deCODE genetics files bankruptcy, inks agreement to sell assets

By Caroline Salls

Pittsburgh, Nov. 17 - deCODE genetics, Inc. filed for Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware to complete the sale of substantially all of its assets, according to a company news release.

deCODE and its advisers have explored multiple restructuring alternatives in recent months, according to the release, including the sale of specific portions of deCODE's operations, the sale or license of its drug discovery programs, the restructuring of its outstanding convertible notes and the obtaining of new equity financing.

Sale agreement

As a result of these efforts, the company said it has entered into an asset purchase agreement with Saga Investments LLC to sell its Iceland-based subsidiary Islensk Erfdagreining and its drug discovery and development programs.

Saga was formed in September by Polaris Venture Partners and ARCH Venture Partners for the express purposes of purchasing the deCODE assets.

The agreement is subject to a competitive bidding process and court approval.

The purchase price under the stalking horse agreement is comprised of three components, including a base cash price equal to the greater of $11 million or a Saga debtor-in-possession loan amount. A minimum of $3 million of the base cash price must be paid in cash.

The second component is an additional cash price consisting of 25% of the net cash proceeds from the sale, license or other monetization of the purchased compounds received within 24 months of the closing date, minus $3 million.

The third component is a non-cash price consisting of non-voting junior convertible non-redeemable preferred membership interests in Saga with a non-participating liquidation preference of $7.15 million.

Based on the DIP loan amount, the company said it projects a closing date consideration of $14.12 million, including refinancing of a bridge loan in full plus $3 million in cash.

Bid procedures

If Saga is not the high bidder, deCODE will pay it a break-up fee of 3.5% of the base cash price and reimburse up to $500,000 of its sale-related expenses.

Competing bids, which are due by 5 p.m. ET on Dec. 17, must be at least equal to the purchase price, plus the amount of the break-up fee, expense reimbursement and a $250,000 initial overbid protection amount.

Subsequent bids at auction must be made in increments of at least $100,000.

The auction will be held on Dec. 21.

deCODE said Islensk Erfdagreining conducts its human genetics research, manages its population genetics resources and provides its personal genome scans, DNA-based risk assessment tests and genomics services for contract customers.

DIP financing

In connection with the bankruptcy filing, deCODE said it entered into an $11.18 million secured loan agreement with Saga which will provide the company with interim financing to fund post-bankruptcy operating expenses.

The facility will mature on the earlier of 60 days from the bankruptcy filing date and the date of any sale of substantially all of the company's assets or stock.

Interest will be 8%.

deCODE is seeking interim access to $3.6 million of the DIP financing.

Debt details

According to court documents, deCODE had $69.85 million of total assets and $313.93 million of total debt at June 30.

The company's largest unsecured creditor is indenture trustee Bank of New York, with a $230 million plus interest claim for deCODE's 3.5% senior convertible notes due April 15, 2011.

deCODE is a Reykjavik, Iceland-based biopharmaceutical company. The Chapter 11 case number is 09-14063.

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