The initial bankruptcy buzz gave way over the past several months to a steady but relatively unremarkable stream of filings in the United States Bankruptcy Court for the District of Delaware (the case is No. 09-14063). Last week, however, brought a noteworthy docket entry, with the bankruptcy court approving the sale of most of deCODE genetics Inc.’s assets to Saga Investments LLC (pdf) – an investment company whose owners include Polaris Venture Partners, ARCH Venture Partners and genomic sequencing giant (and DTC genomics dabbler) Illumina.

A Holiday Fire-Sale? The sale, as approved by the bankruptcy court, sends substantially all of deCODE genetics Inc.’s assets – including its valuable genetic research engine that is driven in part by its access to its large Icelandic population database – to Saga Investments. As we described back in November, the bankruptcy sale process required a Stalking Horse bidder (Saga Investments) and a sale and auction process that, at least in theory, allowed other interested parties a chance to step in and make a bid for deCODE’s assets. No other bidders came forward, and the sale to Saga Investments was approved in just under two months.

Not everybody was pleased with the timing and structure of deCODE’s sale. In an objection filed in early December (pdf), a committee of deCODE’s unsecured creditors raised numerous arguments against deCODE’s proposed sale, including that deCODE’s bankruptcy had been structured “not to benefit [its] creditors, but to allow original investors in [deCODE]…to acquire substantially all of [deCODE’s] assets in a ‘fire-sale’…” The committee also took issue with the value offered by Saga Investments, the “inadequate actions of [deCode] in seeking strategic alternatives” to the sale, and the aggressive sale timeline that appeared designed to “inhibit potential bidders from gathering enough information to become comfortable with submitting a competing bid.”

Finally, the committee argued – just as the Genomics Law Report suggested might occur in our original posts on this topic – that “given the highly sensitive and private nature of individual genetic material…the Court may consider the appointment of a consumer privacy ombudsman.” This would have required the court to slow the proposed sale timeline to provide the ombudsman with the necessary time to “review the privacy policies of Saga and [deCODE] to ensure the protection of private consumer data.”

The bankruptcy court, however, was unmoved. Three days later it issued an order approving deCODE’s proposed bidding procedures and protections and form and notice of the sale (pdf), denying the committee’s requests for additional time for potential bidders – and, potentially, a consumer privacy ombudsman – to review the sale. The court found that the timeline and auction process proposed by deCODE was in “the best interests of its estate” and that the “Stalking Horse Bidder [Saga Investments] has provided a material benefit to [deCODE] by increasing the likelihood that the best possible price for [deCODE’s assets] will be received.” Just over a month later, with no other qualified bids received, the court approved the sale to Saga Investments upon the same terms and conditions as initially proposed in November.

The Corporate Name Game. Casual visitors to the website of deCODE genetics are unlikely to notice any changes now that Saga Investments is at the helm, as the website, logo and name all remain the same. Most investors of the formerly-publicly-traded-and-since-delisted deCODE genetics, Inc., however, have by now discovered this notice to investors:

deCODE genetics (also doing business as deCODE genetics ehf, Islensk erfdagreining ehf, and deCODE genetics Ltd.) is a private company headquartered in Reykjavik, Iceland. The company is owned by Saga Investments LLC, a consortium including Polaris Venture Partners and ARCH Venture Partners. deCODE currently has no publicly traded securities. Please note that none of the publicly owned stocks or other securities issued by deCODE’s U.S-based former parent company, including its common stock that has been traded on the Pink Sheets over-the-counter market under the ticker symbol “DCGNQ”, are or will become securities of deCODE genetics, which is an independent and separate company.

Translation for investors? Same name, new ownership, and if you have to ask then you’re not a part of that new ownership. Of course, those stock certificates in deCODE genetics, Inc. haven’t disappeared. At least not yet. They’ve been converted into shares in the recently-renamed-but-still-in-bankruptcy DGI Resolution, Inc. Unfortunately, DGI’s notice to investors paints a dim picture of the value of those shares:

Investor Alerts

Although the purchaser of the assets of the former deCODE genetics, Inc. may conduct business using the “deCODE” name, none of the publicly owned stock or notes issued by the former deCODE genetics, Inc. will become securities in the purchaser or represent any interest in its business. All of these securities relate to DGI Resolution, Inc. and will be treated in accordance with the provisions of the U.S. Bankruptcy Code and the rulings of the Bankruptcy Court.

Stockholders of a company in chapter 11 generally receive value only if all claims of the company’s creditors are fully satisfied. In this case, management strongly believes all such claims will not be fully satisfied and that there will be no value for the common stockholders in the bankruptcy liquidation process.

To recap: deCODE genetics ehf is using the deCODE name and assets and is now under the ownership of Saga Investments. The old deCODE shareholders appear to be skating on thin ice, having lost both value and the cool name. The extent of value for creditors remains to be seen.

As for who is in charge of deCODE’s slightly leaner operations, the management team, at least at the top, sports some very familiar faces. Kari Stefansson, the founder and former CEO of deCODE genetics, Inc., will lead the new company as “executive chairman and president of research.” He will be joined by new CEO Earl “Duke” Collier, a former deCODE director.

How new is the “New deCODE”? Immediately following the approval of the sale to Saga Investments, deCODE and its new owners declined to comment on the company’s future plans. Now, however, the company is talking via a statement – “Announcing the New deCODE” – posted last Thursday to the deCODE genetics website and its corporate blog that provides some details of deCODE’s new business strategy.

The new deCODE, under the guidance of Stefansson and Collier, has promised to carry on many of its former parent company’s operations “including its deCODE diagnostics disease risk tests; deCODEme™ personal genome scans; and contract service offerings including genotyping, sequencing and data analysis.” deCODE’s unsuccessful drug discovery and commercialization business – which was bolstered by its 2002 acquisition of MediChem Life Sciences, Inc. – is not a part of the company’s future plans according to Jocelyn Kaiser’s piece in ScienceInsider.

That deCODE is going to be continuing its genetic research is indisputably good news for the future of scientific research and knowledge. deCODE is widely acknowledged as one of the leaders in elucidating the genetic bases of common traits and diseases, and that research seems poised to continue.

What’s still unclear, of course, is what deCODE intends to do differently to convert its scientific expertise and research breakthroughs into a profitable commercial entity. Shedding some dead weight (i.e., its drug development business) will hopefully help the bottom line, and deCODE will also be looking to expand its core genetic testing and diagnostic services, including its direct-to-consumer (DTC) genetic testing service deCODEme (see: Is deCODEme Taking a Page from the 23andMe Playbook?).

A Question of Informed Consent. The new deCODE is also likely to explore ways to extract more value from its existing assets, including its databases of genetic and other personal health information. Stefansson and deCODE have been adamant that the change in ownership will not affect how the company uses data from customers of its deCODEme service, or the security of that data, but this is an issue that will continue to bear watching. As I’ve written elsewhere, deCODE’s new owners remain (legally) free to alter or expand their use of genetic data within a range of allowable uses.

The company’s announcement also refers in several places to genomic sequencing, and as Jocelyn Kasier first reported last fall, deCODE is planning to sequence the complete genomes of 2500 individuals from its Icelandic database by mid-2011 as it continues to search for the rare variants that may contribute some of the so-called “missing heritability” to common diseases and traits. According to Stefansson, deCODE “will not need to recontact these individuals for consent because their original consent agreements cover whole genome sequencing.”

As Stefansson and others continue to note, genomic research has already begun the transition from genotyping to whole-genome sequencing. Moving from examining a handful – even thousands – of an individual’s genetic markers to the sequencing of his or her entire genome creates the potential to understand that individual in much greater detail. It also carries with it a new and expanded set of considerations and risks that should impact any informed consent process.

I have little visibility into the informed consent process used to enroll the individuals whose genomes deCODE may sequence as it attempts to commercialize its world-class genomic research capabilities. I do not know how recently the consent took place, nor do I know the nature of the research – and risks – discussed in that consent. What I do know is that deCODE has a history of aggressively interpreting when and where individualized informed consent is not required. The failed Icelandic Health Sector Database, which deCODE was instrumental in designing, relied on the now-discredited principle of “presumed consent.” Particularly against that background, deCODE – along with other commercial entities that maintain genomic databases – should encourage greater public disclosure and discussion of the manner in which it intends to ensure informed consent and appropriate safeguards for its future research and commercial activities.

Given deCODE’s recent financial struggles, this latest development is hardly a surprise. Indeed, two months ago, we anticipated this very event when we asked a hypothetical question: “What Happens if a DTC Genomics Company Goes Belly Up?” That’s precisely the question that deCODE’s customers and creditors are asking today.

In our original article, which was initially published in three parts on September 14, 15 and 16 at Genetic Future, we looked at the interplay between the privacy policies of DTC genomics companies and the relevant bankruptcy law statutes, and offered some educated guesses as to how courts and companies would handle the sale of a bankrupt company’s sale of its customers’ genetic information.

The coming weeks will see that analysis tested in Delaware bankruptcy court. In the meantime, there is a lot to unpack in this morning’s deCODE announcement.

deCODE’s New Owners. deCODE’s proposal is to sell one of its key operating subsidiaries, Islensk Erfdagreining (IE), as part of its plan of liquidation. According to the announcement, “IE conducts deCODE’s 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.”

What this means is that, when the dust finally settles, there will be a new management team running a majority of deCODE’s current operations, including the DTC genomics service deCODEme. It’s likely that the new ownership will be the “stalking horse” buyer Saga Investments LLC, an investment company whose owners include Polaris Venture Partners, ARCH Venture Partners and genomic sequencing giant (and DTC genomics dabbler) Illumina. However, under Section 363 of the Bankruptcy Code, other interested acquirers, if there are any, have a chance to see what Saga is offering and swoop in with a higher bid. And, as we discussed in our original article, even if there are no higher bidders the bankruptcy court still must approve the sale to Saga. (For those that are interested, here are the Stalking Horse Agreement and Schedules.)

Whether Saga or another group of investors winds up in control of the company, today’s announcement is likely to herald a changing of the guard at deCODE. Co-founded in 1996 by Kari Stefansson and Jeffrey Gulcher, both accomplished scientific researchers, deCODE genetics’ roots stretch back to a time long before “DTC genomics” was crowned TIME’s invention of the year in 2008 and the consumer-focused genetic testing field filled up with competitors such as 23andMe, Navigenics and Pathway Genomics.

It’s to be expected that an industry as new and unproven as DTC genomics will see its fair share of upheaval, and the last four months have seen plenty: the arrival of Pathway Genomics, turnover and a recent and unexpected product restructuring at 23andMe, and now deCODE’s bankruptcy and sale. Yet to be determined is whether these are the signs of a healthy industry reacting to the combination of increased competition and a struggling broader economy, or an indication that existing DTC business models need to be thoroughly revamped.

deCODE’s Old Customers. It remains to be seen what a new set of owners will bring for deCODE’s existing customers, especially those of its deCODEme DTC service. Genetic Future posted a letter this morning sent by deCODE to its deCODEme customers. The company assures its customers that, as part of its bankruptcy filing, it has secured funding that it will allow it to maintain its operations and that “we do not expect [the bankruptcy] to have any impact on your deCODEme account.” (emphasis added)

To some extent that’s true. The arrangement with Saga provides bridge financing of up to $16.5M for deCODE. That funding should allow deCODE to keep the lights on and otherwise maintain its operations as it proceeds through the bankruptcy process. Clearly, changing owners doesn’t change the science that will continue to drive the deCODEme analysis.

But behind the scenes, changes are certainly possible. Any bankruptcy filing is a final admission that the current business model is broken, although it’s often very difficult to tell from the outside just which pieces of the business model aren’t working. The deCODEme portion of the business might be operating satisfactorily. However, if deCODE’s new ownership determines that one of the necessary changes is an overhaul of its deCODEme business model, including whether and how the company uses its customers’ genetic information, it won’t be free to do so with unfettered discretion.

As we discussed at length in our earlier article, deCODE’s existing data access restrictions, as well as other restrictions imposed by law, will limit the available uses of customers’ genetic information by the new management. Those restrictions will define a range of permissible uses for genetic information that is transferred as part of the bankruptcy sale. Within that range of allowable uses, however, deCODE’s new owner may choose to change or even expand its use of that information.

deCODE’s Current Investors. deCODE genetics, Inc. is a publicly traded company (NASDAQ: DCGN) and the analysis for deCODE’s current owners is simple and unappealing. From the press release: “In the event of a liquidation, any recovery for stockholders of deCODE would be highly unlikely.”

Expect more commentary and analysis from the GLR in the days and weeks to come as the deCODE bankruptcy proceedings continue to unfold.