By Doug Macron
Rosetta Genomics last week disclosed that it is currently negotiating with the US commercialization partner for its three microRNA-based cancer diagnostics over a funding dispute tied to the development of additional tests.
However, Rosetta was unable to provide guidance on the timing of a resolution to the matter, or if a resolution is imminent.
"We still hope to resolve these issues through negotiation, but may have to resolve them through the arbitration process," Rosetta CEO Kenneth Berlin said during a conference call held to discuss the company's first-quarter financial results. But because it is "early days … it's hard … to give … a timeframe" on how the process will run.
"Obviously, there are two very different [outcome] scenarios," he said. If the companies "come to a negotiated resolution," the dispute would conclude "sooner than if we had to take it all the way through the arbitration process."
Meanwhile, Rosetta continues to make progress with its diagnostic pipeline, Berlin noted during last week's call, and expects to launch one new test before the end of this year and two others by the end of 2011.
The company is also exploring opportunities outside of cancer, which has been its area of focus, while toning down its miRNA therapeutics activities, which require greater resources than Rosetta, as a small company, can muster, he added.
In early 2009, Rosetta inked a deal giving Prometheus Laboratories the US market rights to its three miRNA diagnostics: miRview Meso, which differentiates lung cancer from mesothelioma; miRview Mets, which is designed to determine the source of cancers of unknown primary origin; and miRview Squamous, which is designed to differentiate squamous from non-squamous non-small cell lung cancer (RNAi News 4/16/2009).
The deal also gave Prometheus the rights to a second-generation miRview Mets test, as well as the right of first negotiation on a lung cancer test that uses fine needle aspirate samples, Berlin noted during the call.
"The agreement also calls for Prometheus to share costs for the further development of the tests licensed under the agreement and the development of additional diagnostic tests," he added
According to a Rosetta filing with the US Securities and Exchange Commission earlier this month, the companies have "engaged in negotiations regarding the development plan" for other diagnostics but are "in disagreement with respect to the scope and funding of the development plan" as spelled out in their licensing agreement.
The filing also stated that Rosetta has accused Prometheus of failing to use "commercially reasonable efforts" to market the three miRNA diagnostics.
In response, Prometheus has alleged that Rosetta breached a stock purchase agreement signed at the time the licensing arrangement was consummated, Rosetta added in the filing.
Under that agreement, Prometheus agreed to buy 2 million newly issued shares of Rosetta stock at $4 per share, translating to a roughly 14 percent stake in the miRNA shop. Rosetta said Prometheus is seeking a rescission of the stock-purchase deal.
In the SEC filing, Rosetta said it continues to pursue an "amicable resolution" to the dispute, but that if an agreement cannot be reached, it "intends to fully assert its rights under the license agreement, including potentially seeking termination of the agreement."
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While it tries to settle matters with the US distributor of its miRNA diagnostics, Rosetta continues to develop a next-generation version of miRview Mets, which includes more than 40 cancer types. Berlin said that the company remains "on track to complete the validation and launch of this test in the second half of this year."
Work on the second test in its pipeline, miRview Bladder, which is designed to assess the risk of superficial bladder cancer becoming invasive, continues apace, and Rosetta is in the process of optimizing the test's miRNA biomarker panel, he said. Product launch is expected in the second half of 2011.
Also slated to reach the US market in the last half of next year is Rosetta's miRview Lung, an enhanced version of the company's miRview Squamous that is designed to distinguish between small and non-small cell lung cancer, and sub-classify non-small cell lung cancer patients into squamous and non-squamous subtypes.
"We have identified biomarker candidates and expect to launch this test in the second half of 2011," Berlin said.
"In addition to these tests, we are still reviewing areas outside of oncology, where we've identified four potentially large indications [and] we are currently developing plans to explore these opportunities," he added. Updates on this work will be provided "in the near future."
One area from which Rosetta has continued to pull back is miRNA therapeutics.
Once a key aspect of Rosetta's business strategy, developing drugs based on miRNAs has fallen by the wayside for the company as it focuses on diagnostics and finding partners interested in using the small, non-coding RNAs as biomarkers for drug development and salvation (RNAi News 3/18/2010).
For instance, Rosetta recently concluded a pilot arrangement with an undisclosed big pharma that wanted insight into why a phase III drug candidate failed in human studies. Rosetta was able to develop a miRNA assay that could distinguish between drug responders and non-responders using blood samples.
"Our strategy in therapeutics is longer term," Berlin said during the call. "For now, we will keep it on a low burn because we don't want to shut it off and lose our knowledge base, but we're just too small to simultaneously pursue … diagnostics, response biomarkers, and therapeutics.
"We'll keep our hand in microRNA therapeutics development … [and] take a more active role at a later date," he added.
For the three-month period ended March 31, Rosetta's revenues climbed to $27,000 from $17,000 the year before.
The company's net loss was essentially flat with the year before at $3.6 million, or $0.22 per share.
Research and development spending dropped slightly, to $1.7 million from $1.6 million, which the company attributed to lower intellectual property-related costs.
Marketing and business development costs jumped to $1.2 million from $864,000, however, reflecting an increase in salary expenses. General and administrative expenses slipped to $729,000 in the quarter from $750,000 in the same period the year before.
At the end of the first quarter, Rosetta had cash, cash equivalents, short-term bank deposits, and marketable securities totaling roughly $11.1 million.
Berlin said during the conference call that the company was not providing financial guidance due to uncertainty stemming from its dispute with Prometheus.