Yesterday (Thursday), deCODE genetics, Inc. (DCGN) announced that the company signed an agreement with Celera Corp. (CRA). Pursuant to the agreement, deCODE granted Celera non-exclusive worldwide licenses to deCODE’s genetic markers for increased risk of major cardiovascular and metabolic diseases, including heart attack, stroke, atrial fibrillation (AF) and type II diabetes. These markers can be incorporated into laboratory tests for assessing and managing individual risk of these diseases.

The deCODE markers include single letter variations in the human genome (SNPs) on chromosome 9p21 linked to increased risk of heart attack and aortic aneurysm, SNPs on chromosome 4q25 conferring risk of AF and stroke, and SNPs in the TCF7L2 gene linked to increased risk of type II diabetes. Studies by deCODE and independent academic groups have demonstrated the utility of testing for these markers to better understand individual risk and to inform more effective and personalized prevention and therapy.

The agreement apparently broadens the clinical application and commercialization of deCODE’s discoveries of high-impact genetic risk factors for major diseases. The markers included in these agreements are among the most widely replicated genetic risk factors for cardiovascular and metabolic disease.

DeCODE will receive an upfront payment and royalties on sales of testing products incorporating its markers under the terms of the agreement, but financial details were not disclosed.

We think the deal is important to deCODE as it provides a lifeline to the company which reduces the going concern about the company’s viability for the time being. We have pointed out that the company unfortunately has entered into survival mode since the beginning of the financial crisis.

As of December 31, 2008, the company had only $3.7 million in cash and cash equivalents of $3.7 million, out of a total of $21.9 million in cash and investments including cash, cash equivalents, restricted investments and cash equivalents, and non-current, illiquid investments in ARS. In January 2009 deCODE obtained an additional $11.0 million in cash for operating activities through an agreement with NBI, an Icelandic financial institution.

The company believes it has sufficient resources to sustain operations only into the second quarter of this year. At the end of 2008, deCODE genetics held $230 million (fair value of $216 million) notes due 2011.

Although the CRA deal gives deCODE a lifeline, we don’t think the worst is over. DeCODE genetics still needs to raise additional cash for its continued operations, and the future is still uncertain until we see continued improvement in its liquidity in the next few quarters. Therefore, at this point, we would like to stay on the sidelines and are neutral on the company’s stock.

Read the full analyst report on “DCGN”
Read the full analyst report on “CRA”
Zacks Investment Research

Last 5 posts by Zacks Market Commentaries

• Company News for February 9, 2010 - Corporate Summary - February 9th, 2010
• ADC Telecom Profit Tops - Analyst Blog - February 9th, 2010
• Stock Market News for February 9, 2010 - Market News - February 9th, 2010
• Nissan Results Improve - Analyst Blog - February 9th, 2010
• Nasdaq Beats on Low Charges - Analyst Blog - February 9th, 2010