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With Just Two Months' Cash on Hand, Rosetta Genomics Again Facing Bankruptcy

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By Doug Macron

Rosetta Genomics this week revealed that it is once again facing the possibility of bankruptcy amid falling revenues and continued payments to settle a contract dispute with one-time distribution partner Prometheus Laboratories.

“Based on our current operations, our existing funds … will only be sufficient to fund operations until late May 2012,” which also raises doubts about the company's ability to meet its goal of launching a new microRNA-based diagnostic by the middle of this year, Rosetta said in a filing with the US Securities and Exchange Commission.

“We intend to seek funding through collaborative arrangements and public or private equity offerings and debt financings,” it said. However, “additional funds may not be available to us when needed on acceptable terms, or at all.

“Our failure to raise capital when needed will materially harm our business, financial condition and results of operations, and may require us to seek protection under the bankruptcy laws of Israel and the United States,” Rehovot, the Israel-based firm added in the filing.

Rosetta has been struggling financially for some time as its suite of cancer diagnostics has failed to generate significant revenues, and had earlier this year warned that it might need to file for bankruptcy if it couldn't make payments to a former partner. Although it was able to stay afloat, its money woes remain.

A pioneer in the miRNA field, Rosetta has four commercialized products: miRview Mets, which is designed to identify the primary source of tumors of unknown origin; miRview Lung, which differentiates primary lung tumors into small cell lung cancer, carcinoid, and squamous and non-squamous non-small cell lung cancer; miRview Squamous, which helps identify squamous from non-squamous non-small cell lung cancer; and miRview Meso, which differentiates malignant pleural mesothelioma from other lung cancers.

The firm maintains a number of deals with distributors to sell the tests in other markets, including ones with Genetic Technologies covering Australia, New Zealand, and Singapore; Teva Pharmaceuticals covering Israel and Turkey; and Warnex Medical Laboratories covering Canada.

In early 2009, Rosetta inked a deal giving Promethus the US rights to miRview Meso, the first and second generations of miRview Mets, and miRview Squamous (GSN 4/19/2009). About a year later, however, Rosetta disclosed that the companies were at odds over the terms of their arrangement.

Specifically, the two were "in disagreement with respect to the scope and funding” of a new-product development plan covered in their existing deal, Rosetta said in an SEC filing at the time (GSN 6/3/2010). Additionally, Rosetta alleged that Prometheus was not using “commercially reasonable efforts” to market the diagnostics, while Prometheus charged that Rosetta had breached a stock-purchase agreement.

A settlement was ultimately reached, returning the products' rights back to Rosetta but requiring that the company make a series of payments to Prometheus totaling $3.1 million (GSN 12/2/2010).

Unable to find a partner to replace Prometheus, in early 2001 Rosetta opted to build its own sales force to market its diagnostics in the US, adding to its overall expenses (GSN 4/7/2011). Within a few months, the company was forced to restructure, cutting around 35 of its 54 employees in a bid to halve its burn rate while maintaining its new sales team (GSN 10/13/2011).

Still, Rosetta was unable to keep up with its obligations to Prometheus, and in December reported that it was facing bankruptcy after defaulting on a $650,000 payment due the month before (GSN 12/1/2011). Rosetta managed to eventually find the money for Prometheus, but still owes a final payment of $750,000 on May 22.

At the same time, the company has been dealing with sliding revenues. According to a filing with the SEC this week, Rosetta's 2011 revenues were $103,000, down from $279,000 the year before and lower than the $150,000 generated in 2009.

Total operating expenses in 2011 fell significantly, to $8.6 million from $13.6 million the year before, reflecting the impact of the corporate reorganization. However, Rosetta ended the year with just $735,000 in cash and cash equivalents.

As a result, the company said in its SEC filing that it believes its current financial position, along with expected funding from collaborations and license agreements, will be sufficient to fund operations only for a couple of months.

Rosetta noted that it is exploring various “financing transaction,” but its options are limited.

The company already sold off its stake in ag-bio spinout Rosetta Green for $900,000 in December (GSN 12/22/2011) and last month failed to consummate a technology-licensing deal that would have raised $1.25 million (GWDN 3/16/2012).

It said that it expects to augment its cash balance through the issuance of debt or equity securities and further strategic collaborations.

If it is unable to do so, it may need to delay or eliminate certain research and development programs, Rosetta warned. Currently, the company is planning to introduce its next miRNA diagnostic, miRview Kidney for the differentiation of the four main histological types of primary kidney tumors, in the second half of this year.

Rosetta added that it may also be forced to enter collaborations or other agreements on “terms unfavorable to us or that may require us to relinquish rights to certain technologies or products that we might otherwise seek to develop or commercialize independently;” pursue a merger or acquisition; or file for bankruptcy protection.


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