Medical diagnostics company Rhythm Biosciences (ASX: RHY) has undertaken a comprehensive strategic review following major shareholder discontent and a subsequent S249D notice requesting a vote to remove the Chairman.
In October, the Company faced regulatory scrutiny as its stock value plunged from 32¢ to 20¢, triggering an ASX “speeding ticket”. Later, the stock was trading at just 15% of the price at which Executive Chairman Otto Buttula sold $6.5 million worth of shares only 13 months ago to an institutional fund manager. This came as the Company struggled to get TGA approval for its ColoSTAT product and had to withdraw its application due to the lack of support.
In light of substantial regulatory changes in Europe and anticipated shifts in Australia and the USA—and, more urgently, shareholder disapproval—Rhythm Biosciences decided to restructure its operations and resources. The goal is to optimise the Company’s objectives and adhere to the stringent In Vitro Diagnostic Medical Device Regulation (IVDR) requirements for all products in development. This strategic review has resulted in an organisational overhaul.
Key decisions stemming from the strategic review include appointing a qualified Chief Executive Officer to support the IVDR transition work, with Buttula stepping back from executive duties after a designated handover period. ColoSTAT kits for bowel cancer will now be set for Research Use Only (RUO) rather than for commercial sales. Anticipating no material revenue from existing IVDD ColoSTAT kits, the Company’s future earnings hinge on completing the proposed IVDR transition work.
Rhythm Biosciences has committed to producing ColoSTAT in adherence to the new IVDR standards, replacing current IVDD product approvals (CE & CA Mark and Medsafe). The Company will continue exploring options in the US market amidst FDA regulatory uncertainties. Furthermore, the engagement of a US-based Contract Manufacturing Organisation (CMO) has been initiated to handle all future design and development work on ColoSTAT. This strategic decision aims to enhance the cost-effectiveness of ColoSTAT through automation, with the IVDR transition work identified as the company’s top priority for CY24.
Significant cost reductions have already been achieved, with further savings expected as the cost base aligns with the new strategic direction. The Company plans to apply the IVDR transition work to its technology pipeline, including breast, lung, and gastric cancer projects, anticipating follow-on benefits.
Moreover, the R&D tax incentive (RDTI) is under review after receipt of Tranche 1 of $1.69 million. Rhythm intends to re-lodge its RDTI claim for the international component of R&D, with the expected quantum significantly lower than expected.
In FY23, it reported a loss of $8.8 million against an income of $3.3 million. The Company ended the year with $4.1 million in cash, down from FY22’s $7.5 million.
Rhythm Biosciences reiterated its unanimous support for Otto Buttula, the Executive Chairman, with some Director shareholders intending to vote their shares against the S249D resolution.
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