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Rosetta Defaults on Payment to Prometheus, Faces Bankruptcy

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By Doug Macron

Despite its early promise as one of the first players in the microRNA diagnostics space, Rosetta Genomics is facing bankruptcy, according to documents filed last month with the US Securities and Exchange Commission.

According to Rosetta, it has defaulted on a $650,000 payment it owed, with interest, to one-time marketing partner Prometheus Laboratories.

The terms of an arrangement between the companies state that Prometheus may declare the entire balance of a $1.4 million promissory note from Rosetta as immediately due and payable. Rosetta said in the filing that Prometheus has said it intends to do so.

Rosetta said that it is “currently pursuing arrangements that it believes would, if successful, allow it to pay the $650,000 principal payment, plus the accrued and unpaid interest thereon. However, there is no assurance that the company will be successful in its efforts, or, even if successful, that Prometheus will waive the default.”

Rosetta said that if it is unsuccessful in its fund-raising efforts or if Prometheus refuses to waive the default, it “may be required to file for protection under … bankruptcy laws.”

Rosetta officials were not available for comment.

The situation with Prometheus dates back to early 2009 when Rosetta licensed to the diagnostics firm the US market rights to its three lead miRNA diagnostics: miRview Mets; miRview Meso, which differentiates lung cancer from mesothelioma; and miRview Squamous, which is designed to differentiate squamous from non-squamous non-small cell lung cancer (GSN 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, while requiring Prometheus to share costs for the further development of the three miRview tests and other diagnostics.

However, it came to light last year that the companies were unable to agree on "the scope and funding of the development plan" outlined in their licensing agreement.

In an SEC filing, Rosetta also said that it had accused Prometheus of failing to use "commercially reasonable efforts" to market the three miRNA diagnostics, while Prometheus charged that Rosetta breached a stock-purchase agreement, signed at the time the licensing arrangement was consummated, that called for Prometheus 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.

About a year ago, the companies reached a settlement that required Rosetta to make a number of payments to Prometheus totaling $3.1 million (GSN 12/2/2010). The first payment of $1.2 million was due on Dec. 2, 2010. The payment of $650,000 — the third owed to Promethus — was due on Nov. 22, 2011. Still outstanding is a $750,000 payment due on May 22, 2012.

Rosetta last month began implementing a corporate restructuring that will eventually eliminate 35 jobs — more than half its staff — in an effort to conserve cash. As of Sept. 30, the company had $3.1 million in cash and cash equivalents on hand (GSN 10/13/11).


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