The term Micro RiboNucleic Acid or RNA, in genome research, refers to small, single-stranded molecules that transmit information between DNA and proteins within a cell. MicroRNA regulates protein production within the cell. Proteins are the building blocks of all living cells, and as such, they affect everything that happens in the body. Evidence exists that microRNA affects cancerous diseases, and in mice this has already been proved beyond doubt. For some years now, the medical and biotechnology world has been trying to find medical uses for these molecules and to channel their affects in the interests of medicine.
Rosetta Genomics Ltd. (NASDAQ:ROSG) is developing and producing diagnostic and therapeutic products based on this material. The company develops tests for identifying the source of the process that controls the spread of cancerous cells, a process known as metastasis.
Rosetta has signed collaboration agreements with several well-known biotechnology companies in a number of different fields, from testing for cancerous diseases to the diagnosis and treatment of AIDS. It has an agreement with Applera Corp-Applied Biosystems Group (NYSE:ABI) of Conneticut, a huge company with a $5.4 billion market cap, which produces systems and devices to support applications in genome research. It also has a collaboration agreement with Asuragen Inc., which as those familiar with this field will know, is the successor entity to Ambion, one of the leaders in RNA and microRNA research, and it has signed collaboration agreements with Californian company ISIS Pharmaceuticals Inc. (ISIS) and Rockefeller University.
Alongside its collaborations, Rosetta also draws on knowledge from distinguished academic institutions around the world. The company ended 2006 without sales and a $7.6 million loss, 31% worse than in 2005. But at the beginning of March this year it raised more than $26 million in its IPO, for which CE Unterberg Towbin, LLC was lead underwriter and Oppenheimer & Co. Inc. was co-manager. The stock, which began trading at $7, is currently at $6.90.
The truth is that Rosetta already had tried its luck, unsuccessfully, on Wall Street. Last year, it attempted to float at $12 a share, and this year too it aimed to float at $7.50, without success - the market resisted and the price was eventually set at $7. The company is starting out with $28-29 million in cash. It is in a fantastic and serious field that holds tremendous potential for those who are successful in it.
There can be no doubting that the ability to utilize RNA for medical purposes will amount to a phenomenal revolution. Now that it's clear what's at stake, all that remains is to see whether Rosetta will be the one that will be successful. Its record to date has been most impressive, but until such time as it is successful, if and when that happens, Wall Street will judge the company by different criteria. It will be constantly measuring what is known as "time to market," i.e. how the close company is to seeing some revenue.
Wall Street will develop a relationship with Rosetta through its management team. $28 million is not a lot of money, so investors will have to exercise caution. The company's chairman is Yoav Chelouche, former CEO of Scitex and currently managing partner of Aviv Venture Capital. President and COO Amir Avniel and CFO Tamir Kazaz are highly experienced people with proven business acumen. While meaning no disrespect to the rest of its distinguished executive team, a company like Rosetta, which is currently focusing exclusively on scientific research, will fare better led by people who know business rather than science.
That said, the academic side of the company's management team is most impressive. It's R&D activity is led by three women, Dr. Dalia Cohen, Dr. Ronit Aharonov, and Dr. Ayelet Chajut, all with resumes that one can only envy. But even more impressive is the company's scientific advisory board, which really does have people who are taken very seriously, even on Wall Street. Heading the team is Prof. Aaron Ciechanover, Nobel Prize laureate in chemistry for 2004. Alongside him are professors Zvi Bentwich, Robert Langer, Alexander Rich, Eithan Galun, Eithan Rubinstein, and Michael Sela, president of the Weizmann Institute of Science from 1975 to 1985 and currently deputy chairman of the Board of Governors. Sela also sits on the board at Teva Pharmaceuticals (NYSE:TEVA), and co-developed that company's multiple sclerosis drug, Copaxone, together with Prof. Ruth Arnon.
As I see it, Rosetta has in this group a biotech/genomic dream team, an excellent mix of business people and scientists, all with track records. If a group such as this is incapable of getting a grip on the development of cancerous cells, I find it hard to believe that anyone anywhere in the world can. So Wall Street will have great expectations, and it will give Rosetta a premium at every opportunity, but it will also punish it severely, should it prove to be a disappointment. This stock is a classic choice for the safe.
ROSG 1-mo chart