On the previous article , I discussed the importance of microRNAs (miRNAs) and the great attention they have been receiving in the scientific industry. With every day that goes by, miRNAs gain more momentum and their cardinal role in biology is constantly being elucidated. Due to their importance and presence in such a wide range of creatures and medical conditions, from plants to humans, from cancer to women’s health, miRNA are making the migration from a scientific sensation to a huge commercial opportunity. This is great news for a company focused purely on miRNA such as Rosetta Genomics (ROSG), as after years of wandering alone in the desert, it may find itself at the heart of one of the hottest segments in the pharmaceutical industry.
The rationale behind miRNA-based drugs and diagnostics is straight forward. miRNAs are a group of genes which are involved in almost every biological process, as they control over a third of our genome. This central role makes them obvious “druggable” targets, which can be manipulated in order to treat diseases. Their central role might also make them ideal bio-markers for early-detection and diagnosis purposes, due to several advantages that will be described later on. The key in commercializing miRNA-based products is finding the relevant ones which are associated with a specific medical condition. The process starts by looking at the miRNA profile of healthy cells and compare it to that of cells with the particular condition or disease. The miRNAs that may serve as diagnostic markers or drug targets are those which have a different expression profile in the particular condition compared to normal cells.
Rosetta Genomics deserves nothing but praises for pioneering the miRNA field (even before it was called miRNA), but putting scientific interest aside, Rosetta now faces the challenge of translating scientific discoveries into commercial values. Suffice it to say that if this task is challenging for large companies in established fields, it will be even more challenging for a tiny company in a nascent field. In addition, Rosetta Genomics is no longer the sole company focused on miRNAs. In September of last year, Isis Pharmaceuticals (ISIS) and Alnylam (ALNY) announced the launch of Regulus Therapeutics, a joint venture focused purely on miRNA therapeutics. This kind of step from the direction of two industry leaders in RNA-based therapy further validates Rosetta’s strategy, however, it also implies that competition is already here and will mount dramatically going forward.
Although Rosetta Genomics will not enjoy the exclusivity it used to have, its future has never looked brighter. First and foremost, in order to associate miRNAs with diseases, one must first know how to find and isolate them. It is important to remember that miRNAs were only recently discovered because nobody speculated they existed, let alone knew how to locate them. Rosetta’s predictive algorithms enabled it to pick these tiny genes from the huge reservoir of the genome very efficiently compared to traditional methods. In parallel to discovering miRNAs, the company was using its sophisticated algorithms for identifying miRNAs that may serve as potential therapeutic and diagnostic candidates. This task requires a great deal of experience and analytical capabilities, which will be a very important differentiator going forward. Moreover, the company currently has the largest pipeline in the industry, with over 50 diagnostic markers in development, and it has also developed proprietary techniques for extracting and isolating miRNA from patients’ tissues and body fluids. This is another crucial issue because even if there are miRNAs that can serve as targets, their presence and levels must be easily measured in patients. For example, biopsy samples may be very small and contain modest quantities of miRNAs, so any diagnostic test based on miRNA must enable researchers to obtain sufficient quantities of miRNA from every sample in a cost-efficient manner.
Having a head start over competition is always nice, but this technological gap is doomed to diminish with time, as companies with far greater resources than those of Rosetta can catch up by allocating the right amount of money and personnel. What makes Rosetta so promising is its extensive patent portfolio, consisting more than 60 patents, most of which are still pending. The company brilliantly filed patents for the miRNAs’ sequences it discovered as well as for their potential uses and applications as markers or drug targets, very early in the discovery process. By doing so, it locked the majority of known (and probably unknown) miRNAs in the human genome. To date, the company was granted 2 miRNA patents and received a notice of allowance for two additional patents (which means the patent application is found to have met the requirements for patentability). It is important to note that every patent covers multiple miRNA sequences and a never-ending list of potential uses, as can be seen in the first ever granted patent for human miRNA. Just to put things in perspective, this patent was filed in November of 2002, only one year after miRNA was recognized as a widely occurring phenomenon. Assuming a similar waiting period from application to granting for additional miRNA patents, it is reasonable to expect a steady uptick in the amount of patent granting going forward. The company stated it has more than ten additional patents in advanced examination, and is constantly patenting more sequences and potential uses.
It is therefore of Rosetta’s experience and expertise coupled with its strong intellectual property that turns it into such an attractive investment. Rosetta is involved in the development of diagnostic products as well as miRNA-based therapies. Naturally, diagnostics have a shorter time-to-market and better chances to reach the finish line, which implies that in the foreseeable future, the diagnostics market will be the major source of revenue for the company. Even though the company expects to file its first IND already next year, Rosetta should be regarded and evaluated as a diagnostics company. Hopefully, the activity in the diagnostics market will finance the long and costly clinical development of its therapeutic candidates, without the need to raise the typical amount of funds associated with clinical development. Nonetheless, this is the place to point out that despite the “buzz” around miRNAs, there is no way to predict future success in this field, and to date, there has not been a single IND filed for a miRNA-related therapeutic agent. On the diagnostics front things look more encouraging, as last week Rosetta Genomics submitted the first miRNA-based diagnostic product for regulatory approval.
Rosetta Genomics’ Activity In The Diagnostics Market
So what makes miRNAs such promising diagnostic markers for cancer ?
First, there is a large body of evidence that the majority of human cancers are associated with a change in miRNA expression, so these changes may be used as reliable markers. Second, because miRNAs are genetic “master switches”, turning on and off the production of tens or even hundreds of other genes, looking only at miRNAs may provide a simpler but a more “holistic” means for diagnosing the disease. Third, miRNAs can be amplified by standard procedures as opposed to proteins. This difference makes miRNA more sensitive markers than traditional protein diagnostics, as even one molecule of miRNA can be identified using amplification. Fourth, due to their small size, miRNAs are very stable and long lived inside the patient’s body as well as in samples taken from patients. This is in bright contrast to messenger RNA (mRNA), which undergoes fast degradation. miRNAs have been found to remain stable for up to eleven years in “paraffin blocks”, the standard practice of preserving tissues taken from patients. Therefore, it is possible to go back and analyze patients’ miRNA profile, retrospectively, since the course of the disease is already known. This allows large-scale analyses to be conducted rapidly and efficiently, without the need of awaiting the actual course of disease to occur. Fifth, miRNA expression levels represent more closely the functional level of the gene, because they do not have to be translated into proteins in order to have a biological effect. In contrast, a change in the expression of mRNAs does not necessarily result in a change in the expression of the proteins they encode for.
The company is active in multiple areas, but most of its efforts revolve around oncology, where good diagnostics are sometimes more important than good drugs. Most cancers are characterized by a primary tumor that, with time, invades nearby tissues and later sends metastases to distant organs. At their advanced stages, most cancers are incurable, even by the most efficient therapies, but in early stages, a tumor can be surgically removed and the patient can be cured.
There are two general types of diagnostic products in cancer: Early detection assays and classification assays. Although there are some early diagnosis tests such as PSA test for prostate cancer or colonoscopy for colon cancer, these tests suffer from serious drawbacks such as a high false alarm rate and patient inconvenience. The holy grail in cancer diagnostics is thus a simple and reliable test that does not involve patient inconvenience. miRNA diagnostics are hoped to get the industry closer to achieving this goal, first with respect to reliability and later on with respect to patient convenience.
The classification assay field is attracting a lot of attention these days, as part of the personalized therapy trend, especially in the case of targeted therapies. It is now clearer than ever that there are subgroups of patients that respond differently to a given treatment. Consequently, there is a need for predicting factors such as response to treatment and risk of recurrence, so that an optimal treatment is tailored for each patient on an individual basis. For example, Herceptin® and Tykerb® are effective only in a subset of breast cancer patients, therefore, identifying the right patients is crucial. Rosetta expects to submit three classification assays for regulatory approval already this year.
The first of these assays was already submitted for regulatory approval by Rosetta and its partner, The Columbia University Medical Center (CUMC). This assay is designed to differentiate between two subtypes of non-small cell lung cancer (NSCLC): squamous and non-squamous NSCLC. Until recently, both subtypes were treated the same way, but the introduction of Avastin® and other antiangiogenic agents made the distinction between the two a necessity. Squamous patients who receive Avastin have a high risk (31%) of developing serious life-threatening bleeding from the lung. As a result, Avastin is used only in patients with non-squamous lung cancer. In the majority of cases the distinction between the two subtypes is easily done by a pathologist, based on morphological differences and known protein markers, but there are cases where the distinction is challenging either because the tumor is not fully differentiated or because there is a mix of both subtypes. In these cases, which are estimated to represent 5%-15% of cases, there is a true need for an objective and “digital” marker that can identify squamous tumors unequivocally. Moreover, the availability of such a test may lead health insurers to oblige doctors to use it in some cases in order to make sure they do not pay for the administration of a very expensive drug to the wrong patients. Hospitals and pathology labs, on their end, might prefer to use such a test to protect themselves from potential lawsuits. With respect to commercial opportunity, the overall market is substantial, as Avastin is given as first line therapy for stage IIIB and IV patients. Out of 60 thousand patients who are candidates for Avastin every year, at least several thousands might need this kit. These kind of diagnostic products typically cost $3000, so even a 5% penetration rate should result in sales of $9 million per year. The company is also evaluating the launch of this product in Europe and other regions, which might triple the addressable market in a short period of time.
The second diagnostic product the company expects to submit for regulatory approval this year is a test designed to differentiate mesothelioma from other types of cancers that may develop or spread to the lung and pleura. Mesothelioma is a unique type of lung cancer that typically develops as a result of exposure to asbestos. There is currently no individual marker that provides a reliable distinction between mesothelioma and other cancers, instead, a panel of 10-12 markers is used. Though these markers are generally efficient in identifying mesothelioma from the majority of lung cancers, their accuracy decreases when it comes to metastases from other tumor types such as ovarian and kidney cancers. Since mesothelioma is treated differently from other types of malignancies, it must be accurately identified. In addition, because mesothelioma is strongly associated with exposure to asbestos, other important legal and financial issues are at stake, as patients may wish to seek compensation from those considered to be liable. Researchers at Rosetta and NYU found that mesothelioma can be accurately identified by using only two miRNAs. This may be cheaper than the large amounts of markers currently used.
Mesothlioma is quite rare with only 2500 cases expected in the US annually, thus the market potential is limited. Nevertheless, Rosetta’s product might be superior with respect to quality and price, which may lead to a high penetration rate. Assuming an average price of $3000 per kit, potential revenue from this market should be around $2 million per year in the US alone.
A third diagnostic product that should be submitted in the second half of the year is a test that identifies the origin of cancer of unknown primary (CUP). Typically, cancer is diagnosed at its primary source, making the classification relatively simple. If the primary tumor is in the lung, it’s a lung cancer, if the primary tumor is in the prostate, it’s a prostate cancer, etc. However, in 3-5% of cases, physicians discover metastases but cannot determine the place where the cancer began (the primary site). Identifying the origin of CUP is crucial in choosing the suitable treatment for these patients, who are, by definition, presented with very advanced stage disease. Following the initial diagnosis, a long and expensive classification process begins, in which doctors use every available means of diagnostic, from physical examinations to imaging studies and histological assays. Unfortunately, even after this enduring process, only 40% of patients can be categorized within subsets for which specific treatment has been defined. This is one of the reasons for the extremely poor prognosis of CUP patients ( median survival of 4-6 months), which is more a result of the inability to choose the right treatment rather than a lack of available therapies.
In comparison to the two previous assays, identifying CUP is much more challenging, as it calls for finding specific a miRNA signature for every type of tumor. Because miRNAs are considered very tissue-specific, they have been suggested to serve as excellent tumor classifiers. One of the first works in this area was published in 2005, in which a group from MIT and Harvard showed that many types of cancer have a unique miRNA profile, that can be used to distinguish between the different types. Even more impressive was the comparison of a miRNA-based classifier to a classifier based on conventional genes (mRNA classifier). To their astonishment, investigators discovered that the miRNA profile, which included only 217 miRNAs was superior to the mRNA profile, which included 16,000(!!!) mRNAs. This advantage was maintained in the case of poorly-differentiated tumors as well, which may be indicative for the utility of miRNA as markers in CUP.
Last month, a group of scientists from Rosetta published a scientific article that provided a powerful demonstration of the company’s capabilities with respect to the CUP assay. For the development of this assay, Rosetta’s scientists screened 253 tumor samples from 22 types of cancers, including metastatic tissues, and used machine learning capabilities to generate a panel of tissue specific miRNA biomarkers. The team then built a classifier with the goal of identifying tumors that belong to any of the 22 types. The result was a decision tree that can classify every major type of cancer based only on 48 miRNAs. The tree is composed of nodes, each one involves a binary decision, left or right, until a clear classification is made.
Nature Biotechnology 26, 462 – 469 (2008)
In order to assess the classifier’s accuracy, the company ran a blinded test of 83 tumor samples. This diagnostic test showed an impressive accuracy in a blinded test, as it got it right in 86% of the cases. It is important to note that these results are still preliminary and derived from a limited number of samples. Nevertheless, the impressive accuracy was based on a small number of markers and tumor samples, and is likely to improve with the screening of additional samples. Following the internal development of the CUP classifier, the company has been working with CUMC on validating and optimizing the CUP classifier, utilizing Columbia’s huge and diverse inventory of tissues. The fact that the company still expects to have the CUP assay ready for regulatory approval in the second half of 2008 implies that the development of the assay is progressing according to plans ,and that the accuracy of the commercial product will be superior to that of the initial classifier.
The market of CUP diagnosis represents Rosetta’s most promising market with respect to the unmet clinical need and the size of the market. In the US alone, there are more than 1.4 million cases of cancer, 55,000 of whom, on average are diagnosed with CUP. The immediate market opportunity lies within the 60% (33,000) of these patients that cannot be classified, but bearing in mind the amount of resources and time needed for identifying the remaining 40%, Rosetta’s assay, if proven efficient, should be used for the majority of CUP cases. Assuming a 25% penetration rate in the US alone among the 33,000 patients that cannot be accurately diagnosed with the currently available methods, an average price of 3000$ per patient will result in sales of $25 million. This product alone has the potential to transform Rosetta from a small, cash burning company to a very profitable company already in 2010.
Rosetta will continue to burn cash at least for the next two years at a burn rate of $14 million per year. As of the end of 2007, the company had $24.3 mil in cash, excluding $5 million in Auction Rate Securities (ARS). This means that it will have to get some sort of cash infusion by mid 2009. Ideally, by that time, all three diagnostic tests will be commercially available, but their revenue contribution may be insignificant due to slower than expected penetration. Nevertheless, there are numerous events that may push Rosetta’s shares substantially higher by that time.
Judging by the thin trading in the stock, Rosetta is still flying under the market’s radar, but a company with three commercial products in the hot market of cancer diagnostics cannot be ignored forever, especially given the increasing industry interest in miRNA. Company’s management indicated there are plans to compliment the company’s ongoing activities with license agreements in areas that are currently not explored by the company. These agreements with larger pharmaceutical companies will help Rosetta get more attention from investors, not to mention the licensing and milestone payments. In addition, in 2009 Rosetta expects to become a clinical stage company after the IND filing for a liver cancer drug which is being co-developed with Isis Pharmaceuticals. Most importantly, by that year and perhaps even sooner, the company should have enough data and visibility which will enable it to provide some sort of revenue guidance. If approved, the three diagnostic products should generate more than $30 million already in 2010, not bad for a company with a $60 million market cap.
Author is long ROSG and ISIS