Stated otherwise, are the likes of Nokia (in Finland) and Teva (in Israel), the high tech rule or the exception for small countries located at the periphery? These thoughts ran through my mind when I read about the fate of deCODE Genetics, an Iceland- based pioneer in genetic research, which filed in mid-November 2009 for chapter 11 bankruptcy in the U.S.
According to a November 1th report of scienceblog.com, deCODE was established in 1996,
"basing its business plan on its unique access to biological samples and genealogical and medical records from the small [NJW--approximately 320,000 citizens], homogeneous Icelandic population. Since its launch it has proved wildly successful as a research institute, generating an astonishing number of high-profile publications on the genetics of common traits and diseases. Unfortunately, it has also been a complete disaster as a commercial venture, hemorrhaging away over $700 million while failing to generate a single quarterly profit."In its bankruptcy filing, deCODE listed total assets of $69.9 milli0n and total debt of $313.9 million.
The bankruptcy filing by deCODE follows the failure in April 2009 to sell Iceland's Actavis company, which was a prominent generic drug manufacturer. On top of the country's well-documented banking woes, the question that is raised is whether companies such as deCODE and Actavis, seeking to operate from Iceland, are well-nigh doomed from the outset if their business model is built on manufacturing rather than "develop and sell" (although in the case of Actavis, being a generic drug company, manufacture was at the apparent heart of the company's activities).
Focusing on deCODE, the CEO, Mr. Kari Stefansson, in explaining the need to file for bankruptcy protection, stated in a Reuters report that
"[t]he company was probably founded about five years too early. ....At the time we started out there was very substantial support for long-term investment by biotech companies. But when we were halfway through development of our first compound, the market lost patience with long-term investment like that."As well, the company had the misfortune to choose Lehman Brothers to invest its funds; the defunct financial company invested in U.S. auction-rate securities, the market for which completely collapsed during the summer and fall of 2009. So was deCODE a victim of bad timing, or something more fundamental?
Perhaps one way to better gauge this answer is to follow the fate of the company after reorganization. It is reported that its major asset--its huge DNA biobank and database--will be sold to a group of investors as a central part of the disposition of the company's assets under the chapter 11 proceeding. If the reorganized company succeeds commercially, then the debate will center on whether deCODE should have planned to sell these assets all along, whereby the company's scientific capabilities could then have been merged in a more orderly and lucrative way with the abilities of a third party better placed to commercialize these research efforts. As part of the answer to the question, consideration would have to be given to the fact that deCODE is an Icelandic company, even to the extent that the answer might differ if the company had been located elsewhere.
There is a further social policy aspect here. Manufacturing generates more employment than most R&D, and that will most certainly be the case in a situation such as deCODE. Even for an advanced society like Iceland, there may be a conflict between the most efficient use of technological resources, namely, the development and sale of R&D, and the broader social goal of achieving maximum employment for the population. Large countries are reasonably placed to satisfy both goals; query whether the Icelands (or Finlands or Israels) of the world have the same luxury.
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