<PAGE>

                                                                    EXHIBIT 10.3

                           NON-STATUTORY STOCK OPTION

                         , Optionee:

      deCODE genetics, Inc., a Delaware corporation (the "Company"), has granted
to you, the optionee named above, an option to purchase shares of the common
stock of the Company ("Common Stock"). This option is not intended to qualify as
an "incentive stock option" within the meaning of Section 422 of the United
States Internal Revenue Code of 1986, as amended (the "Code"). The grant
hereunder is intended to comply with the provisions of the United States
Securities Act of 1933, as amended (the "Act") and the regulations promulgated
thereunder by the United States Securities and Exchange Commission.

      This Option is granted under, and is subject to, the provisions of the
Company's 1996 Equity Incentive Plan, as amended from time to time (the "Plan")
and shall be exercisable only on the following terms and conditions:

      The details of your option are as follows:

      1.    DEFINITIONS.

            (a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

            (b) "BOARD" means the Board of Directors of the Company.

            (c) "CAUSE" means (a) gross or habitual failure to perform the
person's assigned duties, that is not corrected within thirty (30) days after
written notice to the person thereof or (b) misconduct, including, but not
limited to: (i) conviction of a crime, or entry of a plea of nolo contendere
with regard to a crime, involving moral turpitude or dishonesty, (ii) illegal
drug use or alcohol abuse on Company premises or at a Company sponsored event,
(iii) conduct by the person which in the good faith and reasonable determination
of the Board demonstrates gross unfitness to serve, (iv) participation in a
fraud or act of dishonesty against the Company, or (v) intentional, material
violation by the person of any contract between the person and the Company or of
any statutory duty of the person to the Company. Neither mental nor physical
disability shall constitute "Cause."

            (d) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.

            (e) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the person's service with the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by


                                      -1-
<PAGE>
the Board or the chief executive officer of the Company, including sick leave,
military leave, or any other personal leave; or (ii) transfers between the
Company, Affiliates or their successors.

            (f) "DIRECTOR" means a member of the Board.

            (g) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

            (h) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

      2.    TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION.  The total number
of shares of Common Stock subject to this option is                (----------).

      3.    VESTING. Subject to the limitations contained herein, twenty-five
percent (25%) of the shares will vest (become exercisable) on , and 1/48th of
the shares will then vest on the last day of each month thereafter until either:
(i) you cease to provide services to the Company for any reason; or (ii) this
option becomes fully vested. Additionally, vesting will be suspended for the
duration of any leave of absence that does not constitute a termination of your
Continuous Status as an Employee, Director or Consultant.

      4.    EXERCISE PRICE AND METHOD OF PAYMENT.

            (a) EXERCISE PRICE.  The exercise price of this option is
$_______ per share.

            (b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of this option. You may elect, to
the extent permitted by applicable statutes and regulations, to make payment of
the exercise price under one of the following alternatives:

                  (i) Payment of the exercise price per share in cash
(including check) at the time of exercise;

                  (ii) Delivery of a copy of irrevocable instructions to a
broker to sell the shares to be issued on exercise of the option and to deliver
promptly to the Company from the sales proceeds an amount of cash equal to the
aggregate exercise price; or

                   (iii) Payment by a combination of the methods of payment
permitted by subparagraphs 4(b)(i) and 4(b)(ii) above.

      5.    WHOLE SHARES.  This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.

      6.    SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the


                                      -2-
<PAGE>
Company has determined that such exercise and issuance would be exempt from the
registration requirements of the Act.

      7.    TERM. The term of this option commences on _________________, the
date of grant, and expires on ____________________ (the "Expiration Date," which
date shall be no more than ten (10) years from date this option is granted),
unless this option expires sooner as set forth herein. In no event may this
option be exercised on or after the Expiration Date. This option shall expire on
the date of your termination of Continuing Status as an Employee, Director or
Consultant if: (a) such termination is for Cause; or (b) after such termination
you provide services for or acquire an ownership interest in any business which
competes with the Company. If not previously terminated, this option shall
expire on the date that is three (3) months after the Optionee's termination of
Continuing Status as an Employee, Director or Consultant. However, this option
may be exercised following termination of Continuous Status as an Employee,
Director or Consultant only as to that number of shares as to which it was
exercisable on the date of termination of Continuous Status as an Employee,
Director or Consultant under the provisions of Paragraph 3.

      8.    EXERCISE.

            (a) Optionee may exercise this option, to the extent specified
above, by delivering an exercise notice (in a then form designated by the
Company) together with the exercise price to the Secretary of the Company, or to
such other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require for
purposes of compliance with any applicable law, rule or regulation.

            (b) By exercising this option, you agree that:

                  (i) as a precondition to the completion of any exercise of
this option, the Company may require you to enter an arrangement providing for
the payment by you to the Company of any tax withholding obligation of the
Company arising by reason of: (A) the exercise of this option; (B) the lapse of
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (C) the disposition of shares acquired upon such exercise; and

                   (ii) at the request of the Company, you will execute and
become a party to any voting agreement then in effect between the Company and
any of its common stockholders.

      9.    TRANSFERABILITY. This option is not transferable, except (i) by will
or by the laws of descent and distribution, (ii) to your spouse, children,
lineal ancestors and lineal descendants (or to a trust created solely for your
benefit and that of the foregoing persons), (iii) to an organization exempt from
taxation pursuant to Section 501(c)(3) of the Code or to which tax deductible
contributions may be made under Section 170 of the Code (excluding such
organizations classified as private foundations under applicable regulations and
rulings), or (iv) to your Affiliate. Notwithstanding the foregoing, by
delivering written notice to the Company, in a form satisfactory to the Company,
you may designate a third party who, in the event of your death, shall
thereafter be entitled to exercise this option.

      10.   OPTION NOT A SERVICE NOR EMPLOYMENT CONTRACT. This option is neither
a service nor an employment contract. Nothing in this option shall be deemed to:
(i) create in any way


                                      -3-
<PAGE>
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company; or (ii) obligate
the Company or any Affiliate of the Company, or their respective stockholders,
boards of directors, officers or employees to continue any relationship which
you might have as a Director or Consultant for the Company or Affiliate of the
Company.

      11.   NOTICES. Any notices provided for in this option shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
mail, postage prepaid, addressed to you at the address specified below or at
such other address as you hereafter designate by written notice to the Company.

      12.   GENDER.  Whenever the context requires, words denoting gender in
this option shall include the masculine, feminine and neuter.

Dated:                                    Very truly yours,

                                          deCODE genetics, Inc.



                                          By:
                                             ----------------------------------
                                                Kari Stefansson, President


ATTACHMENTS:

Form of Exercise Notice
deCODE genetics, Inc. 1996 Equity Incentive Plan


                                      -4-
<PAGE>
The undersigned:

            (a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option; and

            (b) Acknowledges that as of the date of grant of this option, it
sets forth the entire understanding between the undersigned optionee and the
Company and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:

      NONE
           --------------
             (Initial)

      OTHER
                 ------------------------------------

                 ------------------------------------

                 ------------------------------------


                                          -------------------------------------
                                                       (signature)


                                          -------------------------------------
                                                      (print name)

                              Address:
                                          -------------------------------------

                                          -------------------------------------

                                          -------------------------------------

                                          -------------------------------------


                                      -5-