DeCode Spinout, NextCode Health, Launches With $15M From Arch, Polaris

Xconomy Boston — 

Arch Venture Partners and Polaris Partners got a windfall when they snatched deCode Genetics out of bankruptcy and flipped it to Amgen (NASDAQ: AMGN) for $415 million a few years later. Now the two VC firms think there’s still more value in the genomics platform deCode assembled, and have helped form a new startup, NextCode Health, to extract it.

Arch and Polaris have provided a $15 million Series A round to create Cambridge, MA-based NextCode, a spinout of deCode created in the aftermath of the Amgen deal. NextCode is built on an exclusive five-year license to the genomics platform deCode developed. Its idea is to apply that platform to patient care, using deCode’s massive genomics database to help researchers interpret patients’ DNA samples and diagnose diseases faster. NextCode is staffed with a management team of deCode veterans: CEO Hannes Smarason was deCode’s CFO from 1997 to 2004; and president and chief scientific officer Jeff Gulcher was a deCode co-founder and its former CSO.

“This is an idea that has been floating around within deCode for quite some time,” Smarason says. “We had some thoughts to do it within deCode, but then there were other opportunities that presented themselves, meaning the interest from Amgen to acquire deCode, and then this got put on the backburner.”

DeCode, of course, is the rare example of a biotech that rose from the ashes of bankruptcy. The company, founded in 1996, was well-known for amassing a library of medical and hereditary information from the people of Iceland and matching it with modern DNA sequencing techniques. By doing this, it was able to identify genetic variations that others hadn’t. DeCode, however, piled up more than $300 million in debt in the process and ultimately filed for bankruptcy in 2008 during the financial crisis.

Even so, DeCode, didn’t fold. It kept discovering new genetic variants, and both the importance of genetic information and the technology surrounding it kept evolving. So when Arch and Polaris stepped in and paid $14 million—just $3 million in cash and about $11 million in debt— to buy the company out of Chapter 11 in January 2010, it took just a few years for a big payday to be realized. In December 2012, Amgen stepped in and paid $415 million to buy deCode and bring its platform in-house to help it better separate the duds from potential winners in its drug development pipeline.

The key difference between deCode and NextCode is how the new spinout plans to use the genomics platform. NextCode’s hope, long-term, is to see its platform used by everyday physicians to quickly diagnose diseases based on patients’ genetic information. But for now, it is nudging its way into the market, giving academic institutions and major medical centers a taste of it through software-as-a-service agreements, where these customers pay a fee as they use the system. Geneticists at these institutions would get a patient’s DNA sequenced, and then NextCode would take that information, store it, and provide the geneticist with some bioinformatics tools to help him or her find the particular mutations that might be causing the patient’s disease. NextCode already has service agreements in place with medical institutions like Boston Children’s Hospital, Queensland University in Australia, and Saitama University in Japan to do this.

NextCode will use the cash for a big sales and marketing push, and to tweak the platform to adapt it to the market, according to Smarason. It hopes these types of initiatives will help it turn these SaaS agreements into larger “installation” deals where customers use the system more frequently, and for bigger projects, according to Smarason.

“Hopefully this will evolve into something a regular physician can access and use as a part of routine medical care,” Smarason says.

That, however, is years away. NextCode has to scale up from the small deals it has in place to the bigger ones in has in mind. And the startups has to be nimble in a fast-evolving, emerging, and competitive field where a number of players like Golden Helix, SV Bio, Ingenuity Systems, Knome, and others are using software to help researchers interpret genetic information.

NextCode will rely on its history and massive library to make it stand out. Smarason asserts, for instance, that NextCode is starting with a system that was honed for 16 years at deCode and tested on “orders of magnitude” more data than any current system being deployed. DeCode’s used the system, for instance to identify more than 40 million different genetic variants and has stored the full genomes of “hundreds of thousands” of people, giving researchers more reference datasets to match up a patient sample with.

“We just work with more genomic data than anyone else…It’s a massive advantage,” Smarason says. “[But] we have to make sure we’re successfully able to deliver on our promise, and that people see results from using our system.”