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31 Oct 2002 00:00
Before the cyclist hit him in 1996, Hinrik Jonsson was a strong, skilled, energetic craftsman, a 35-year-old with a young family, whose hand-made furniture could be seen in houses all over Reykjavik. In an instant, the accident destroyed his livelihood.
He suffered brain damage which left his mind fully functional but his body reluctant to obey its commands.
He was finally awarded 23m Icelandic kronas - about 180,000 pounds at today’s exchange rates, not much for 35 lost working years (Icelanders retire at 70). Anxious to invest it wisely, he thought carefully, discussed the matter with his family, and decided to put a hefty chunk of the money - five million - into the stock market. In the spring of 2000, he walked into a state-owned bank, the National Bank of Iceland, where a broker swapped his money for shares in the hottest Icelandic company on the country’s thriving but unregulated grey market, Decode Genetics, at $56 a share.
Earlier this year, Jonsson returned to the bank to sell his shares. They were worth not much more than a 10th of what he had paid for them - just under $6 apiece. Jonsson had lost tens of thousands of pounds of the compensation that had to see him through a lifetime of disability. “I’d never bought stocks before,” he says. “I watched the TV news carefully and saw the stock prices rising consistently. You had stories in the media telling people how high Decode stocks were rising. My heart is crying.”
Like thousands of other naive Icelanders, Jonsson had fallen victim to the extraordinary genetics frenzy which gripped his tiny country in 1999 and 2000.
In a place where genealogical records have long been cherished as a national treasure, ordinary Icelanders, encouraged by the government, banks and brokers, suddenly came to believe that, thanks to Decode, their genes were going to both make them rich and make the world a healthier place. Decode did nothing to dissuade them, and poured millions of shares on to Reykjavik’s unregulated grey market. At their peak in 2001, grey market shares were changing hands for $65, valuing a small Icelandic company which had never made a profit (it still hasn’t) at more than $2bn. Today, the shares, now listed on the Nasdaq index in New York, have slumped to about $2.
In the past decade, we have grown hardened to tales of investor greed and folly, from collapsing markets in the Far East, through pyramid schemes in Russia and Albania, to the spectacular bankruptcies and burst tech-stock bubbles of the US. But there is something unusually poignant about the Decode story because those who have been burned have given the company not just their money but - with the blessing of their leaders - their genes.
The Decode saga raises uncomfortable questions about how fundamental medical research is going to be funded in the future; about the turning of private, individual medical data into a commodity; and about what happens when scientists decide they want to be businessmen, too.
Kari Stefansson, the native Icelander and former Harvard professor who founded Decode in 1996 and has run it since, intrigued and disturbed the world at the end of last century, when he declared that the firm would lead the global hunt for disease genes by using the north Atlantic island’s unique genetic resource: its complete population of 286,000 people, their family relationships meticulously recorded in genealogical records going back 1,000 years. Against opposition from other Icelandic scientists and doctors, he won the right to a commercial monopoly over research access to the medical records of all Icelanders.
Medical ethicists on both sides of the Atlantic were appalled that an act which was eventually passed by Iceland’s parliament, setting up the health sector database, assumed the consent of all Icelanders to having their medical records, albeit anonymously, stored in Decode’s computers. There was no question of seeking volunteers: those who did not want to take part had to actively opt out. Children, and the dead, did not even have that option.
Yet for all the local and international wringing of hands over ethics, most Icelanders embraced the project. They believed strongly in helping the world by volunteering for medical research. They believed in grand, enriching national science projects. They trusted Stefansson and his close ally, the prime minister, David Oddsson, who pushed the enabling law through parliament. Consequently, they believed it was right to accept Decode’s request to give them blood samples for genetic analysis - tens of thousands have now done so - and they believed the brokers who told them that buying Decode shares, even before they were listed on a stock exchange, was a no-loss proposition. The result was a short period of madness, and a long, cruel awakening.
One morning I visit Kristjan Jonasson, an editor with Edda, an Icelandic publisher about to bring out a book on the still evolving Decode affair. His office looks out across a cluster of sports stadia towards Kolla Fjord and the yellow slopes of Esja. Beneath the flimsy-looking, prettily painted corrugated metal covering Reyjavik’s houses and apartment blocks are walls of thick, steel-reinforced concrete, against earthquakes. I ask Jonasson about a theory I have heard, that Icelanders are enthusiastic about science and technology because, for them, nature remains a threat.
He disagrees. “People here are interested in new gadgets, but I think it’s got much more to do with how young the society is. Most of the buildings here were built after the second world war. This city is young and people feel there’s a lot of opportunity, that science opens up new possibilities for us to flourish, to take part in a new world. I think people are very optimistic about everything that relates to companies like Decode.
“People had a firm belief in the power of genetics long before it was explained scientifically. This belief in the inheritance of characteristics is one of the reasons Decode established itself so firmly, so quickly, and why people were ready to embark on this new journey.”
Only with the collapse of Decode’s share price, says Jonasson, has enough doubt been cast about the company for the book - Our Genes, by a science history researcher, Steindor Erlingsson - to find an audience.
“People were totally naive,” he says. “Nobody in America would have bought a share in a company that wasn’t registered on the stock market.”
Today, Decode and the Icelandic government are desperate to disassociate themselves from the grey market frenzy of 1999-2000. Yet it was Decode which deliberately poured millions of shares on to the Icelandic grey market in 1999, selling them to a Luxemburg-registered company understood to represent a consortium of Icelandic financial institutions. Far from Decode standing aloof from the frenetic trading, the company had a vested interest in the unregulated market taking off because it had signed a deal with the Luxemburg group that triggered a second payment if the grey market price stayed high. To financially untutored Icelanders, every TV appearance in which Stefansson and his allies in government talked up the wonderful opportunities Iceland’s genetic specialness presented was both reason to offer their blood for analysis and reason to dig into their pockets.
“Ministers were showing up with Stefansson whenever they had the chance,” said Egill Helgason, a popular Icelandic current affairs presenter on the Skjar 1 channel. “He was always in the company of the government elite. Of course, everyone got the impression this was foolproof. There were only a handful of left wing politicians shouting that something was wrong ... at that time he had absolute control of the media.
“Everyone was talking about buying Decode shares. Young people in their 20s who had no money at all. I got a bit of a fright when even my mother mentioned buying stock. When a civil servant like her is talking about the stock market, somebody is bound to be losing money.”
Respectable banks in which the state still held a majority stake, such as the National Bank of Iceland and the Agricultural Bank of Iceland, were buying Decode shares, advising customers to buy them, carrying out the deals themselves and even lending buyers money if they couldn’t afford to buy.
A lawyer, Hrobjartur Jonatonsson, recalls one of his clients being rung three times by a broker from a bank urging him to buy shares. The broker said that he guaranteed the buyer would make a profit if he bought the shares and then sold them. After the third call, the client reasoned the guarantee meant he had nothing to lose and agreed. Yet by the time the broker had put the shares in the client’s name, they had fallen in value. Only after Jonatonsson intervened, pointing out to the bank that there was no recorded evidence of the conversation, did the bank stop pressuring him to pay for the shares - which are now almost worthless.
Another buyer has not been so lucky. Like many Icelanders who have lost money on Decode shares he is ashamed to have his name published, particularly by a foreign newspaper. Call him buyer E. He lives in a flat in a small block in Reykjavik surrounded by rowan trees. In his sitting room, over full of heavy furniture, there are two tiny stuffed deer heads on the wall, watching events with beady little eyes.
E was bitten badly by the Decode bug. In 2000 he bought 30m kronas’ worth of shares - more than 230,000 pounds at today’s exchange rates - when prices were at their peak. They are now worth considerably less than 10,000 pounds and he faces bankruptcy.
He bought shares on the grey market on three separate occasions. For the second tranche, he borrowed money from the same bank he bought the shares from, the state-owned National Bank, mortgaging his house to do so. He bought the third tranche from the Agricultural Bank and arranged a loan from the Bank of Iceland. The next day, however, the Bank of Iceland lost its nerve and cancelled all loans to buy shares. But the shares were already bought. “I called the Agricultural Bank and told them the Bank of Iceland had lost all faith in the shares and didn’t want to lend any more money. They said: ‘You have to get the money from somewhere. Sorry, but you have to take the shares.’
“It took a month to raise the money I needed. I had only told them on the phone that I wanted to buy the shares and they forced me to buy them. In that month the price fell from $64 to about $50, but I still had to pay $64.”
Now the National Bank is trying to foreclose on its loan. “I asked them if I could wait at least until the shares rose to $15. The lawyer from the bank said, ‘You must know these shares won’t go up.’ I said, ‘You sold me these shares, telling me they would go up to $100.’ He said, ‘If you’re going to blame us you’d better pay up.’
“This has devastated my personal life. I will lose this apartment and I will become bankrupt. Decode was supposed to save human lives. Now it’s destroying human lives.”
It wasn’t just individuals who caught Decode fever. The Icelandic Heart Association is reported to have bought an incredible 200,000 grey market shares in the company when they were selling at $38 to $40 each, and to have hung on to them when they plunged in value. If true, the charity would have lost the equivalent of about Â£5m. The organisation’s chairman has refused to comment.
Kari Stefansson is an unusual man. He fits the cliche of being fiercely clever but he also has a tendency to lash out for no apparent reason, even at those who praise his firm. Three times in our difficult first interview in Reykjavik I try to quote to him people who have spoken well of Decode, only for him to interrupt and dismiss them all. An innocuous, generally friendly article in a local magazine is deemed out of bounds because he doesn’t like the journalist who has translated it for me, a fellow scientist who had lavished plaudits on Decode is said to be producing inferior work, and a Wall Street analyst who has actually recommended Decode’s unloved stock as a possible buy is characterised as not fully understanding his subject.
I had encountered Stefansson before, at a presentation in London in 2000. Then, he had seemed avuncular, charming, self-deprecating, witty. Now, in his office at Decode’s attractive new Reykjavik headquarters, built of anodised metal, glass and dark wood, he is defensive. In Decode’s heyday, journalists often described him as resembling a Viking, as if that was understood to be a good thing. If a Viking is a brooding, grey-haired, 6ft 5in man with a nasty temper who wears tight T-shirts over a heavily muscled upper body, Stefansson is a Viking.
The Icelanders who lost money after buying Decode shares on the grey market were, Stefansson said, the victims of their own recklessness; of banks and brokers he didn’t control; of local politicians who had demanded he let Icelanders share the profits from a gene bonanza; of global financial markets which didn’t put a high enough value on science; of anyone, in short, save Decode. Stefansson suggests that only a politically motivated left-wing journalist would think of asking him questions about the grey market.
“To come to the management of a company like ours and try to hold us responsible for the way in which shares have been traded in Iceland is somewhere between laughable and ridiculous,” he says.
“We are not in the business of selling shares. We did not create a grey market in Iceland. We were not the ones who decided how this would be done. We sold a significant number of shares on the grey market because there was pressure on us to do that. There were people, politicians even, representing the left, who insisted we would have to sell shares in Iceland because they expected there would be great profits and they wanted Icelanders to share in that. All of a sudden the financial market turned sour.
“I always insisted, when asked, that I would not comment on the wisdom of buying shares or the value of shares, and I always said people should not buy unless they had the backbone to suffer some losses.”
Stefansson says Decode has made as much information available about its prospects for the grey market offering as it had later been obliged to make by US law for its offering on Nasdaq. “Most of the people that have bought shares haven’t even bothered to get the information,” he says. “I’m absolutely convinced it was available for those who wanted it.”
Stefansson argues that, having failed to block legislation on the medical records database on ethical grounds, his opponents - centred on Mannvernd, the Association of Icelanders for Ethics in Science and Medicine - are trying to cast doubt on Decode by another route.
He is right to say that, so far, despite the collapse of the company’s share price, most Icelanders, the media and the government seem disposed to give him and the company the benefit of the doubt. “His position is still quite strong here. He still has this aura about him. I think people still believe the company will rise from the ashes with some brilliant discovery that will make us all tremendously rich,” says Helgason.
A smell of sulphur seems to follow you wherever you go in Reykjavik. It pours out from the hot water tap and the shower head, turning silver jewellery a golden colour. Yet there has been no volcanic activity near the city for quite a while. The same is true of dissent. Iceland is a democracy, but there have not been serious political protests in the country since local communists rioted against the decision to join Nato in 1949. The government has enormous powers of patronage, giving it the ability to quieten opposition without appearing to do so. A citizenry both patriotic and trusting of authority helps. Besides, the country is visibly thriving, and there is no unemployment. Sometimes Iceland seems like one of those science fiction dystopias portrayed in the films of the 1960s and 1970s, when everyone lives comfortable, prosperous, safe lives providing they do not question society’s darker secrets.
Steindor Erlingsson, author of the forthcoming Decode book, likes to present himself as a dissident. “I don’t think people have been blaming Decode enough,” he says. “Taking into account the close relationship that existed between the government and Decode, and the fact that Decode had free access to the media in Iceland and was bragging about what it was doing ... Kari has as much responsibility as the brokers. To my mind, the brokers didn’t only gain courage from how well the the biotech industry in general was doing on Nasdaq, but you had this company here with the politicians and Decode spokesmen talking like it was going to save the world.”
The government of David Oddsson - who was too busy to meet me - remains so besotted with Decode that, to the consternation of other business leaders, it has pushed through parliament a law allowing the government to underwrite a $200m bond issue by the company. Rather than showing gratitude for this largesse - currently being scrutinised by regulators from the European Free Trade Association - Stefansson suggests that it was not his idea and that his company would be doing Iceland a favour if he took it, as a form of compensation for building up a new drug development unit on the island instead of in the US.
The extreme version of criticism of Decode - that it has done little good science, that its methodology is flawed - is unfounded. Decode has been widely praised for identifying a gene linked to schizophrenia susceptibility, and for a high-resolution map of gene markers. The question is, whether the science justifies the approach the Icelandic government has taken. By giving a listed company control over such an ethically delicate resource, Oddsson risks sacrificing his people’s altruism to the fickle gods of the market.
Icelanders’ genetic homogeneity is something of a myth - contrary to what Hitler, who yearned to conquer it, thought, it is not a country of blonde, blue-eyed giants. They all look different - tall and short, fat and thin, cute and rough - and blonde hair is less common than in Denmark. The era of the mail-order bride means that there are now hundreds of women of Filippino extraction in Iceland, busily having children with their new husbands.
The obsession with genealogy, however, is real. It is possible to trace ties far across and far up the family tree. This enables Decode to create three linked databases: one recording the way in which everyone in Iceland is related, another of medical records, and a third - to which people must voluntarily opt in - of blood samples, which yields an individual’s particular pattern of genes. Due to the way genes are shuffled when they are passed from generation to generation, Decode can use the databases, a map of known waypoints on the genome, and some clever software to work out whether a particular stretch of DNA is linked to a disease, and where that stretch is.
It is an approach that has already yielded results, and some revenue as a result of partnerships with drugs companies such as Roche of Switzerland. But can it be profitable? Linkage analysis, as Decode’s technique is known, can be carried out anywhere and thousands of scientists in academia and the commercial sector have long been doing so. Some argue that Iceland’s population is too small to provide a good sample. Most diseases are not caused by genes but by the interaction between genes and the environment, and Stefansson is not getting lifestyle data on Icelandic citizens to mesh into the other databases. And, curiously, Decode has yet to actually begin digitising the medical records.
I meet Stefansson again two days after our first meeting. He apologises for his temper the first time around, but still can’t quite keep the lid on it. The question that intrigues me is why it was necessary for Iceland to allow its genetic treasurehouse, if such it is, to become a commercial monopoly. The government could have put Stefansson in charge; they could have had a reverse brain drain of scientists to Iceland, they could have had the same level of partnership income as Decode is getting from companies like Roche, but in a conventional, state-owned, academic institution. Even without the issues of consent, why trust the market to deliver high-level, fundamental science, as opposed to drugs?
Stefansson is having none of it. He contrasts the rival public and private efforts to sequence the human genome, saying that the private sequencing, led by Craig Venter’s Celera, has been cheaper and quicker than its publicly-funded counterpart. When I suggest that the public sequencing had not cost $4bn, as he said, and that many scientists consider Venter would not have reached its goal without using data from the public project, he explodes. “I don’t understand why I’m wasting my time talking to you when you haven’t done your homework,” he says.
He unleashes his full contempt for his colleagues at the University of Iceland. “I’m absolutely convinced that a partnership with the government, let alone a partnership with this lethally bad university here in Iceland, would have been disastrous. You have to realise this university has all kinds of obligations ... for example, you can’t fire a professor - that seems to be particularly difficult.”
With its stock market value now lower than its cash in the bank, Decode looks vulnerable to a takeover bid but, for the time being, Stefansson is safe in the love of the government, and continues to have the wary respect of the people. But it is not necessarily an informed respect.
As one victim of the grey market says: “The reason I don’t want to blame Decode is because I don’t understand what it is that they do.”
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