Thursday, January 14, 2010

Welcome to your new, volatile life, Rosetta Genomics Shareholders (ROSG)

Existing shareholders had a banner day yesterday, when Rosetta Genomics (ROSG) shares popped 67%, to cloase at 3.09 per share.

In its early stages, the company just added to its board of directors Dr. David Sidranksy, formerly vice chairman of ImClone Systems. That's good news for shareholders, given the MASSIVE returns stockholders saw when ImClone was purchased for $6.5billion by Eli Lilly.

Yesterday morning, Rosetta announced resutls from a joint study with the Johns Hopkins University School of Medicine, with positive news:

"The study, ”Accurate classification of non-small cell lung carcinoma using a novel microRNA-based approach,” shows that Rosetta Genomics’ miRview™ squamous test accurately classified NSCLC samples both from resections, as well as from fine-needle aspirate (FNA) cell blocks."

Rosetta hopes to make a huge contribution to better diagnostic efforts, with demonstrable increases in cure rates. What they did a terrible job of was raising equity yesterday afternoon, which is the reason shares are off 30% right now, trading back down to $2.20 per share.

As a general rule of thumb, when a company is selling UNITS instead of "common stock," be concerned. From the offering document:

We are offering 2,530,000 units, with each unit consisting of one ordinary share and a warrant to purchase 0.50 of an ordinary share (and the ordinary shares issuable from time to time upon exercise of the offered warrants), to institutional investors pursuant to this prospectus supplement and the accompanying prospectus. Each unit will be sold at a negotiated price of $2.00. Each warrant has an exercise price of $2.50 per ordinary share, and is exercisable for a period of five years commencing immediately. The ordinary shares and the warrants will be issued separately but will be purchased together in this offering.
The warrants will not be listed on any securities exchange. Our ordinary shares are listed on the NASDAQ Global Market under the symbol “ROSG.” On January 13, 2010, the last reported sale price of our ordinary shares on the NASDAQ Global Market was $3.09 per share. As of November 18, 2009, the aggregate market value of our outstanding ordinary shares held by non-affiliates was approximately $23,787,303 based on 14,239,443 outstanding ordinary shares, of which 10,497,486 shares were held by non-affiliates, and a price of $2.266 per share, which was the last reported sale price of our ordinary shares as quoted on the NASDAQ Global Market on November 18, 2009. We have offered securities with an aggregate market value of approximately $7,926,490, consisting of the 2,530,000 ordinary shares and the 1,265,000 ordinary shares issuable upon the exercise of the warrants we are offering hereby, pursuant to General Instruction I.B.5. of Form F-3 during the prior 12 calendar month period that ends on, and includes, the date of this prospectus supplement.

Seriously, why can't companies simply SELL STOCK? In the 100 trading days leading through 1/12/10, ROSG averaged 18,000 shares traded daily. After yesterday morning's news, 1.2million shares exchanged hands, with many new investors jumping into the stock on good news.

Then after the close of trading Rosetta dropped that dilutive bomb of an equity offering. I don't know whether this was leaked or what, but the deal stinks. Offering these "unit-holders" warrants that expire in FIVE years is ridiculous. When bankers pitch a company for a deal like this, they point out that it will be slightly cheaper financing that had they simply offered stock in a regular follow-on offering. So, they saved 20cents per share maybe? Compare that to the message they just sent existing and potential shareholders, and it was a terrible long-term decision. For Rosetta's sake, I hope they're able to come through with a transformational diagnostic testing success that will make my quibbling about this financing irrelevant.

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