Israel-based Rosetta Genomics Ltd. priced its initial public offering of 3.75 million 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 pleasant reception on its first day of trading, gaining 4.6 percent, or 32 cents, to close at $7.32. (See BioWorld Today, Sept. 7, 2006.)

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 overallotment 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 Carlsbad, Calif.-based Isis Pharmaceuticals Inc. 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 Inc., of 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 percent of the company, and Israeli investment firm Kadima Hi-Tech Ltd., which owned 1.8 million shares, or 23.7 percent. Following the offering, Bentwich and Kadima Hi-Tech will own 16.9 percent and 16.5 percent, 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 is based in Rehovot, Israel, with a wholly owned subsidiary, Rosetta Genomics Inc., in New Brunswick, N.J.