Why the Admedus Ltd share price is crashing today

Shares in regenerative medicine business Admedus Ltd (ASX: AHZ) are down 10% to 35 cents today and 52% lower over 2016 after the company revealed more big cash outflows for the quarter ending March 31 2016.

For the period Admedus posted a net operating cash outflow of $5.8 million with cash on hand at quarter end of $13 million. The large cash outflows and dwindling cash balance suggests the company may need to raise capital again within the next year unless it can dramatically reverse its fortunes.

Admedus has been investing a lot of capital all around the world in marketing and selling its regenerative heart patch named Cardiocel, although sales have not taken off as hoped. In fact for the most recent quarter total company receipts from customers are stated at $3.35 million, which is lower than the $3.48 million recorded for the prior quarter ending December 31 2015.

It’s not hard to see why investors are heading for the exits then, as CardioCel sales were only “up slightly” on the previous period despite management’s strategy to spend big to promote sales.

It was also revealed that executive management’s remuneration would be reduced by a minimum of 10% going forward, as part of cost-cutting plans that the company may be taking too late in the day.

In my opinion the shares remain a sell as its CardioCel product fails to take off and the cash outflows remain large compared to how much cash the company has to fund itself through the rest of 2016.

If you’re looking for small-cap medical device businesses then it would be far better to consider sleep treatment specialist Somnomed Limited (ASX: SOM), or disinfectant specialist Nanosonics Ltd (ASX: NAN). Both are well managed, growing sales quickly and cash flow positive, I expect their share prices could continue to travel in the opposite direction to Admedus over 2016.

The Internet is About to Go "Six Feet Under"... And You CAN'T Afford to Miss What Comes Next

In-the-know investors are dancing on the Internet's grave--and gearing up to cash in on an even BIGGER tech industry. Australia--and the world--will NEVER be the same. Dollar for dollar, insiders are calling it one of the biggest new markets in the history of modern business... NOW is the time to get in on the hush-hush industry that could be poised for growth of over 4,463%+ by 2020... And the 1 ASX stock that stands to grow YOUR money right alongside it! Simply click here to learn its name.

Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.