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Rosetta Stock Rises on Reverse Stock Split, Kidney Test Launch, Medicare Coverage of CUP Dx

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Shares of Rosetta Genomics got a major boost this week after the company effected a one-for-fifteen reverse stock split, and then announced it had launched a new microRNA-based diagnostic and had obtained Medicare coverage for its flagship cancer of unknown primary origin microRNA diagnostic.

Separately, Rosetta said that it had also entered into definitive agreements to sell to certain investors 632,057 of its ordinary shares at $3.50 a share for a total of $2.2 million, which would give the firm much-needed capital to fund its operations and pay off a lingering debt.

Rosetta's stock had been floundering lately as the company dealt with major financial issues including a brief flirtation with bankruptcy. Roughly two years ago, the stock had been trading for more than $100 a share, but since that time has been steadily falling, reaching about $0.14 per share just before the reverse stock split.

But following the split, which brought the shares up to around $1.60, and the latest news regarding Rosetta's miRNA tests, shares of the Israeli firm rocketed more than 350 percent, and were trading as high as $7.30 mid-week.

Struggling with the failure of its cancer diagnostics to generate significant revenues, last October Rosetta laid off more than half of its staff to cut costs (GSN 10/13/2011).

Despite the move, however, the company disclosed shortly thereafter that it was facing bankruptcy after defaulting on a payment owed to one-time partner Prometheus Laboratories to settle a dispute between the companies.

In early 2009, Prometheus signed on to be the exclusive distributor of Rosetta's miRNA diagnostics in the US. The deal included miRview Mets, which is used to identify the source of tumors of unknown and uncertain primary origin; 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

The deal also gave Prometheus the rights to a second-generation CUP test, called miRview Mets 2, 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.

The alliance began to fall apart amid the companies' failure to agree on "the scope and funding of the development plan" outlined in their licensing agreement, and allegations that Prometheus failed to use “commercially reasonable efforts” to market the miRNA tests.

Eventually, the two settled the dispute, with the product rights returning to Rosetta, which launched its own sales force to handle its miRview line in the US. Rosetta also agreed to pay Prometheus a total of $3.1 million in four installments.

Late last year, Rosetta defaulted on a $650,000 payment, and revealed in an SEC filing that it was facing bankruptcy if it couldn't make arrangements to meet the obligation (GSN 12/1/2011). Rosetta said later that it “cured” the default, although it provided no specifics on the matter. A final payment of $750,000 remains due on May 22.

In April this year, Rosetta disclosed in another SEC filing that it was once again facing bankruptcy, having just two months' cash on hand (GSN 4/5/2012). In the filing, the firm said that it intended to raise funding "through collaborative arrangements and public or private equity offerings and debt financings.”

In order to improve its position to do so and maintain its listing on the Nasdaq, Rosetta undertook the reverse stock split to prop up its flagging shares

Also contributing to the increased stock price is Rosetta's introduction of miRview Kidney, which is designed to use miRNA expression profiles to classify four common types of kidney tumors: clear cell renal cell carcinoma, papillary renal cell carcinoma, chromophobe renal cell carcinoma, and oncocytoma.

But perhaps the most important contributor to Rosetta's stock surge is the securing of Medicare coverage for miRview Mets 2.

According to the company, it was notified by designated Medicare administrative contractor Novitas that the test would be fully covered for all Medicare beneficiaries in the US, removing a key barrier to its adoption.

“Once the Novitas decision is finalized with respect to reimbursement level, we will focus our efforts on obtaining appropriate coverage and reimbursement from commercial payors,” Rosetta said.

“This decision is important not only because Medicare is the largest US payor, covering a large percentage of the patients for whom miRvew Mets 2 has been ordered historically and would be expected to be ordered in the future, but also because private payors often look to Medicare’s decisions when setting their own reimbursement policies,” Rosetta President and CEO Kenneth Berlin said in a statement.

“We look forward to continuing our dialogue with Novitas, and to their final decision on reimbursement level within the coming weeks,” he added.

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