial results for 2008.

As of Dec. 31, 2008, the firm held cash, cash equivalents, and current investments of $3.7 million. This amount will fund operations "only into [the firm's fiscal] second quarter," which ends June 30, Thibault said. Earlier this year, Decode sold its Auction Rate Securities for $11 million in cash, which it has been using to fund its operating activities.

"Decode is in a very tough spot at the moment," Decode CEO Kari Stefansson told investors.

Earlier this year, DeCode Genetics' stock was moved from the Nasdaq Global Market to the Nasdaq Capital Market after the company failed to maintain a minimum market value for listed shares.

According to Stefansson, Decode holds $230 million in convertible bonds, which he called a "substantial overhang of debt." The company also lost a "significant amount of operating money" when financial services firm Lehman Brothers declared bankruptcy last September.

Furthermore, "we have a somewhat complex corporate structure and we may need to focus our efforts much more than we have in the past," Steffanson said.

To that end, Stefansson noted the company is trying to reduce its debt, has lined up interested investors, and is looking to simplify its corporate structure by selling "the parts of the company that are non-essential to the diagnostics business."

Decode Genetics last October said it had hired Stanford Group Company to help evaluate strategic alternatives for its long-term business strategy. At the time, the company had indicated plans to sell non-core assets.

The firm has early-stage drug development programs and a portfolio of DNA-based tests for diabetes, cardiovascular, and oncology applications, which it offers through its own CLIA-registered laboratory.

Financials

In spite of its lean cash position, Decode said total revenues grew in the fourth quarter and for the full year ended Dec. 31. Revenues for the three months ended March 31 rose 21 percent to $16.1 million from $13.3 million in the fourth quarter of 2007. Full-year 2008 revenues increase 44 percent to $58.1 million from $40.4 million in full-year 2007.

"A key component of this increase is our genomic-services business, which includes sales of our growing range of diagnostic tests, as well as DecodeMe, together with our contract genotyping revenues," Thibault said.

Over the past year the company launched three diagnostic tests for glaucoma and prostate and breast cancer.

The company also advanced the clinical programs for DG041, an oral anti-platelet therapy for preventing arterial thrombosis; and the anti-inflammatory DG051. Last October, the company filed an investigational new drug application for DG071, a novel small-molecule modulator of phosphodiesterase 4, which it is developing for Alzheimer's and other cognitive disorders.

Decode's net loss for the fourth quarter dropped 44 percent to $18 million from $32.4 million, or $.53 per share, largely due to significant cuts in R&D costs. Its full-year net loss fell 16 percent to $80.9 million from $95.5 million.

In the fourth quarter, Decode spent $4.5 million on R&D, down 64 percent from $12.5 million spent in the year-ago period. SG&A spending declined 5 percent to $7.3 million from $7.7 million. For full-year 2008, Decode spent $30.8 million on R&D, down from $53.8 million in 2007, while its SG&A spending increased to $28.3 million from $27.1 million.

Thibault noted that the financial results are "encouraging, however, we know that Decode is not yet profitable and will require additional liquidity, both to fund our operations near term and in the longer term to realize the upside of our products."

During 2008, Decode continued its discovery work in gene targets and announced several new variants linked to increase risk for serious diseases, such as skin cancer, breast cancer, and schizophrenia, among others.

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