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After Raising Cash, Rosetta Aims to Restart R&D Efforts, Get Additional Medicare Approvals

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Buoyed by a series of successful equity offerings and the recent issuance of Medicare coverage for its lead microRNA diagnostic, Rosetta Genomics is planning to restart a number of its pipeline programs that had been shelved last year as part of a cost-control effort, the firm's top executive said this week.

Meanwhile, the firm is focused on getting reimbursement approval for its other miRNA tests already on the market, while keeping an eye out for big pharma partnerships that could further bolster its cash position, Rosetta President and CEO Kenneth Berlin said during a conference call.

Rosetta this week also released its financial results for the first six months of the year, reporting increased losses despite lower operating costs.

Last year, Rosetta was on the ropes, facing bankruptcy amid a severe cash crunch. Contributing to its woes were $3.1 million in payments it needed to make to Prometheus Laboratories, the former US distributor of its suite of miRNA diagnostics, to settle a dispute over the arrangement and regain access to the tests (GSN 12/2/2010).

As reported by Gene Silencing News, Rosetta was unable to keep up with its obligation to Prometheus, and by December 2011 was facing bankruptcy after defaulting on one of the payments it owed, although it later found the money.

Also around the end of last year, Rosetta undertook a restructuring that saw the elimination of 35 jobs, a move designed to reduce its burn rate by half (GSN 10/13/2011). As part of the cost cutting, Rosetta also continued a freeze on its development-stage products, including promising ones centered around miRNAs obtained from biofluids, so that it could focus on its already-launched diagnostics.

Rosetta's product portfolio includes its flagship miRview Mets 2 test, a second-generation version of an assay used to determine the source of cancers of unknown primary origin; and its miRview Lung test, which differentiates neuroendocrine tumors from non-small cell lung tumors, and then subtypes neuroendocrine tumors into small cell lung cancer and carcinoid, and non-small cell lung tumors into squamous and non-squamous.

Rosetta also sells miRview Squamous for the differentiation of squamous from non-squamous non-small cell lung cancer; miRview Meso for the differentiation of malignant pleural mesothelioma from carcinomas in the lung and pleura; and miRview Kidney for the differentiation of the main histological types of primary kidney tumors.

The company's troubles persisted into this year, when in April Rosetta warned that it was once again looking at potential bankruptcy, having only enough funds on hand to maintain its operations into late May (GSN 4/5/2012).

The next month, however, the company's fortunes improved. Rosetta undertook a reverse stock split that helped it regain compliance with the Nasdaq's listing requirements, and, most importantly, it received Medicare coverage for miRview Mets 2 (GSN 5/17/2012).

Around that time, Rosetta also raised $6 million through a direct stock offering. Then, around the end of June, the company pulled in $27.5 million through another public offering, although that figure eventually rose to $31.6 million following the underwriters' exercise of their overallotment option to buy additional shares.

During the conference call, Rosetta CFO Ron Kalfus noted that Rosetta now has enough cash on hand to fund its operations for approximately the next 24 months, although he declined to provide burn-rate guidance.

Now financially stable, Rosetta has begun to look at restarting a number of the research and development programs it previously put on hold, although it has yet to work out the specifics.

“Our strengthened financials allow us to reinvigorate these … efforts,” Berlin said. “Right now, we're conducting a pipeline analysis in order to prioritize projects and make decisions moving forward.”

Additional details will be made public in upcoming conference calls, he added.

Meantime, Rosetta is also looking to renew its partnering efforts, particularly in the area of companion diagnostics, Berlin said.

Given the low success rates in bringing new therapeutics to the market, “drug companies are investing more in identifying the patient subpopulations most likely to respond to their drug candidates to increase efficiency in drug development, as well as to increase the probability of regulatory and reimbursement success,” he explained. Given that Rosetta has previously collaborated with undisclosed pharmaceutical companies in this area before, it is aiming to ramp up efforts to secure similar deals going forward.

However, the company's top priority right now is miRview Mets 2, Berlin said.

“With an addressable market of approximately 200,000 patients in the US each year, and with favorable Medicare reimbursement, it ... represents the largest near-term market opportunity for us,” he said. “Currently, we're being reimbursed as a high-value molecular diagnostic, and are currently receiving approximately $3,570 per test. Assuming an average selling price of $3,000 per test, we are looking at an approximately $600 million total available market opportunity.”

He cautioned that it would take time to penetrate the cancer of unknown primary origin diagnostic market, but said that “even modest market penetration can provide us with significant revenues and good margins.”

Separately this week, Rosetta announced that it had formally launched miRview Mets 2 in the US in collaboration with its co-marketing partner Precision Therapeutics. Berlin said that his company is also planning to add to its existing in-house sales team, which was established following the termination of the Prometheus alliance.

But with its other tests already commercialized, Rosetta is also taking steps to improve their market adoption, primarily by securing Medicare coverage for them.

“We've developed a very good relationship with our local Medicare contractor,” Berlin said. “We have very open lines of communication with them and have been going back and forth” on gaining clearance for the firm's other diagnostics, primarily miRview Lung and miRview Kidney.

He said it would be difficult to estimate when Medicare reimbursement approval might be granted, but indicated that miRview Lung would likely be the next to get the green light given the amount of data and peer-reviewed publications on the test compared with the others.

The Financials

For the six-month period ended June 30, Rosetta reported a net loss of $6.6 million, or $5.35 a share, versus a year-ago loss of $4.5 million, or $8.34 a share. The higher loss per share in the first half of 2011 was due to the significantly fewer shares used to calculate the figure.

Operating expenses in the period fell to $3.2 million from $4.6 million last year, reflecting the impact of the company's cost-cutting initiative and headcount reduction.

Revenues in the first half of 2012 were essentially flat with the year-ago period at $51,000.

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