Can deCODE Genetics Survive?

Financial Position Deteriorating, Ability to Continue Doubted

deCODE Genetics (DCGN) believes it has sufficient resources to sustain operations only into the second quarter of this year. Due to the shortage of cash, the company unfortunately has entered into survival mode. The company’s ability to continue as a going concern is doubted if it cannot obtain immediate liquidity resources.

Future Uncertain, Under Strategic Review

Due to the deteriorating financial position, in October, 2008, deCODE genetics announced that the company is carrying out a review of its long-term business strategy. The goal of this strategic review is to optimize the value of these assets for its shareholders by sharpening the focus of its business, selling non-core assets, securing strategic partnerships, and utilizing the resources generated to underpin product development and marketing efforts in its core business.

We think the decision has been made because deCODE is under great pressure to raise additional cash. We are very concerned about the company’s cash position.

The current financial crisis has limited its ability to raise additional capital, especially in Iceland. Whether or not the company can survive may depend on how it can leverage its diagnostics business in the coming quarters. But it may take a relatively long time for the company’s diagnositics business to generate enough cash flow. Therefore, forced asset/busines sale or partnership may be the only option to raise additional cash.

Fourth Quarter Results Beat Estimates

On March 31, 2009, deCODE Genetics reported fourth quarter 2008 financial results.

Revenue for the quarter ended December 31, 2008 was $16.1 million, up 21% compared to $13.3 million for the fourth quarter 2007. Fourth quarter revenue was better than our estimate of $14.5 million. The company had $12.0 million in deferred revenue, which will be recognized over future reporting periods.

Net loss for the fourth quarter 2008 was $18.0 million ($0.29 per share), compared to $32.4 million ($0.53 per share) for the same period a year ago. In the 4Q08 and 4Q07 periods, $ 5.5 and $7.8 million of the respective net loss figures were due to ARS [Alternative Remittance Systems]-related impairment charges. Excluding the ARS-related charges, net loss for 4Q08 was $12.7 million ($0.21 per share) compared to net loss of $24.7 ($0.40 per share) for 4Q07. 

Read the full analyst report on DCGN