Wednesday, May 16, 2012

Rosetta Genomics Obtains First Medicare Coverage of a MicroRNA Dx

It all looked like it would be the first commercial success story of small silencing RNAs when Rosetta Genomics launched a series of microRNA tests in late 2008, among them mirView Mets for the identification of the tissue origin of Cancers of Unknown Primary (CUP).  This PCR-based test took advantage of two critical properties of microRNAs for cancer diagnostics: 1) stability (unlike messenger RNAs used e.g. in the comparable PCR-based Oncotype Dx test by Genomic Health, microRNAs are relatively stable); 2) surprisingly informative on cancer biology.

[Correction May 17, 2012: While the first-generation miRview Mets test was qRT-PCR-based, the Medicare-covered second-generation miRview Mets2 involves the parallel detection of 64 microRNAs on a micro-array.]

Less than four years after the launch, however, the test (actually that of the improved version miRview Mets 2) was hardly selling (less than $100k/quarter) and Rosetta Genomics, which only yesterday had a market cap of ~2M with important chunks of debt maturing next week and in early 2013, was fast approaching bankruptcy, this time for real it seemed. Matters were made worse after falling out with former US distribution partner Prometheus Labs.

However,  the CUP Dx market should have been an attractive half-a-billion-dollar opportunity with approximately 150-200,000 cancer patients in the US alone that may benefit from such tests according to Rosetta Genomics and its closest competitor, Pathway Diagnostics.  By determining the tissue origin of metastatic cancers and of primary tumors that are highly dedifferentiated and where this is not possible by other means (such as classical histological examination), the tests would aid in the diagnosis of the cancers, thus informing treatment decisions.  According to a recent cost-effectiveness study by Pathway Diagnostics, that company’s Affmetrix gene expression array-based CUP test has real positive impacts, including improved quality-adjusted life expectancies enabled by better treatment decisions based on the improved diagnoses (caveat: this study used historical controls).   

Just like Rosetta Genomics today, Pathway’s Tissue of Origin (TOO) received Medicarecoverage last summer.  The reason why Rosetta Genomics shares (ticker: ROSG) popped today by a cool 200% (!) is that coverage by major healthcare providers is critical for the adoption of today’s molecular diagnostics as these often come at price tags on the order of $3500 a test (e.g. the price of TOO according to a presentation by Affymetrix).   

The importance of Medicare coverage (other major insurance companies usually follow Medicare’s lead) is also illustrated by the OncotypeDx test which can probably be considered the most successful of that type of expression-based molecular diagnostics in the space: launched in early 2004, it sold a mere $400,000 a quarter the year thereafter.  When it, however, received Medicare coverage in early 2006, sales exploded 10-fold.  Today, Genomic Health is selling around $200M worth of that test annually and sports a market capitalization of a billion US dollars- >100x that of Rosetta Genomics despite today's pop.  Numbers for Pathway Dx are more difficult to come by as it is privately held (it completed a $30M financing in 2010 though).

Today’s news is a huge step towards similar commercial success, at least in the sense that it makes an immediate bankruptcy of Rosetta Genomics quite unlikely. The remaining employees, however, have their work cut out for them: get a foot in the door with oncologists, possibly by winning over KOLs and other activities such as cost-effectiveness studies, gently growing the sales organization from the currently only four oncology specialists to compete with Pathway and take a decent piece of the market.  

For the sake of long-suffering shareholders, the company may also consider avoiding excessive dilution partly by effectively shutting down the commercialization of their other microRNA diagnostics which by comparison look much less attractive commercially.  At the same time, they should strive to monetize their relatively strong IP position in microRNA Rx and Dx, foremost the recently issued European patent for the promising miR34a replacement cancer therapy to which microRNA Therapeutics company Mirna Therapeutics would probably require access.

For more numbers on the miRviewMets2 test performance, clinical use along with immunohistochemistry, and competitive profile with regard to the mRNA-based Pathwork and bioTheranostic CUP tests, the Meiri et al. paper just published in The Oncologist is a must-read.

Update (May 17, 2012): Shortly after the close of the markets, Rosetta announced the issuance of $2.2M worth of stock (no options, it seems) at a 30% discount, increasing the share count by about 50% (about 2 million shares will be outstanding after the secondary).  The pain from the dilution will be mitigated by the fact that this should take care of the $750k+interest payment due to their friends at Prometheus by May 22nd, thus allowing the company to stay in business.  Also worth noting are the overhang stemming from ~200k shares that will likely be converted from existing debt at a share price of ~$1.4, representing another approx. 10% dilution at significant discount.  

And finally, here's a youtube video giving you an introduction to Rosetta's scientists:


Anonymous said...

Dirk, is the test have any advantages over currrent tests?


Is it more accurate?

Is it cheaper?

Is it more convenient?


Anonymous said...

I am a bit puzzled that you made no mention of Rosetta's 15:1 reverse split just before this announcement. This was obviously done to make it easier to issue new stock. I hope it saves the company, but it is a tough pill to swallow for existing share holders.

Dirk Haussecker said...

The test will be used when other tests to determine the origin of the cancer are inconclusive. To my knowledge, Rosetta's miRview Mets 2 and Pathway's TOO tests are the only one in this market. I'm planning to look in more detail into the relative performance of the tests.

The reverse split and PIPE- yes, it's happened before. Would not be surprised if those participating in the PIPE shorted the stock down from the 7's. The little guy, of course, could not trade yesterday. I also would like to know when the company knew about the Medicare coverage decision. Despite this very positive development, I'm not letting mgmt off the hook either. In terms of shareholder value creation an 'F minus'. It's about time that there are positive things happening again after spending close to $100M, including on their salaries.

If you are investing in the company, you are investing along with others much better informed about what's going on in the company.

Anonymous said...

So dirk. Rosetta test will only be used if other test inconclusive? What is that other test? How many $$ they generate? What is the # tests done a year with other test? Why is Rosetta test not first line?

Dirk Haussecker said...

Well, my friend, regarding your question as to why not use Rosetta test for first line...if you can see what it is by eye (e.g. a well-trained pathologist may often give you a quite good answer) why use a black-box/algorithmic test such as Rosetta's? Also, even if Rosetta were able to show that it is, at most slightly better than a pathologist even with 'easy' samples, it would still have to overcome the fact that it is a much more expensive test. Costs matter. Still, a considerable opportunity IMO

Anonymous said...

Since Illumina put out their Chosen Ones list, I've heard something along the lines of Rosetta's test being the diagnostic world's equivalent of DNDN's Provenge.

If ROSG were there they would've been in on that list.

They are not. Leaves an awful lot of room for some doubt to ferment.

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