Rhythm Biosciences (ASX: RHY) shares are down another 30% today. RHY shares have been sliding ever since we first took note of them in fact. And our first look convinced us that we didn’t, in fact, like the company very much. This wasn’t on hte basis of a detailed analysis of the company - this was a result of observing the corporate behaviour over an information release and not liking it very much. Perhaps a rather trivial manner of analysis but one that seems to have worked for us.
Rhythm Biosciences share price from Google Finance
It wsa at that time of the peak in late May that we first looked at Rhythm Biosciences: Rhythm Biosciences (ASX: RHY) is up 85% today on the back of an announcement of receiving a UKCA. This is indeed a necessary step to be able to market in the UK. It's also one of those things that really isn't worth the $60 to $70 million (AUD) that it seems to have added to the RHY market capitalisation on Wednesday. Don't think of UKCA as being like an FDA approval in the US. It's rather more like gaining a barcode. Perhaps that's not wholly and exactly correct but if we have a spectrum of paperwork and approvals a UKCA is much further toward the second end than that first.
“The announcement is here and everything in it is entirely true. You must have a UKCA before marketing in the UK. Gaining a UKCA does open that UK market. Just as having a CE Mark opens up the EU market and also, to complete the quartet, you must have a CE Mark before marketing in the EU. But it's the implication here that appears to us to be misunderstood.”
A UKCA is just a necessary piece of paperwork and it’s something filled out by the company. It’s not an official certification of effectiveness by the authorities at all. Therefore ew thought that bounce was horribly overdone.
As we then pointed out about RHY shares: “Rhythm Biosciences (ASX: RHY) might be returning to some sense of reality here. Or maybe it's just a coming off the top of a significant price rise. For the RHY share price that went up 85% yesterday has come down 14% today. The one doesn't wipe out the other, that's not the way that percentages work. But the fall does bring that price closer at least to what we think is a reasonable valuation. For we believe that there's a misbelief out there, a misunderstanding of what Rhythm has actually gained in this UKCA.”
Our real point here is not just that a UKCA isn’t worth that much. It’s that a management which will push such an announcement to the market with the likely misunderstanding is perhaps a management that we don’t want to deal with. As we say, this isn’t the deepest analysis ever but it is perhaps sufficient. As the subsequent moves in the RHY share price have shown. It’s also useful as a more general guide. If we don’t like something about a company - whatever it is - then fine, we just don’t like it. It’s fine to not invest on that basis.