This article has been updated from a version posted Nov. 29 to include information from the company's third-quarter conference call.
By Doug Macron
Rosetta Genomics last week announced that it has regained the US market rights to its three flagship cancer diagnostics, settling a nearly six-month dispute with one-time partner Prometheus Laboratories.
In exchange, Rosetta will pay Prometheus $3.1 million over the next year and a half.
Meanwhile, this week Rosetta announced that it has addressed a quality-control issue that potentially compromised the results of 102 of its miRview Mets diagnostic tests, which are designed to determine the source of cancers of unknown primary origin.
"During a routine quality-control testing, we identified a problem associated with certain reagents we prepared and used for testing," Rosetta CEO Kenneth Berlin said this week. "The problem may have potentially affected the reported results of 102 of the miRview Mets diagnostic tests performed in our lab in Philadelphia from August through October of this year."
"We quickly remedied the problem, instituted corrective measures to prevent the problem from occurring again, and re-tested all of the samples that may have been impacted," he added.
"We also worked with our distributors to notify clinicians whose samples were involved, recommending that they not incorporate the previous test results into their decision-making process until confirmation of validity was established through the re-testing process.
"The re-testing has now been completed and … we are in the process of providing clinicians with the results of the re-testing. We are confident that this reagent issue has been resolved and our new [quality assurance/quality control] measures should prevent such a problem from occurring again," Berlin said. "Moreover, we don't expect that this issue will result in material liability to the company."
He made his comments during a conference call held to discuss Rosetta's third-quarter financial results.
In early 2009, Rosetta licensed to Prometheus the US market rights to 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, in an SEC filing made public this June, Rosetta disclosed that the companies were having trouble agreeing on "the scope and funding of the development plan" outlined in their licensing agreement.
The filing also stated that Rosetta had accused Prometheus of failing to use "commercially reasonable efforts" to market the three miRNA diagnostics.
Meanwhile, Prometheus charged that Rosetta breached a stock purchase agreement signed at the time the licensing arrangement was consummated, the SEC filing stated.
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Under that agreement, Prometheus agreed 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. Rosetta said Prometheus is seeking a rescission of the stock-purchase deal. It was not clear whether the stock-purchase portion of the deal remains in effect.
During this week's call, Berlin said that the resolution of the dispute happened "suddenly and quickly," noting that the companies were engaged in an arbitration proceeding that was expected to last another two months.
Under the settlement, Rosetta will make a number of payments to Prometheus totaling $3.1 million. According to a company filing with the US Securities and Exchange Commission, the first payment of $1.2 million is due on Dec. 2. Additional payments of $500,000, $650,000, and $750,000 are to be paid by Feb. 28, 2011, Nov. 22, 2011, and May 22, 2012, respectively.
"We appreciate the initial commercial launch efforts undertaken by Prometheus for these three cancer diagnostic tests, especially as product demand has doubled in recent months," Berlin said in a statement. "Regaining US commercial rights to these tests provides Rosetta with a significant opportunity to develop potential new partnering and co-promotional agreements for some or all of our microRNA-based oncology diagnostics."
Rosetta has also regained the rights to the tests under development. The next-generation version of miRview Mets is slated for US launch before year end.
Berlin said during the conference call that Rosetta is "in the process of quickly evaluating what makes the most sense" in terms of marketing the miRview tests.
"The tests are available through us directly … but we're still very much in the process of evaluating" long-term options, he said.
A key factor is the speed with which Rosetta can find new marketing partners. "If it turns out that will take a long time, we will have to do a different option where we, perhaps, hire a small [sales] group," he said.
Currently, "there are several companies that have expressed interest in the products we have gotten back from Prometheus, and we will be engaging in discussions with those partners," he added.
For the three-month period ended Sept. 30, Rosetta's net loss rose to $3.4 million, or $0.20 per share, from a year-ago loss of $3.4 million, or $0.24 per share.
Revenues in the quarter were $136,000, versus no revenues in the same period a year earlier. Meanwhile, research and development spending slipped $100,000 to $1.7 million.
Marketing and business development expenses, however, increased to $1.1 million from $851,000, primarily due to an increase in salaries.
At the end of the third quarter, Rosetta had cash, cash equivalents, restricted cash, short-term bank deposits, and marketable securities totaling $4.7 million.
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