Correction: my post should read, "His experience is primarily in...

Correction: my post should read, "His experience is primarily in stockbroking and finance; his subsequent biotech experience appears to be mainly non-executive," rather than executive. Batfink- I concur with your observation regarding the sale of approximately $6.5 million worth of shares (at around $1.30 per share). This seems to diminish the argument presented in the 'Quick Guide for Shareholders' section, claiming him as the largest contributor of new equity, considering he initially entered at sub-10c and sold at $1.30, possibly with TGA Request for Information in hand, as reported in the following article published in the AFR.

Fidelity left holding the soiled bag
Mark Di Stefano

Columnist
Updated Oct 19, 2023 – 6.58pm,first published at Oct 17, 2023 – 6.06pm

Rhythm Biosciences, the self-dubbed “transformative cancer diagnostics company”, disclosed on Friday an ASX price query, commonly known as a “speeding ticket”.

The ASX wanted confirmation there wasn’t anything the company should disclose, given the high volumes traded the previous Monday through to Thursday, which caused the stock to crater from 32¢ to 20¢. The stock now trades at a mere 15 per cent of the price at which its executive chairman Otto Buttula offloaded $6.5 million shares 13 months ago to an institutional fund manager.

Fidelity bought Otto Buttula’s Rhythm Biosciences stock at $1.30 per share in September last year. The stock closed Tuesday trading at 16 cents. Getty Images

In response to the ASX’s queries, Rhythm Biosciences shrugged. It had nothing to disclose. Maybe something to do with the company’s AGM? Who could say?

The company floated in 2017. Rhythm Biosciences’ mission is developing “predictive” tests for cancer. Top of the list was commercialising ColoSTAT, a blood test for colorectal cancer that doesn’t involve patients dropping a log into a jar and giving it to a doctor. It was first developed by the taxpayer-funded CSIRO.

Last year was crunch time. Rhythm submitted ColoSTAT for regulatory approval with the Therapeutic Goods Administration in May. After which, the company maintained radio silence on developments, for months.

In September last year, Rhythm announced executive chairman Buttula was selling five million shares — about 17 per cent of his joint holdings — to an institutional fund manager for $1.30 per share. It raised $6.5 million for the executive chairman.

He went on the record to insist the huge share dump had nothing to do with the company’s prospects or its then sky-high price, but, rather, it was about his retirement fund being overweight the stock. Buttula claimed this was “problematic and not prudent”.

But there still wasn’t any news about the TGA’s assessment of ColoSTAT. Sensing restless shareholders, Rhythm’s CEO Glenn Gilbert put out a market update about the approval process in December. He blamed Covid for a “backlog” at the TGA in medical device assessments.

Since the May application, Gilbert claimed, “the TGA has acknowledged it is assessing the filing, with no further formal correspondence being received”. The statement was authorised by the board.

In March this year, Rhythm announced it was withdrawing the ColoSTAT application, citing feedback from the regulator. In response, Rhythm’s stock cratered, shedding 50 per cent over several days. The company has put on a brave face ever since.

This brings us to the events of last week, when the TGA released a document under Freedom of Information, which outlined some steps it had taken with Rhythm’s ColoSTAT application.

The notice revealed the TGA had requested further information from Rhythm on June 8 last year, including risk reports and more data. According to the document, the TGA was not satisfied with Rhythm’s response to that request and sought even more.

Did Buttula know about the TGA’s concerns when he sold $6.5 million worth of shares in September? Why did Rhythm’s December market update say there had been “no further formal correspondence” blaming a Covid “backlog” when there had been contact months earlier?

The FOI-ed document has since been kicking around trading forums, and is probably what sparked the heavy sell-off last week. After seeing it, we left several calls with Buttula asking about the circumstances of his share sale, and of last week’s events, to no avail.

Rhythm’s stock closed at 16¢ on Tuesday. One of the institutional investors who bought into the company was Fidelity Investments. The US investment giant must feel sick about being left holding the bag. If only there was a test for that.

Correction —A previous version of this story referred to Mr Buttula selling “almost half” of his shareholding in Rhythm. This was incorrect, he sold 17 per cent. Mr Buttula owns more shares through other related entities. The story also referred to Fidelity International purchasing the shares. Another separate investor Fidelity Investments made share purchases.