Rhythm Biosciences picks up disease prediction business GeneType from administration

Melbourne-based bowel cancer diagnostics developer Rhythm Biosciences (ASX: RHY) has acquired the GeneType disease prediction business for $625,000 from Genetic Technologies (ASX: GTG), which entered administration last month after falling short in an attempted $2 million capital raise.

Documents lodged with the corporate regulator show that at one point more than $162 million was paid for shares in Melbourne-headquartered Genetic Technologies, whose GeneType integrated risk testing for serious conditions is sold in Australia and the United States.

GeneType, supported by industry-certified polygenic testing labs, aims for early risk detection for numerous types of cancer, diabetes, heart disease, and other conditions. 

For its part, Rhythm Biosciences is undergoing validation testing for its bowel cancer test COLOStat and recently raised $3.5 million to further that process and progress research and development (R&D) pipeline development activities into other cancers, "both organically and via inorganic means".

These intentions alluding to the potential for acquiring intellectual property (IP) were slated on 19 November, just a day before Ross Blakeley and Paul Harlond of FTI Consulting were appointed joint and several voluntary administrators of GTG.

Rhythm Biosciences announced today it had completed the acquisition for all of GTG's interest, rights and title in the intellectual property owned and used in the GeneType business, licence and permits, the US premises lease and assets, research assets and customer contracts and supply chain contracts.

Eight employees in the GeneType business have been given offers of employment, and Rhythm Biosciences yesterday said it was "pleased to have an experienced and dedicated team join it both in Australia and the United States to ensure business continuity".

"We’re thrilled to become part of the Rhythm team and look forward to seeing GeneType realise its potential of positively impacting the lives of people around the globe," GeneType director of clinical & scientific affairs Dr Erika Spaeth said yesterday when Rhythm Biosciences announced its plans.

The $625,000 will go towards select trade creditors with the buyer also assuming statutory employee entitlements for transferring employees in Australia. This compares to GTG's total liabilities of almost $3.6 million as flagged in a creditors' report, including close to $750,000 worth of employee entitlements.

"We are pleased to have the GeneType business in the RHY Group and we warmly welcome the employees both here and, in the US, and we look forward to working closely with them to accelerate development of the business within the combined company," says Rhythm Biosciences CEO and managing director Dr David Atkins, the group's only executive-level employee, having assumed the position in May.

"To this end we have already commenced preliminary discussions on opportunities which can be leveraged immediately between the businesses and high-level integration planning."

GTG announced a restructuring plan in July and managed to bring its monthly costs down from $800,000 to $300,000 by the end of the September quarter. With $1.84 million in cash receipts during the period, the business was able to scrounge up a net inflow of of $420,000 for its operations but its finances were still wearing thin.

GTG had $1.6 million in cash on hand and a further $180,000 in unused finance facilities, leading the company to state 'N/A/' for its estimated quarters of funding available in its cash flow report.

When voluntary administrators were appointed in November, FTI Consulting noted GTG had been in extensive discussions and negotiations with investors, financiers and other parties to bring funding and distribution agreements into the company, including via an entitlement offer to raise $2-3.85 million.

"The board also assumed executive roles to reduce operating costs and cash burn, with the board agreeing to defer their director fees until the end of 2024 (at the earliest) and, subject to shareholder approval, to take their director fees in equity," FTI stated.

"Despite the above, the company has been unsuccessful in raising the minimum required capital under the offer and alternative strategic partnerships and the board has determined that voluntary administration is now the most appropriate way forward."

Following the appointment of administrators, GTG also unlisted from the NASDAQ where it was dual traded.

Rhythm Biosciences has not had liquidity in abundance either. Prior to its recent $3.5 million raise, it estimated its $732,000 worth of available funding would only last the company two months.

Its board has also undergone a restructure since then with the departure of two longstanding board members Dr Trevor Lockett and Lou Panaccio who were with the company prior to its 2017 listing, while its deputy chair Susan MacLeman stepped down to a non-executive director position.

Former Johnson & Johnson executive Gavin Fox-Smith joined the board at the start of this month, while it has also been flagged that non-executive chair Otto Buttula intends to step down from the role when it's appropriate.

Buttula offered sobering words at Rhythm Biosciences' annual general meeting (AGM) on 20 November.

"In regard to our business, the last year was unfortunately one again in which we disappointed, with a significant and ongoing decrease in our share price and one in which we failed to commercialise our initial and lead product ColoSTAT, largely due to internal missteps," he said.

"Despite these past failures, the board remains confident about the company’s prospects in 2025 and beyond."