Amgen's $415 Million Bet on the Vikings
Dec 10th 2012 9:59PM
Updated Dec 10th 2012 10:06PM
Did Amgen (NAS: AMGN) just place a multimillion dollar bet on the Vikings? In a way, that's exactly what the company just did. Amgen announced on Monday that it was acquiring deCODE Genetics, which is headquartered in Iceland, for $415 million.How is this a bet on the Vikings? Let's explore.
With the deCODE acquisition, Amgen obtains a gold mine of genetic data. Dr. Kari Stefansson, founder of deCODE Genetics, realized in the 1990s that his native country of Iceland possessed some unique characteristics that could be leveraged to advance the study of genetic causes of disease.
First, the Icelandic people are really into genealogy. We're not talking about tracing the family tree back 200 years. Try 1,000 years or more. Stefannsson, for example, knows his genealogical history going back to around 900 A.D.Who lived in Iceland back then? You guessed it -- the Vikings.
Second, the nation has been insulated from major immigration. When your country's name combines the words "ice" and "land," it doesn't exactly help the public relations folks attract new citizens. The good news for researchers, though, is that the genetic pool has remained stable.
Kari Stefannson saw the opportunity for analyzing Icelanders' genetic data to determine which genes could contribute to certain diseases. Such research presents a difficult challenge in most populations, but Iceland's extensive genealogical information and homogeneous genetic makeup help tremendously.
deCODE boasts data on over half of the adult population of Iceland. The company uses this data to help identify specific genes that correlate with different diseases. It has collaborated in the past with Illumina (NAS: ILMN) , for example, to determine genetic mutations that are linked to ovarian cancer.deCODE has also worked with Pfizer (NYS: PFE) in finding genome sequence variants that can increase risk of Systemic Lupus Erythematosis.
Amgen CEO Robert Bradway noted that the acquisition fits well with the company's strategy of targeting specific diseases. With deCODE's genetic database in its possession, Amgen should be able to better determine which drugs in its early stage pipeline are best suited to treat certain diseases.
The deCODE buyout could help Amgen make further advances in personalized medicines tailored to individuals' genetic profile. Cancer research promises to continue to be an especially promising area for investment in personalized medicine. Amgen's oncology unit touts its work in pioneering this approach. The company counts nearly 20 drugs targeting treatment of various types of cancer in its pipeline.
Other drug companies have also made personalized medicine a priority. For example, Pfizer introduced Xalkori in 2011. The drug targets a specific gene mutation that impacts only 5% of all non-small cell lung cancer patients. AstraZeneca (NYS: AZN) stated earlier this year that it is taking the personalized medicine approach with 65% of its pipeline.
While drug companies such as Amgen, AstraZeneca, and Pfizer can benefit from the trend toward personalized medicine, big winners could also include the companies that enable genetic testing. Illumina, mentioned earlier as a collaborator with deCODE, stands out as the leader in the industry with over $1 billion sales. Sequenom (NAS: SQNM) is another player in the genetic analysis market that could benefit from an increased focus on personalized medicine.
Did Amgen make a good bet with the purchase of deCODE? Some might question whether the $415 million price tag was justified, considering that the company was bought and taken private by Saga Investments in 2010 for considerably less -- estimates vary from around $14 million to $50 million.
My view is that this is a good move. Amgen should be able to incorporate deCODE into its research and development in a way that enables it to recover the original investment over the next few years. Maybe information from the Icelandic genetic data could lead to the development of a blockbuster drug. If so, the descendants of the Vikings could prove to be as important to exploration as they were.
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