Even when a company is losing money, shareholders can make a profit if they buy a good company at the right price. For example, biotechnology and mining exploration companies often lose money for years before they hit the sweet spot in discovering a new treatment or mineral. Still, only a fool would ignore the risk that a loss-making company could burn through its cash too quickly.
Given this risk, we’ll consider whether MoonLake Immunotherapeutics (NASDAQ:MLTX) shareholders should be worried about the company’s cash burn. For the purposes of this article, we define cash burn as annual (negative) free cash flow, which is the amount a company spends each year to fund growth. We’ll start by calculating the company’s cash runway by comparing its cash burn to its cash reserves.
Check out our latest analysis for MoonLake Immunotherapeutics
How long does MoonLake Immunotherapeutics have a cash runway?
A company’s cash runway is the time it would take to burn through its cash reserves at its current cash burn rate. When MoonLake Immunotherapeutics last reported its June 2024 balance sheet in August 2024, it had zero debt and $520 million in cash. Last year, its cash burn was $65 million. So it has a cash runway of 8.0 years from June 2024. While this is just one measure of a company’s cash burn, it’s comforting to think about such a long cash runway. The image below shows how its cash balance has changed over the past few years.
Debt, capital and history analysis
How has MoonLake Immunotherapeutics’ cash burn changed over time?
MoonLake Immunotherapeutics didn’t record any revenue in the past year, which indicates that it’s an early-stage company that’s still operating. That said, as part of assessing its cash burn situation, we can look at its cash burn trajectory. Over the past 12 months, cash burn actually increased by 54%. An increase in cash burn often means that a company is accelerating its business development, but it’s always important to keep in mind that this will reduce the cash runway. It’s always worth studying the past, but it’s the future that matters most, which is why it makes a lot of sense to take a look at analyst forecasts for this company.
How difficult will it be for MoonLake Immunotherapeutics to raise more capital to grow?
Given its cash burn trajectory, Moonlake Immunotherapeutics shareholders may want to consider the possibility of the company raising more capital despite its solid cash runway. Companies can raise capital through either debt or equity. One of the main advantages that publicly traded companies have is that they can sell shares to investors to raise cash to fund growth. Looking at a company’s cash burn relative to its market capitalization can give us an idea of how much dilution shareholders would face if the company needed to raise enough cash to cover its cash burn over the next year.
Moonlake Immunotherapeutics has a market capitalization of $3.1 billion, so its cash burn of $65 million represents about 2.1% of its market capitalization, meaning the company could easily issue a few shares of stock and be in a position to borrow cheaply to fund further growth.
How risky is MoonLake Immunotherapeutics’ cash burn situation?
As you’ve probably guessed by now, we’re not too worried about MoonLake Immunotherapeutics’ cash burn. For example, we think its cash runway suggests the company is on a good trajectory. The company’s cash burn isn’t growing that much, but the other factors we’ve mentioned in this article more than make up for any weaknesses in that metric. Taking all the metrics in this article together, we’re not too worried about the company’s cash burn rate; the company seems to be well ahead of its medium term spending needs. Looking more closely, we’ve found 4 warning signs for MoonLake Immunotherapeutics you should know about, and 2 of them are less than favorable to us.
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This article by Simply Wall St is of general nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology, and our articles are not intended as financial advice. It is not a recommendation to buy or sell a stock, and does not take into account your objectives or financial situation. We aim to provide long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned herein.