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Rosetta Files Amended IPO Prospectus; Lowers Price Range and Ups Number of Shares Offered

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Rosetta Genomics this week lowered the target price range for its proposed initial public offering on the Nasdaq exchange while increasing the number of shares it plans to float, according to an amended prospectus the company filed with the US Securities and Exchange Commission.
 
While the move has cut Rosetta’s anticipated net proceeds from the offering, it lays to rest speculation that the company had dropped its plans to become the first publicly traded, pure-play microRNA firm.
 
Additionally, the new IPO would not alter Rosetta’s ability to generate enough cash to fund its R&D programs at the same level of its scuttled offering plan, the company said.
 
According to Rosetta’s amended IPO filing, the company plans to sell 3.75 million shares of its common stock at a range between $7.50 and $8.50 a share. In addition, the underwriters of the IPO have been given an over-allotment option to purchase an additional 562,500 shares.
 
Assuming an IPO price of $8 per share and no exercise of the over-allotment option, Rosetta expects to net $26.1 million from the IPO. With the over-allotment option and an $8-a-share price, the company said the IPO would be worth $30.3 million.
 
At the completion of the IPO, Rosetta said in its amended prospectus that there will be approximately 11.3 million shares of its common stock outstanding, and noted that its directors and executives, along with their affiliates, will own about 23.1 percent of the company’s outstanding shares.
 
Rosetta Chairman and CEO Isaac Bentwich alone is expected to hold about 19.6 percent of the company following the transaction, assuming an $8 per share offering price and no exercise of the underwriter’s over-allotment option.
 
Officials from Rosetta were unable to comment on the amended prospectus because of SEC “quiet period” regulations.
 
Taken Down a Notch
 
Rosetta first filed to float its shares in the US last September, targeting an $11 to $13 per share price range for as many as 3.45 million shares (see RNAi News, 9/7/2006), which would have made the IPO worth up to $44.85 million.
 
While there is no set schedule for the time between when a company files its prospectus and when it floats its shares, the timeline is typically three to six months. By late November, Rosetta had not made a move to follow through with the offering and a report surfaced that the company had dropped its plans to go public amid unfavorable market conditions (see RNAi News, 11/22/2006).
 
With the filing of the amended prospectus this week, however, it appears that Rosetta still believes that Wall Street is willing to embrace what will be the first publicly traded, pure-play miRNA firm — albeit at a discount — and that the company will meet its previously stated goal of getting its shares onto the Nasdaq this year.
 
In late 2005, Bentwich revealed to RNAi News that his company was aiming to float its shares in the US as part of a broader corporate strategy designed to position the firm as a key player in miRNA consumables, diagnostics, and therapeutics (see RNAi News, 11/4/2005).
 
Despite the lowering of its target share price, the currently proposed IPO is still expected to give Rosetta enough cash to fund its R&D programs at the same level it had previously detailed in its first prospectus.
 
According to the amended prospectus, about $17 million from the proceeds of the offering will be used to fund research and development activities. Of this amount, $3 million will be used to support the continued development of the firm’s lung and prostate cancer diagnostics, being conducted with US Genomics (see RNAi News, 5/25/2006) and Asuragen (see RNAi News, 1/19/2006), respectively.
 

Despite the lowering of its target share price, the currently proposed IPO is still expected to give Rosetta enough cash to fund its R&D programs at the same level it had previously detailed in its first prospectus.

About $6 million will be used to fund Rosetta’s in-house colorectal cancer and breast cancer diagnostic programs, while roughly $4 million will go towards the company’s in-house cancer of unknown primary site diagnostic program.
 
An estimated $4 million will be used to fund the development of a liver cancer therapeutic being developed in collaboration with Isis Pharmaceuticals (see RNAi News, 2/23/2006).
 
Rosetta added in the amended prospectus that roughly $2.5 million from the IPO will fund intellectual property licensing and protection efforts, while about $6.6 million will go to business development activities such as personnel costs, legal and administrative fees, and general corporate purposes.
 
Higher Costs Lift Losses
 
Also in the amended prospectus, Rosetta provided its financial results for the nine months ended Sept. 30, 2006, in which it reported a rise in its net loss amid higher expenses and zero revenue.
 
The company posted a net loss of $5.5 million, or $2.16 per share, for the nine-month period versus a net loss of $4 million, or $1.62 a share, a year earlier.
 
Research and development spending rose 62 percent to $3.4 million in the period from $2.1 million, reflecting an increase of $320,000 in purchasing tissue samples and other research materials, an increase of $286,000 in salaries and related expenses for R&D staffers, and an increase of $404,000 in costs tied to IP and license fees.
 
Marketing and business development costs jumped to $1.1 million from $602,000, an 85 percent increase, partly as a result of higher spending associated with negotiating and executing collaborations. Meanwhile, general and administrative costs climbed to $1.4 million from $931,000 in the nine-month period ended Sept. 30, 2005, in part due to the addition of new management team members.
 
As of Sept. 30, 2006, the company had cash and cash equivalents totaling $34.3 million.

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