Fidelity left holding the soiled bag

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.