Even though Rosetta Genomics Ltd. (Nasdaq:ROSG) officially launched its diagnostic products in late 2008, the company only recently began recording initial sales. The company has had an interesting year, during which it changed and improved its business model as the company's sector - high added value diagnostics - has undergone change.
Rosetta, which has a market cap of $25.5 million, develops diagnostic kits based on pioneering microRNA technology. MicroRNA is material in the cell that is encoded by the genome and acts on other genes that encode proteins in the body.
Rosetta president CEO Kenneth Berlin joined the company eight months ago. As benefiting the company's stage in life, he came from marketing. He previously worked for 15 years at Johnson & Johnson (NYSE: JNJ), both at the company's diagnostics and drug development units. His positions included head of the cancer diagnostics unit, the same field where Rosetta now operates.
Berlin told "Globes", "I've worked in both drug development and diagnostics, and I was looking for a field that combined both. I heard about Rosetta even before its IPO, but it vanished for me afterwards for a while. When I was looking to join a start-up, I was pleased to discover that it was already at the commercial stage. Last year, we made the transition to sales, and we hope to achieve positive cash flow in the near future."
In the past, the diagnostics market was highly competitive, and every test was priced quite low, resulting in revenue in the industry that was low as well, or else relied on huge turnover of cheap tests.
In recent years, with the introduction of more expensive tests that also provide greater information of possible high value to the healthcare system, companies, Rosetta included, are now talking about prices of hundreds, and even thousands of dollars, per test.
Rosetta has undergone years of thorough research to find the links between microRNA, which is encoded by genes once considered inoperatve or dormant - called "junk DNA" - and various diseases. It is now one of the world leaders in its field. The company originally set the goal of developing drugs on the basis of its discoveries, but later decided that it would be much easier to break into the diagnostic products market.
Berlin says, "When the company began operating in the field, the field was in a very early stage. That's now changed. Your calls are returned, and some times they even call you first."
Rosetta has decidedly changed its approach from its early days. Berlin says, "Today, we care less how a test works, and only that it's accurate. We've seen this in clinical trials: our tests are the most accurate available. After we confirmed that the test diagnoses, we continue to investigate the reason, which is more important for the day when we return to drug development."
Berlin says, "We knew that it would take time to reach real sales. Even after the official launch of the test, a lot of work is needed to persuade the market that it has a use. It's also necessary to overcome resistance of pathologists, who learned to diagnose another way. The point is that pathologists and oncologists love to see information from an external source, which supports what you want to sell them."
Rosetta earlier this year obtained external confirmation of its test, which distinguishes between two types of cancer, from a study at Johns Hopkins University. Last April, Rosetta hooked up with Prometheus Laboratories Inc. to market its products in the US.
All three of Rosetta's kits now on the market are cancer diagnostic kits. The leading product, miRview meso, accurately differentiates malignant pleural mesothelioma from other carcinomas in the lung and pleura, which require different treatments.
The second kit, the miRview mets identifies the tissue-of-origin of metastatic tumors in cases of Cancer of Unknown Primary (CUP). Treatment depends on the type of cancer, and tests currently cost the healthcare system $40,000 per patient.
The third kit, the miRview squamous accurately differentiates squamous from non-squamous non-small cell lung cancer, to test whether the cancer is caused by asbestos or not.
Each of Rosetta's products are applicable for 60,000 patients a year in the US alone. In terms of market size, at end-consumer prices, the potential reaches $700 million for the three kits.
Rosetta's products are relatively expensive, compared with classical diagnostic tests, and they are not yet covered by insurance companies. "In every market, even in India, there are patients who can pay out of pocket for the more accurate test, and we try to identify them," says Rosetta chief commercialization officer Ronen Tamir. The company currently leaves it to its distributors in each county to obtain insurance indemnification.
Rosetta has five diagnostic kits under development, three of which Berlin and Tamir are willing to discuss. One test is a second-generation miRview mets test to identify cancers of unknown primary; the second test aims to predict the risk of superficial bladder cancer becoming invasive and life threatening; and the third test is to differentiate between small from non small cell lung cancer using a very small sample that will ease a biopsy procedure.
"Globes": You previously talked about a revolutionary diagnostic test for colon cancer, which would replace the colonoscopy. What about it?
Berlin: "When we collected information about this test, we found that it wasn’t good enough. We now have to improve the test, but there's also competition."
As for longer-term plans, Berlin added, "We're definitely thinking about excretions analysis, such as blood, urine, and saliva tests. That's where the future lies; not in tissue analysis, which requires a biopsy. We're very interested in finding how to locate RNA in all excretions, although this doesn’t mean that we'll abandon tissue diagnostics."
When will you return to drug development?
"At the science level, we're constantly operating in that direction, but as a small company, we have to focus. The next step will be personalized medicine: few tests alongside medication, and defining precisely who is suitable for each drug. This field is currently on the back-burner, and the intention is to develop it together with partners from a large company, in contrast to diagnostics, which we want to market independently."
Published by Globes [online], Israel business news - www.globes-online.com - on March 8, 2010
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