Zomedica (NYSEAMERICAN:ZOM) might be in some sort of trouble with the launch of its new TruForma diagnostic machine. That is why ZOM stock has been falling and will likely keep dropping in the days ahead.

Here is the likely reason. On May 14, 2021, Dr. Stephanie Morley resigned as its President and Chief Medical Officer. In addition, on July 6, the company’s CEO announced he was going to resign at the end of 2021.

He did not give a reason why he was leaving, neither did Dr. Morley. They just left, although Dr. Morely will stay on as a consultant for a time.

What Is Going On With Zomedica

Something is wrong here. Shareholders are dumping the stock and asking questions later. The company’s July 6 update frankly made matters worse. It had already fallen to 78 cents per share on July 6, and also down from $2.70 at its peak on Feb. 8. The update basically implied that the company’s launch is not going as well as planned.

Here is how the company put a good face on it. The update implied that two new assay tests needed to be added to the TruForma pet diagnostic lab machine before sales would take off. But the new assay tests won’t be available until late September or early October for the first assay test and 2 months later for the second. In other words, don’t expect sales to move higher until next year.

Whoops. No wonder the top management has left. The company’s initial pet lab product isn’t selling as expected. Here is what that means for the company:

“We have calibrated spending to coincide with a later adoption curve than anticipated, are working cooperatively and effectively with our partner, Qorvo, and are looking forward to delivering all of the promise of TRUFORMA later this year,” commented Robert Cohen, Chief Executive Officer of Zomedica.”

In other words, the company’s losses are going to continue for the time being.

Where This Leaves ZOM Stock

Last quarter the company lost $4 million, and its free cash flow was negative $2.65 million. Fortunately, the company also has $276.6 million in cash in the bank.

So, in effect, it can afford to bleed out cash for a while until sales pick up. And the company is in the process of building up its own sales team rather than relying on a distributor. That will take time and money and a different type of management than a group of scientists.

The problem is shareholders are not going to wait around until this happens, if ever. At 60 cents per share, the market cap is $587 million, according to Yahoo! Finance. So now its cash represents 47.3% of its market value. But that may leave the value of the company too high.

For example, if the remaining business continues to lose money it may not actually be worth $310.4 million (i.e., $587 million market cap – $276.6 million cash). What if the market thinks that the cash will drain down to $176 million (i.e., $100 million in negative cash burn), and in addition that the value of the business is worth just $100 million.

That gives it a potential market cap of just $276 million, or a drop of 53% from today’s price. In other words, ZOM stock would be worth just 28.2 cents per share.

What to Do With ZOM Stock

In addition, that value would also imply that the stock is worth just its cash per share today, i.e., $276 million. This means that investors should probably just wait until the stock falls another 50% to 30 cents per share, assuming that its losses continue over the next several quarters.

The reason is that most savvy investors want to see a bargain element in a purchase of a risky stock like this before they commit. Buying ZOM stock at close to its cash per share today leaves a margin of safety in case things continue to not work out.