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Behind the NextCode Spinout

The Anatomy of an Amgen Deal

An all-too-common challenge that arises post-acquisition is that certain aspects of an acquired company fall outside the strategic direction of the acquiring organization. One option when presented with this headwind is to divest these assets. However, depending on what the asset is, this option may prove challenging—which often prompts companies to simply decommission this particular aspect of the business. In the case of Amgen’s acquisition of deCODE Genetics, however, Amgen found a way to realize new value from one capability of the company acquired even though it was considered non-core. The result was NextCode Health, a company spun off from deCODE that provides unique capabilities for improving the use and power of sequence-based diagnostics. Architecting this deal wasn’t easy. But in the end, taking the time to structure an agreement with appropriate stakeholders in order to make this company a reality enabled substantial value to be captured that would have otherwise been lost.

In 2012, Amgen acquired deCODE Genetics, a global leader in human genetics. Using its expertise in genetics and population resources, deCODE had achieved world acclaim for discovering genetic risk factors for dozens of common diseases. deCODE has developed uniquely powerful tools for analyzing large-scale sequence data to identify the genetic causes of disease.

Amgen acquired deCODE to enhance its drug development capability, enabling it to better identify and validate potential drug targets and make medicines using population-scale data. However, at the time of the acquisition, deCODE also provided genomic services to physicians, enabling them to deliver genetic tests and results to patients, which was not an area central to Amgen’s strategic focus.

A decision had to be made on what to do with this portion of the deCODE business. One idea advanced by members of deCODE was to create a separate company that would be focused on accelerating diagnosis of disease through the use of sequence data, leveraging the platform created at deCODE that included IT infrastructure and data analysis capabilities specifically for diagnostic applications. Amgen encouraged this idea, as it became clear that it could be beneficial for Amgen, deCODE, other investors, and for patients, but it was also clear that careful planning was needed.

The company that was created was appropriately named NextCODE. DeCODE, a subsidiary of Amgen, was one of three investors. Hannes Smarason, deCODE’s former CFO, was so enthusiastic about the new company that he agreed to lead it. “A large company has to remain focused on its core strategic business, so it is not always apparent that new value can be created by a thoughtful appreciation for assets that are peripheral to that business,” said Smarason. “I was very impressed with how open Amgen was to creatively structuring this deal.”

The basic model for the new company is as follows: If a hospital or other healthcare institution wants to use sequence-based testing to improve patient diagnosis, they can approach NextCODE to help them with the IT infrastructure to do so efficiently. NextCODE has a database architecture and user-friendly interfaces that enable physicians to compare individual patient sequences to all of the public and proprietary reference data they have access to. Originally developed on deCODE’s population data, this platform is uniquely fast, and can almost instantly establish whether, for instance, there were any matches with other known rare or common variants, and it can very quickly search for variants that have never been seen before. In so doing, it can provide a unique insight into the origin of a patient’s disease. Leveraging the power of the database architecture developed at deCODE and licensed by NextCODE, this information can also be used by hospitals and research institutions for future diagnostics work to potentially find new insights to help other patients with rare diseases. This is both medically and commercially valuable to patients, to NextCODE, to its partners, and to Amgen. Simply put, everyone wins.

“We’re very excited about this spin-off,” said David Piacquad. “When you have an opportunity like this, to capture value that would have been lost and provide a truly beneficial service for patients, it’s hard not to feel compelled to make it happen.”