Israel-based Rosetta Genomics (Rehovot, Israel) has priced its initial public offering of 3,750,000 shares to raise $26.3 million to support ongoing work on microRNA-based diagnostic and therapeutic cancer products.

As with other biotech IPOs in the last couple of years, Rosetta’s $7 share price fell below expectations. In its September filing, the company had anticipated a range of $11 to $13, and, in January, dropped it to between $7.50 and $8.50. On the plus side, however, Rosetta’s stock (NASDAQ:ROSG) received a warm reception on its first day of trading, gaining 10%, or 70 cents, to close at $7.70.

According to the company’s prospectus, net proceeds are expected to total $22.6 million — or $26.3 million if underwriters exercise the full 562,500-share over-allotment option. The largest chunk of that, $17 million, is earmarked for research and development activities relating to diagnostic tests for multiple cancer types, as well as for ongoing development of a liver cancer drug program partnered with Isis Pharmaceuticals (Carlsbad, California). Remaining funds will be used for licensing and patent protection, business development and general corporate purposes.

Rosetta’s work involves the use of microRNAs, a group of genes believed to affect the regulation of protein production. Because microRNAs are expressed in different amounts in diseased cells compared to healthy cells, they could be used either diagnostically to detect diseases earlier than existing diagnostics or therapeutically to target diseased cells. To date, the company has filed patent applications with claims covering about 350 biologically validated human microRNAs and 48 viral microRNAs.

In a co-development partnership, Rosetta is working with Asuragen (Austin, Texas), to develop a diagnostic product for prostate cancer that would be superior to the existing prostate specific antigen (PSA) test, which is known to have a high false positive rate. On its own, the company is progressing additional diagnostic products for lung, colorectal, breast and bladder cancers, and to determine the origin of the primary tumor in metastatic cancers of unknown primary site. Rosetta expects funds from the IPO to advance those products through initial clinical validation, which is defined as success in identifying the specific biomarker panels by performing blinded tests of samples supplied by medical institutions.

Following clinical validation, the company aims to pursue a two-pronged commercialization strategy: first, to market the testing services to customers through reference clinical laboratories, and, second, to seek market approval from the FDA.

On the therapeutic side, Rosetta continues to contribute its microRNA platform to a joint research collaboration with Isis to discover and develop antisense drugs that regulate microRNAs for hepatocellular cancer, the most prevalent type of liver cancer. About $4 million in IPO funding is expected to advance discovery through the initiation of preclinical studies with a lead product.

Founded six years ago, Rosetta funded its operations through equity offerings that brought in a total of $30.5 million. Prior to the offering, the company’s largest shareholders were founder Isaac Bentwich, who held 2.2 million shares, or 29% of the company, and Israeli investment firm Kadima Hi-Tech Ltd., which owned 1.8 million shares, or 23.7%. Following the offering Bentwich and Kadima Hi-Tech will own 16.9% and 16.5%, respectively.

For the first nine months of 2006, Rosetta reported a net loss of $5.5 million. As of Sept. 30, its cash, cash equivalents and short-term deposits totaled $12.1 million.

The company of 37 employees has a wholly owned subsidiary, Rosetta Genomics, in New Brunswick, N.J.

In other financing news

• Healthnostics (Bethesda, Maryland) reported a special restricted stock distribution of one share of Healthnostics’ common stock for each 10 shares of Healthnostics common stock held by shareholders of record as of March 12.

The special stock distribution will be executed “as soon as practical” after the record date.

Additionally, on March 8, Healthnostics said it will effect a capital structure change in which all account holders with less than 100 shares per account will have their shares cancelled and exchanged for cash at $.026 per share. This price is based upon Healthnostics’ closing bid price on February 26.

Account holders with less than 100 shares will not be eligible to receive the special stock distribution shares.

The company said it has elected to undertake the capital structure change in order to more effectively serve the majority of its shareholders and efficiently execute the stock distribution. Additionally, it said the move will substantially reduce upcoming costs associated with the pending spin-off of MedBioWeb, its subsidiary that is currently in registration with the SEC.

Healthnostics provides patient clinical monitoring and risk management systems to acute care hospitals and utilizes its Internet portals to deliver medical and bioscience resource information to industry professionals as well as to the general public.