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Why My Doctor Lives in Iceland

By Rob Fannon, editor Phase 1 Investor
Friday, August 8, 2008

I could lose a few pounds. And maybe my blood pressure is a bit high. I could exercise more, drink less coffee, eat more fiber... yada, yada, yada.
 
It's a long list, and I heard it all when I attended my publisher's "wellness fair." The nurses shuffled me around the place, measuring, weighing, and taking blood. At each station, I got a photocopied primer: Surviving Fast Foods, The Safe Weekend Warrior, 10 Steps to Stress-Free Living...
 
I didn't learn anything I didn't already know. And when I left, I tossed the brochures in the trash.
 
Compare that with a genetic screening test I just completed. For $985, I received two oversized popsicle sticks in the mail. I brushed the inside of my cheeks, placed the sticks into a sealable bag labeled "DNA," and dropped the kit back in the mail. The destination? Reykjavik, Iceland.
 
Once my cells complete the transatlantic trek, scientists at deCODE Genetics (DCGN) will spend a few weeks analyzing my DNA. They will calculate my risk for 19 different diseases, including glaucoma, diabetes, and heart attack. In addition, I'll learn about my genetic lineage, as well as whether I carry any copies of the gene for blue eyes (mine are brown). The company will deliver my results via a secure website in a few weeks.
In the 1990s, deCODE collected DNA samples from almost every Icelander. Iceland has a close-knit and isolated population, making the island's gene pool "homogenous." By comparing DNA with detailed health histories, deCODE hoped to identify disease-causing genes and potentially make new drugs.
 
The company's genetic sequencing work is top-notch. It has identified numerous genetic risk factors for heart disease, diabetes, and stroke. As for drug discovery, however, deCODE's burned through a lot of cash without much to show for it. Now, it's rebranding itself as a personalized diagnostic company.
 
deCODE is the only public company of the three main players in the personalized genetics business. The wife of Google co-founder Sergey Brin created 23andMe, which counts Genentech among its investors. And my former boss at Cedars-Sinai Medical Center in Los Angeles founded Navigenics. It gets backing from the same venture-capital group that funded Google and Amazon.
 
Navigenics' test is the most expensive at $2,500 a pop, but customers can speak to "genetic counselors," who help interpret test results. This may provide a true competitive advantage as states question whether such tests are legal without a doctor's prescription.
 
Right now, these costly tests are attracting only "early adopters," mainly the curious and scientists. So don't bet DNA will displace standard health screenings just yet. And I'm not sure direct-to-consumer genetic testing will ever be a viable business.
 
At a recent investor conference in New York City, Phase 1 Investor analyst George Huang and I argued with deCODE CEO Kari Stefansson. He insists the science behind his test will sell itself. But we think the price is too high to attract enough customers. And we're skeptical insurance companies will be willing to foot the bill.
 
But the emergence of these direct-to-consumer genetic tests confirms the long-term promise of "personalized medicine." It's a trend we've invested in profitably at Phase 1 Investor. If you're interested, you should first avoid the hype. Stick with what works today: successful companies with existing sales or "picks and shovels" plays that sell essential supplies.
 
It remains to be seen whether deCODE will make a great investment. In the meantime, I wanted to experience its test myself. George submitted a cheek swab, too. We'll be getting our results in the coming weeks... and we'll let you know what we learn.
 
Good investing,
 
Rob Fannon




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