Shares in regenerative medicine and healthcare products retailer Admedus Ltd (ASX: AHZ) crashed around 12% to 69 cents today after the company issued US$5 million of shares to a US institutional investor at 66 cents per share.
Admedus was recently forced to exercise a 1 for 10 security consolidation after the amount of shares on issue got out of all proportion to the company's market valuation at around $154 million.
Prior to the consolidation this small-cap healthcare business had a whopping 1,874,163,064 shares on issues, or approximately 1 billion and 874 million – which has now been reduced to a mere 184,716,306 or 184.7 million. The ballooning amount of shares on issue was partly a consequence of repeated capital raisings conducted by the company to fund its spending on research and marketing its CardioCel product.
Not only do you need to have a firm grasp on numbers to be an Admedus investor therefore, but you also require a relaxed approach to the effects of repeated capital raisings that have a dilutory impact on the value of current investors' shareholdings.
The company has long had big ambitions for its regenerative heart patch named Cardiocel, while it is also now also investing heavily in researching several therapeutic vaccines with the support of Professor Ian Fraser.
However, the big problem has been the high cash burn relative to the revenues received as the investment in promoting its CardioCel product delivered sales for the quarter ending September 2015 of just $3.03 million, with a net cash decrease of $7.3 million and a cash balance of $16.7 million.
Indeed the security consolidation always looked likely to precede further capital raisings and notably the company now appears to be turning to the largesse of US investors as many Australian investors headed for the exits a long time ago.
In my opinion Admedus looks a business for investors to avoid as the cash burn is too high relative to revenues, with the business so far having been long on promise and short on delivery in growing sales revenues for CardioCel.
Another biotech business struggling in the wake of too many capital raisings is Mesoblast limited (ASX: MSB). It too also recently turned to US investors for capital as it burns through cash in an attempt to commercialise its products. Mesoblast shares are down 61% over the past year, although it looks a superior bet to Admedus in terms of the risk / reward profile in my opinion.