How Emerald BioStructures Escaped deCode’s Bankruptcy With Help From Boston VCs

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the detailed family tree and medical records from a small and relatively homogeneous population in Iceland. That made it easier for researchers to mine the emerging genomic data for links between genes and disease. Stefansson and his team published many papers in the journal Nature, which generated lots of mainstream press attention.

But Stefansson knew the company needed to add broader capabilities of a real drug company to sustain his operation. Having served on the faculty of the University of Chicago earlier in his career, Stefansson was familiar with MediChem Life Sciences. So he acquired the company for its chemical capability for synthesizing drug candidates, and its structural biology group on Bainbridge Island.

The arrangement wasn’t bad for the Emerald team at first, Stewart says. DeCode gave them a lot of autonomy. Emerald was asked to do structural biology projects for the parent company to help guide its drug discovery efforts, but Emerald was free to continue making money by serving its pharmaceutical and biotech industry clients.

But Iceland is obviously a long way from Bainbridge Island, literally and culturally. “They were getting papers in Nature every two weeks, and they spent money wildly,” Stewart says.

All of those years of living beyond their means came to a head in the fall of 2008. After a dozen years in business, deCode had no products on the market, two drug candidates in clinical trials in mid-stage testing for cardiovascular disease, and one drug candidate for memory improvement approaching human tests. That was nowhere near enough evidence to keep investors sticking around any longer. And then the really horrifying stuff came with the implosion of Lehman, and the realization of how much pain that would inflict on deCode.

Emerald stopped doing research for its parent company, and picked up the pace of work for its corporate and government clients. “I floated the boat with my business for about a year,” Stewart says.

It was a stressful time, to hear Stewart reflect now. The parent company was drowning in debt, the venture capital market had evaporated, and the stock market was down. The bankers couldn’t find a way to sell off assets like those at Emerald, because nobody was really buying. While Stewart was flying around the world trying to find a way to keep the doors open, he had 40 employees back home on Bainbridge who wondered about their job security.

All that changed just three days before deCode filed bankruptcy. That’s when the investor group with Stewart’s Boston connections swooped in and paid deCode an undisclosed sum to get ahold of Emerald. The group wasn’t going to be sold off at some fire sale after all.

Interestingly, part of the investment deal involves a strategic partnership with Forma, in which Emerald is being hired to perform its X-ray crystallography work on protein structures, which will be fed into Forma’s in-house drug discovery engine. Hiring Emerald to do the work means Forma won’t have to invest in that capability in-house, Tregay says.

Stewart sounds a lot more relaxed now. He has been able to hire a few more people, building up the staff to 50. He didn’t disclose revenues, but said the independent company is still profitable. Emerald is the biggest contract research firm in the U.S. specializing in structural biology, he says. It competes with Germany-based Proteros Biostructures and Evotec and Belgium-based Galapagos. Emerald seeks to distinguish itself by using a lot of proprietary equipment, combined with the experience and know-how to use it in-house. That should enable it to compete globally for years to come, Stewart says.

What kind of prospects does Emerald have as an independent business in the future? The investors want it to remain as a fee-for-service operation, Stewart says. But Emerald is also dipping its toe into “shared-risk” arrangements with drugmakers. That means Emerald will sacrifice some upfront payments and shoulder some of the risk in drug discovery. In return, it will get a piece of the action in the form of milestones and royalties if its partner goes on to develop a marketed drug.

The ultimate proof will be in whether Emerald’s work makes a serious contribution toward the actual FDA-approved drugs that help patients and make money. Stewart won’t name names because of his firm’s confidentiality agreements, but says that his teams have worked on one FDA-approved drug. And one of his firm’s big projects of the moment is an infectious disease consortium with Seattle Biomedical Research Institute, the University of Washington, and Pacific Northwest National Laboratory, which is seeking to determine the protein structures of 75 to 100 new targets per year for infectious disease research.

Determining 100 new structures per year is an “astounding” rate of productivity, Tregay says. Emerald, even during its darkest hours, continued to deliver on ambitious goals like this, Stewart says.

Now that he’s out of the woods, Stewart is back to thinking about more traditional questions of how you manage a stable company and keep your customers happy. It’s only human nature for the team to relax a bit after they survived their yearlong period in fight-or-flight mode.

“Some of our finest work was done under our most stressful of situations,” Stewart says. “You know what they say about how necessity is the mother of invention.” But even though they were productive, it required money, and trusting relationships to keep things going. “I’m really glad that I ran into Steve [Tregay] and some people who were willing to listen to me during that time,” Stewart says. “We kept doing our work, and they stuck with us.”

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