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Rosetta Files to Float 3.45M Shares on Nasdaq; Israeli microRNA Firm Could Net $37.1M in IPO

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Rosetta Genomics last week filed with the US Securities and Exchange Commission to sell its shares on the Nasdaq exchange, making the privately held Israeli company the first pure-play microRNA firm to try to go public.
 
According to the company’s prospectus, dated Sept. 1, Rosetta intends to float 3 million shares at between $11 and $13 each. It also plans to grant the underwriters of the initial public offering — CE Unterberg Towbin, Oppenheimer & Co., and Maxim Group — an over-allotment option to buy an additional 450,000 shares, bringing the maximum total value of the IPO to $44.85 million.
 
Assuming an IPO price of $12 per share and the exercise of the underwriters’ over-allotment option, Rosetta said it will net roughly $37.1 million through the offering. Of this total, the company said about $17 million will be used to fund research and development work, about $2.5 million will go towards licensing and protecting intellectual property, and approximately $12.6 million will support business development operations and general corporate activities.
 
The company has filed to sell its stock under the ticker symbol “ROSG.”
 
While there is no set schedule for the time between when a company files its prospectus and when it floats its shares (if the IPO goes forward at all), the timeline is typically three to six months, which puts Rosetta on track to begin trading its stock in the US next year — a corporate goal Chairman and CEO Isaac Bentwich revealed to RNAi News on the sidelines of the Nucleic Acid World Summit last November (see RNAi News, 11/4/2005).
 
At the time, Bentwich said that Rosetta was planning for a 2007 IPO, but only after meeting certain key milestones: striking “three or four … significant, money-making deals with leading biotech and major pharma companies” for miRNA diagnostic and therapeutic development; making progress in building up its IP portfolio; and establishing "a broad net of collaborations with academia.”
 
Given its filing of an IPO prospectus, it seems Rosetta is confident it has met these goals — and heretofore undisclosed details about the company’s operations provided in the SEC filing suggest the same.
 
Rosetta officials declined to comment on the planned IPO, citing the SEC’s “quiet period” regulations.
 
Industry Deals
 
In April 2005, Rosetta formed the first of its four major industry partnerships, signing a deal with Ambion — which was acquired by Applied Biosystems earlier this year (see RNAi News, 1/5/2006). Under the deal, Ambion received a non-exclusive license to all Rosetta’s miRNA sequences for use in reagents research services (see RNAi News, 9/16/2005).
 
In its prospectus, Rosetta noted that it received upfront payments deductible against future royalties, and stands to receive additional royalty payments based on product and services sales. Thus far, Rosetta has received $228,000 under the deal, the company said in the SEC filing.
 
Rosetta’s second industry collaboration was established about nine months later with Asuragen, the diagnostics and services division of Ambion not acquired by ABI (see RNAi News, 1/12/2006). Under this arrangement, the companies are working together to develop miRNA-based prostate cancer diagnostics (see RNAi News, 1/19/2006).
According to Rosetta’s SEC filing, the companies are initially working on their own to identify “prostate-specific opportunities and potential markers,” as well as to develop “platform technologies that could be used in the creation of diagnostic assays that can be incorporated into potential products for the diagnosis of prostate cancer.” Following this period of independent work, the companies will meet to exchange data and establish a plan to co-develop actual products and services.
 
During the collaborative phase of their alliance, Rosetta will assist Asuragen in discovering and validating markers for a diagnostic assay. Asuragen will be responsible for developing and commercializing the assay, as well as obtaining regulatory approvals. Rosetta stands to receive royalties on the sale of diagnostic products developed under the deal.
 
Rosetta noted in its prospectus that it plans on using about $1.5 million from the proceeds of the IPO to fund this project.
 
Rosetta’s third industry collaboration was also struck this January. Under this deal, the company is working with antisense firm Isis Pharmaceuticals to discover and develop miRNA-targeting drugs for hepatocellular carcinoma (see RNAi News, 2/23/2006).
 
After an initial two-year period, during which time the companies will fund their own research efforts, Rosetta and Isis will decide whether to collaborate on drug candidates resulting from their work, according to Rosetta’s prospectus. Should one party not want to move forward, the other may license the candidate in exchange for milestones and royalties. If neither company wishes to develop a product, a third-party licensee will be sought.
 
Rosetta said it would use about $4 million from the IPO to support its liver cancer research.
 
Rosetta added in its SEC filing that a conditional $1 million grant was awarded by the Israel-US Binational Industrial Research and Development Foundation in June to fund its liver cancer work with Isis. Each company received $500,000, but is obligated to repay the money if an investigational new drug application is filed within 36 months. Should no IND be filed, the grant does not need to be repaid.
 
Receipt of the grant money is contingent on the signing of a definitive funding agreement between the companies and BIRD, Rosetta noted.
 
Rosetta’s fourth industry partnership was signed in May with US Genomics and focuses on the development of an miRNA-based lung cancer diagnostic (see RNAi News, 5/25/2006). According to Rosetta’s filing with the SEC, this deal calls for Rosetta to obtain clinical samples and provide US Genomics with purified RNA.
 
US Genomics will conduct all experimental work during the clinical phases of the partnership and will be responsible for “any commercially reasonable platform development work necessary for the development of the project,” Rosetta said in its prospectus. US Genomics will also provide Rosetta with the technological platforms and reagents necessary to develop a lung cancer test.
 
Rosetta has a non-exclusive license to use US Genomics IP in the development and commercialization of the miRNA diagnostic, as well as the right to sublicense. In exchange, US Genomics is entitled to royalties on product sales and a percentage of sublicense revenues. (see RNAi News, 5/25/2006)
 
About $1.5 million from the IPO proceeds will be used to fund this work, Rosetta said in its prospectus.
 
IP
 
A strong IP estate has long been key to Rosetta’s game plan since its inception in 2000. When Bentwich spoke with RNAi News last November, he said that his company expects to ultimately own “50 to 80 percent of the microRNAs in the world. The patents we have filed basically claim anything and everything beyond the 200 [miRNAs] that were found by others,” he said at the time.
 
In its prospectus, Rosetta noted it believes it was the “first commercial enterprise to focus on the emerging microRNA field, and as a result [it has] developed an early and strong intellectual property position.”
According to the company, as of August 31, it had 49 pending patent applications in the miRNA field including 42 US patent applications, 5 PCT applications, and two European applications. Of these, 27 claim human miRNAs, 13 claim viral miRNAs, three claim bacterial applications of miRNAs, and six contain claims related to Rosetta’s discovery process.
 
Five of the applications contain claims related to prostate, liver, lung, and bladder cancer diagnostics, as well as prostate cancer therapeutics.
 
In its prospectus, Rosetta provided an overview of its three-tiered IP strategy, which comprises filing composition-of-matter patent applications on informatically identified miRNAs, composition-of-matter applications on biologically validated miRNAs, and method-of-use applications.
 
The applications thus far filed under the first tier “claim approximately 10,000 microRNAs that we identified using [the company’s bioinformatics discovery process] and that we believe are likely microRNA candidates,” Rosetta said. “Based on our understanding of their sequences and identified targets, we have applied for patent protection on each of the predicted microRNAs and their variants. We have filed 38 patent applications with composition-of-matter claims related to informatically predicted microRNAs and we expect to file additional first tier applications in the future.”
The second-tier applications the company has filed cover miRNAs that have been detected by microarrays or that have been biologically validated using qRT-PCR. “In addition to the function and utility based on informatically calculated targets, microRNAs claimed in these patent applications are further described as potential markers of a disease, as supported by differential expression of these microRNAs in healthy versus diseased tissue,” Rosetta said. “We have filed 13 patent applications with composition-of-matter claims related to validated microRNAs and we expect to file additional second-tier applications in the future.”
 
The final tier includes patent applications claiming methods of using miRNAs such as diagnostics and therapeutics. “In the future, we expect that this tier of patent applications will include applications which we will file ourselves and those that we will file jointly with academic, medical, and commercial partners with whom we collaborate,” the company said in its prospectus. “We have filed five patent applications with method of use claims related to diagnostic and therapeutic uses of microRNAs.”
 

Rosetta said it believes it was the “first commercial enterprise to focus on the emerging microRNA field, and as a result [it has] developed an early and strong intellectual property position.”

Rosetta has also signed a series of miRNA IP deals with academic institutions, including one with the Max Planck Society under which the company received a license to about 110 validated human miRNAs for diagnostic applications; one with Johns Hopkins University for a license to roughly 130 validated human miRNAs, discovered in collaboration with Rosetta, for any application; and one with Rockefeller University for a license to about 50 validated human miRNAs and 30 validated viral miRNAs for diagnostic applications.
 
Academic Collaborations
 
In addition to its licensing deals with Max Planck, Johns Hopkins, and Rockefeller University, Rosetta has also formed collaborations with a number of research institutions as part of its effort to knit together the broad net of academic collaborations Bentwich said was vital to the company’s success as a public entity.
 
According to the prospectus, Rosetta formed a partnership in May 2005 with Hadassah Medical Organization to develop an miRNA-based treatment for hepatitis C infection. The company is also working with the CBR Institute for Biomedical Research, an affiliate of Harvard Medical School, to identify HIV miRNAs and human miRNAs affected by HIV infection.
Rosetta also said in its prospectus that it has a collaboration with Ben-Gurion University of the Negev to examine human and viral miRNAs in order to develop treatments for a variety of infectious diseases including influenza A, herpes 1 and 2, respiratory syncytial virus, Epstein-Barr, and several strains of human papilloma virus. The company is also working with the Weizmann Institute of Science to research the roles of certain miRNAs in cancer.
 
The Financials
 
In its IPO prospectus, Rosetta also broke out its financial results for the first half of 2006. The company reported zero revenues for the first six months of this year, but noted that it expects to generate some revenues in 2006 from royalties on the sale of research products and services under the terms of its deal with ABI.
Meanwhile, research and development spending in the six-month period ended June 30 jumped 52 percent, to $2 million from $1.3 million. The increase is in part due to the purchase of tissue samples and other research materials.
 
Marketing and business development costs nearly doubled during the first half of 2006, surging to $834,000 from $432,000 as Rosetta expanded its US-based activities and hired additional staff. The company maintains facilities in New Brunswick, NJ.
 
General and administrative costs climbed during the first half of 2006 to $649,000 from $530,000, in part due to the hiring of new management team members.
 
Rosetta posted a net profit of $236,000 during the first six months of the year, compared with a loss of $154,000 in the year-ago period. The company said the income was derived primarily from interest on bank deposits.
 
As of June 30, Rosetta had cash, cash equivalents, and short-term bank deposits of $15.5 million.
 

 
SEC Filing Gives Insight into Rosetta In-House Dx Programs
 
In addition to its diagnostic collaborations in prostate and lung cancer, Rosetta noted in its SEC filing that it is developing on its own tests for colorectal cancer, cancer of unknown primary site, and breast cancer.
 
According to the company, the current standard screening methods for colorectal cancer are colonoscopy and the fecal occult blood test. The colonoscopy, though effective, is expensive and uncomfortable, while the fecal occult blood test is relatively inaccurate. Additionally, the standard of care includes adjuvant chemotherapy, which benefits only a small percentage of patients, and there is no test to help physicians determine what kind of chemotherapy to use, if any at all.
 
“To address these market needs, we are working to develop a microRNA-based panel of biomarkers,” Rosetta said. “We have obtained samples of healthy and tumorous colon tissue, and have measured and analyzed the microRNA expression profiles of those samples.”

The company said it has already identified four miRNAs that are expressed differently between healthy and diseased tissue samples, and that it is currently validating the results and correlating them to specific disease parameters such as survival.

 
The company plans to use about $3 million from the IPO to fund its colorectal cancer diagnostic research.
 
Rosetta also said in its prospectus that between 3 percent and 5 percent of the 1.4 million malignancies that will be diagnosed in the US this year will be metastases of unknown primary site, which presents “a therapeutic dilemma because the therapeutic regimens of cancer patients are dependent on the origin of the primary tumor.”

“To address this issue, we are developing a microRNA panel to identify the site of primary tumor,” the company said. “We have obtained samples from six different sites of origin and have measured and analyzed the microRNA expression profiles in those samples.”
 
Rosetta said that its findings indicate that the expression of six miRNAs can potentially be used to serve as the basis of a diagnostic biomarker panel. Further work on this project is ongoing.
 
The company noted that it expects to use about $4 million worth of the IPO proceeds to support its CUP activities.
 
Rosetta said that it is also working to develop a diagnostic for breast cancer, and that it has established relationships with various organizations in order to obtain clinical samples for analysis.
 
“Our initial focus is on developing diagnostic tests to determine risk of recurrence and whether a patient will benefit from adjuvant chemotherapy,” Rosetta said. The company has earmarked $3 million from the expected IPO proceeds for this work.

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