One of the biggest movers on the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) this morning has been growing healthcare company Admedus Ltd (ASX: AHZ).
Its shares have rocketed higher by 54% to 50 cents after the company announced that the U.S. Food and Drug Administration has given its VascuCel product clearance for launch in November.
VascuCel is a premium next generation collagen scaffold which is designed for restorative vascular repair.
According to the company’s release VascuCel provides improved handling, enhanced procedural efficiency, excellent haemostasis, reduced risk of infection, and optimised healing with no stimulus for thrombosis, inflammation, or foreign body reaction.
It is because of these qualities that management feels increasingly confident that VascuCel will win a significant market share in the US vascular market.
Considering the market is estimated to be worth US$500 million per year, this will be an incredibly lucrative opportunity for the company and it comes as little surprise to see its share price rally higher today.
So should you invest in Admedus?
In my view a lot will depend on how much market share the company can take. Companies such as CSL Limited (ASX: CSL), Mayne Pharma Group Ltd (ASX: MYX), and Sirtex Medical Limited (ASX: SRX) are trading at an average of approximately 6x sales presently.
If the market is feeling generous and decides to value them on similar multiples then there certainly could be the potential for its shares to climb significantly higher. After all, Admedus currently has a market cap of just $120 million.
I feel it might be best to sit tight and wait to see how the product sells when it is launched, I’ll be the first to admit that things do look promising for the company and this announcement has made it an enticing investment.
Anyone that does invest in Admedus might want to consider making it just a very small part of their overall portfolio though. As promising as this development undoubtedly is, it is still a high-risk investment at this stage.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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.