There’s no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Acurx Pharmaceuticals (NASDAQ:ACXP) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its ‘cash runway’.
See our latest analysis for Acurx Pharmaceuticals
When Might Acurx Pharmaceuticals Run Out Of Money?
You can calculate a company’s cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. As at June 2024, Acurx Pharmaceuticals had cash of US$6.4m and no debt. Importantly, its cash burn was US$12m over the trailing twelve months. So it had a cash runway of approximately 6 months from June 2024. That’s quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
How Is Acurx Pharmaceuticals’ Cash Burn Changing Over Time?
Acurx Pharmaceuticals didn’t record any revenue over the last year, indicating that it’s an early stage company still developing its business. So while we can’t look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. During the last twelve months, its cash burn actually ramped up 70%. While this spending increase is no doubt intended to drive growth, if the trend continues the company’s cash runway will shrink very quickly. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.
Can Acurx Pharmaceuticals Raise More Cash Easily?
Given its cash burn trajectory, Acurx Pharmaceuticals shareholders should already be thinking about how easy it might be for it to raise further cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Commonly, a business will sell new shares in itself to raise cash and drive growth. By looking at a company’s cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year’s cash burn.
Acurx Pharmaceuticals’ cash burn of US$12m is about 33% of its US$37m market capitalisation. That’s fairly notable cash burn, so if the company had to sell shares to cover the cost of another year’s operations, shareholders would suffer some costly dilution.
Is Acurx Pharmaceuticals’ Cash Burn A Worry?
Acurx Pharmaceuticals is not in a great position when it comes to its cash burn situation. Although we can understand if some shareholders find its cash burn relative to its market cap acceptable, we can’t ignore the fact that we consider its cash runway to be downright troublesome. After considering the data discussed in this article, we don’t have a lot of confidence that its cash burn rate is prudent, as it seems like it might need more cash soon. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Acurx Pharmaceuticals (2 make us uncomfortable!) that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
