Arch Venture Partners

Amgen gives VCs a deCODE double-dip

December 10, 2012: 12:54 PM ET

DoubleDipVenture capitalists have made big profits from DeCode Genetics... Twice!

FORTUNE -- Amgen Inc. (AMGN) today agreed to acquire Icelandic genetic research company deCODE Genetics for $415 million in cash. For deCODE's owners, this will become their second massive payday.

DeCODE was originally founded in 1996, with plans to map the genome of Iceland's small, and relatively homogeneous population. It would go on to raise venture capital funding from eight different venture capital firms, including Arch Venture Partners and Polaris Venture Partners. DeCODE would eventually raise $173 million in a 2000 IPO, with all of its venture capitalists eventually cashing out. For Polaris, that meant a 7.2x cash multiple and a 69% internal rate of return (IRR).

Unfortunately for deCODE, however, the company's promise and consistent research achievements were not matched by commercial success. It also wasn't helped by an Icelandic economic collapse, nor broader macro economic troubles that damaged the pharmaceutical sector. By late 2009, deCODE decided to declare bankruptcy and auction off its core assets.

The winning bidders were Arch and Polaris, which paid a combined $14 million. They also would invest an undisclosed amount to help rebuild the company, culminating in today's agreement with Amgen.

Polaris co-founder Terry McGuire, who led both the initial venture round and latter acquisition out of bankruptcy, writes:

In just 2012 alone, deCODE published three seminal manuscripts that have received global attention. The first linked the age of the father to the incidence of diseases such as autism and schizophrenia. The second identified a gene mutation that substantially increases the risk of developing Alzheimer's disease. The third discovered a mutation that protects against Alzheimer's and the likely mechanisms for that protection. And the pace of discovery is accelerating.

Clearly Amgen wanted deCODE for more than its patents, genetic testing business, or drug development projects—although there is plenty of value there. Amgen bought deCODE for its powerhouse research engine—including its talented genomics scientists, tools, and data. I think what they wanted most was to enlist the passion, insight and support of Kari Stefansson in extending their place in transforming medicine.

Arch and Polaris will have re-owned deCODE for just under two years, generating more than a 6x cash multiple and more than a 106% IRR. Not too shabby for a double-dip...

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