Rosetta Genomics: Unrecognized and Undervalued Print E-mail
By Joseph Kreueger   
Tuesday, 09 March 2010 01:58

MicroRNAs are naturally produced, using instructions encoded in DNA and are used in regulating protein production. Rosetta Genomics Ltd. (NasdaqGM: ROSG) is a leading developer of microRNA-based molecular diagnostics.

Scientists at Rosetta have discovered hundreds of biologically validated novel human microRNAs that have a wide variety of potential medical uses. The company filed more than 35 patent applications in the U.S. and more than 36 patent applications worldwide to protect each aspect of its commercial diagnostic products. Many of these applications protect the specific microRNAs used in the company’s products. In addition, the company is pursuing more than 50 patent applications to protect methods of detecting microRNAs and methods of diagnosing and treating diseases with microRNAs.

“Rosetta Genomics owns or has access to intellectual property related to microRNAs that is among the broadest of any commercial entity, and these two notices of allowance further solidify our position,” said Kenneth A. Berlin, president and chief executive officer. “Our patent applications and issued patents cover approximately 51% of publicly registered microRNAs, plus 168 non-public, newly discovered microRNAs. microRNAs are at the forefront of an exciting revolution in personalized medicine and we believe that Rosetta is leading the way in diagnostic uses as we harness this knowledge to advance our deep pipeline of products.”

The company’s first three microRNA-based tests, miRview™ squamous, miRview™ mets, and miRview™ meso, are commercially available through its Philadelphia-based CLIA-certified lab. Rosetta Genomics is the 2008 winner of Wall Street Journal’s Technology Innovation Awards in the medical/biotech category. With all this in mind it may not be a big surprise that Rosetta has earned very bullish recommendations by analysts. But what the average investor may not grasp is that Rosetta is a leader in a brand new field of diagnostic, preventative, and practical medicine that relies on understanding and utilizing the biology of microRNAs. This field is just now being incorporated into pharmaceutical drug development, and the next generation of drugs will definitely be centered around the use of microRNAs as diagnostics of therapies.

MicroRNAs were only discovered less than 10 years ago and only recently have scientist begin to understand how they relate to diseases. Previous to the discovery of miRNAs, biologists focused on genes affecting disease: A mutation in gene or amplification of a gene and the functional product of the gene would cause disease. This has been the emphasis of scientific studies since the completion of the Human Genome Project which gave us the entire sequence of our DNA. But scientists remained perplexed about all the “junk”, or non-coding DNA and what its role was. Now scientists understand that some of this “junk” DNA is actually full of functional DNA that may in fact be more important than the genes themselves.

Normally the activity of a gene is controlled by another gene or a combination of a couple genes; but once activated that single gene only makes one gene product. Indeed, that one gene product may be the cause of a disease, but in most cases a disease is influenced by ten or twenty genes working together. Currently, pharmaceutical companies design drugs that target only a single gene product, and thus the drug only has a limited effect.

However, it has been discovered that a single type of microRNA can influence dozens of genes! MicroRNAs accomplish this by binding to the gene message (RNA) of multiple genes and causing them to be degraded. Thus, a single miRNA essentially “reprograms” the entire cell by influencing entire networks of genes. MicroRNAs are so potent, that a single miRNA can turn a less harmful benign cell into a aggressive and metastatic cancer cell, or vice-versa. Thus, understanding and utilizing miRNAs to treat disease in essence offers the power of dozens of drugs targeting specific gene targets.

As well, because of the power of these miRNAs, detecting their presence of absence can be used to diagnose disease in the absence of any clinical method of detection. For example, miRNA can be found in people’s blood, and the presence of a certain type of miRNA using a blood test can signal the presence of disease not clinically detectable. As well, the miRNA can tell the clinician how far the disease has progressed and this information can be used to decide the course of therapy. This method is so sensitive that only a single cell is needed to detect miRNAs. As well, archived tissue even 10 years old can be analyzed, not requiring an immediate analysis. This provides flexibility and high value practicality for simple incorporation into established medical practices.

MicroRNA profiling is clearly the backbone of personalized medicine, where drugs are matched to an individual’s genetic profile. Using the miRNA as a biomarker, patients will be pre-selected for a treatment with particular drug related to the function of the miRNA. This requires the development of a companion diagnostic to select for the suitable patients, which in three cases Rosetta has already developed. These are a series of microRNA-based diagnostic products offered by Rosetta Genomics called miRview™. miRview™ mets accurately identifies the primary tumor site in metastatic cancer and Cancer of Unknown Primary. miRview™ squamous accurately identifies the squamous subtype of NSCLC, which carries an increased risk of severe or fatal internal bleeding and poor response to treatment for certain therapies. miRview™ meso diagnoses mesothelioma, a cancer connected to asbestos exposure. These tests are provide objective diagnostic data to diagnose and administer the appropriate treatment to the patient.

In addition, the association of a particular miRNA with a disease directly tells us what genes influence a disease. For example, miR-527 has recently been shown by Rosetta to be a predictor of progesterone receptor status in breast cancer. As well Rosetta has shown that miR-491 is involved in colorectal cancer and liver necrosis, and miR-135b is highly expressed in colon cancer specimens relative to normal colon tissues. Drugs can be developed around the gene targets of these miRNAs to treat disease.

Indeed, this is the clear future of Rosetta. In partnership with Rosetta, companies will create new medicines to meet the targets of miRNAs identified by Rosetta. As well, Rosetta will provide the companion diagnostic to select patients for treatment. The drugs and companion diagnostics will be combined to treat the patients with the genetic markers which predispose a patient to a disease and also to respond to a particular drug This powerful combination of diagnostic/patient selection/targeted therapy will result in high success for the treatment.

Even though the science is complicated, you don’t need to be a medical professional to see the potential in Rosetta’s product for helping the treatment of diseases. As an investor you can see direct application of Rosetta’s products in medical diagnosis and treatment, and how pharmaceutical companies will incorporate Rosetta into the development of their drugs. In the future, we expect to hear news about lucrative partnerships between Rosetta and large pharmaceutical companies.

Currently ROSG is at a tremendous bargain price for biotech investors. Its initial IPO price in 2007 was $7, with analysts setting a one year price target of $11 to $15. Since then, ROSG has spent much of its IPO funds but has performed well, generating the 50+ patents, 3 diagnostic tests, and capturing 50% of the current intellectual property (IP) surrounding commercial use of microRNA’s. The other major player in this field is ISIS Pharmaceuticals, who has captured most of the remaining IP space. With a tiny market cap of less than $20 million compared to $800 million for ISIS, it seems probable that ISIS may acquire ROSG for their intellectual property. Even at a substantial premium, this would be a bargain for ISIS.

ROSG recently raised $5 million in February at a share price of about $2.25. With about $8 million in cash, no debt, and a strong IP franchise, ROSG is currently trading below its calculated book value of $2.25. Recent price targets for ROSG include $3 from Cantor Fitzgerald and $5 from Rodman and Renshaw. However, these price targets are based on the solo development of Rosetta’s business plan and don’t reflect the strong possibility of a lucrative partnership for drug development or companion diagnostic using their microRNA platform in the marketing of the next generation of drugs.

Perhaps ROSG is so undervalued because the average investor has a hard time understanding the complicated science behind its products. Investors who understand the science, however, are quite bullish on ROSG.

Given its small market capitalization and the incredible practical value in its pipeline, Rosetta is potentially an acquisition target at a substantial premium.

The sound science and changing strategies in pharmaceutical drug development give Rosetta a yet unrecognized value way beyond its current share price, and this is clearly what has made some of the top biotech analysts bullish about ROSG.


Disclosure: long ROSG

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