Financial year 2017 has come to a close and for many Admedus...

Financial year 2017 has come to a close and for many Admedus holders it’s not a day too soon. However, I have been reflecting on the share price decline and it’s disconnect with the companies improving fundamentals. There is no doubt that FY 2017 has been a watershed year for the company. While the fundamentals have steadily improved since Wayne Paterson became interim CEO and now CEO the share price has continued to decline. While this is unfortunate and not fun to experience it has actually been a blessing in disguise for me personally. I have taken significant advantage of share prices below 30 cents to add to my position. Without this disconnect I would not have had this opportunity.

When I first invested in July 2015 I had no idea just how poorly this company had been mismanaged and how high expectations were for the company. We all now know that prior to code red Admedus was heading was a real possibility of insolvency. However, I have always believed in the science behind Adapt and once Wayne took the reins it was obvious to me things were about to change. Therefore, I have focussed on the future and what this company will do as opposed to what it has done in the past.

Some general changes that have been made in the last 12 months:

• Cash burn significantly reduced
• Capital raisings ended (for capital expenditure)
• Clear targets set for FY 17 and the 2020 vision holding management to account.
• Adapt margins and pass rates have improved significantly. Margins up from 11% to 67% and improving.pass rates in the high 70% range up from 20%.
• Court settlement and 100% ownership of Regen achieved
• Non-essential and non near-term revenue generating projects have been shelved
• New better quality bovine supply secured at a much better cost base.
• We have gone from one Adapt product to a “Platform” of four.
• The following team members staff have been hired (or have taken new positions) putting a new set of eyes and deep experience over our business:

• CEO – Wayne Paterson – ex Merck and Roche
• CFO - Mark Zirsen – ex Cochlear
• COO – The “Saint” David St Denis – Ex Merck – Starts tomorrow for Admedus!
• New board member - Simon Buckingham – Ex Actelion
• New Chairman – John Seaberg – Ex Synovis (sold to Baxter)
• VP Europe - Michael Walker – Ex Roche, Novo Nordisk and CSL.
• VP North America - Natalie Kestler – Ex Baxter
• Chief Technical Operations Officer - Scott Bliss – Ex Baxter
• National Account Manager - Jim Lemle
• VP Field Force Optimisation - Eileen Petersen – Ex Synovis and Baxter
• Investor Relations and Communications - Bob Packard – Signal Communications

After reading that, if anyone thinks this is the “same old Admedus” then I seriously don’t know what to say. This company has changed 180 degrees and is nothing like the Admedus I first bought into two years ago. This is a company that has had to fix many things and reset itself for the future it deserves.

So, what does the future hold? Your guess is as good as mine but there are some things I am looking forward to over the next 12 months for Admedus. Here is a list I prepared earlier in no particular order:

• Update on Indian registration and our approval progress.
• Confirmation of Indian distributor
• First sales into India (Q3)
• Update on VascuCel and Neo sales progress (Hopefully in this QRT report)
• Update on the European restructure and "scaling back up" progress.
• Update on our National Account strategy for bulk orders for Adapt products. First major order expected in August / September. (This position should have been in place a couple of years ago and has to build up)
• An update on our collaboration partner in RNA - Immuno Oncology TranslateBio (Hopefully in the quarterly report.
• Initiation of our HPV head and neck cancer study.
• Naming of the distributor for Mexico, Brazil and Argentina (who is personally known to our CEO).
• First sales in Mexico (Q4) – All products automatically approved there and the project is now in place.
• Naming of the distributors for Vietnam, Thailand and Taiwan. These have been appointed but yet to be named.
• Naming of the distributor for China who we are in talks with and who will help in the registration process. First sales expected 2019 but could be earlier if we can avoid some registration studies.
• Potential partnership announcement to progress to phase 2B for HSV 2. A lot of news in the next 6 months about the Vax business and clarification of the way forward.
• Further hospital contract announcements for the infusion business that we have tendered for or are in the process of tendering for. The Adelaide contract will be helping there.
• An announcement around any funding that may be required in the short term to bridge the gap while we get to profitability (best guess 3rd QRT FY 18) – Now not sure this will be needed.
• CardioCel 3D to launch on the 4^th of July. Has a significant price premium (multiples of an average CC patch) to CardioCel.
• News around some additional indications that 3D is used for that was not expected initially.
• Some feedback on operations already been completed using 3D – We are off and running with some initial sales. 3D will have huge implications strategically for Admedus as it will introduce the Adapt platform to many surgeons that currently use other supplier’s patches.
• Further approvals for the MENA region including Egypt and possibly some of the following this year - Kuwait, Iran and Iraq.
• Completion of the TAVR prototype and news around a potential licence deal / interest with a major player. This is exciting and will be attractive to a major trying to enter the market.
• TGA approval for CardioCel – 2018
• Potential update on the effectiveness of our new marketing campaigns.
• Update on what product we are going to focus on next for the Adapt portfolio. We have 3 or 4 in the wings but just waiting on resources, the bedding down of new products and a better understanding of the new sales team’s ability to implement it. Dura Mater?? C.B.A.G.??
• FY 17 4th Q results that will confirm the turnaround is real to the remaining sceptics in the market. I have tempered my expectations here and expect Adapt sales of between $2 million and $2.5 million.
• Full year results in September showing real progress.
• FY 18 targets that will be a large catalyst in my view
• Possible news on GP margins hitting 70 to 75%
• The introduction of reporting on our market share and monitoring this metric towards our 20/20 targets (will take another 2 QRTs of data - maybe starts from Q1 FY 18). I think the company may keep this as an internal tracking tool for competitive reasons.
• News around company sales reps gradually replacing the existing manufacturing reps over time with IRR metric justifying the decisions.
• 9 years non-calcification data to be released anytime from the 8^th of July 2017 and an historic 10th year next year.
• News from Europe on planned product approvals and expanding indications (late in the year)
• Potential splitting of the Vaccine business
• Potential news in future about an expansion of manufacturing capabilities to cope with the step change in sales expected in CY 2019.

A quick scan of the potential news flow to come in the next 12 to 18 months should indicate to everyone that we have a lot of potential that is not currently priced in.

There are a myriad of healthcare stocks on the ASX and internationally that have little, if any, revenue and that are larger than us or in some cases multiples of our valuation. Some that come to mind include NEU, IPD, RVA, and OSP. A brief check of Osprey Medical growing in the US has a market cap of 100 million and is on a price to sales ratio of over 80 compared to ours of under 3!

IMHO we are undervalued on our current earnings and not just what we hope to achieve in future. If we hit our 2020 targets from here and are then priced on a conservative 20 times earnings that is a 6 bagger in 3.5 years. A sniff of success will move this stock and with tax loss selling done and news pending we are looking better than ever before (for new investment) on a fundamental and share price basis.

I believe we are currently priced for future failure and I seriously doubt that with the changes put in place that will happen. I have always said we have a very fast horse but we just didn't have the right jockey. We now have that Jockey and we are turning the corner and hitting the straight.

Exciting year(s) ahead.

DYOR and Not advice