Adaptimmune Therapeutics (NASDAQ:ADAP) Is In A Strong Position To Grow Its Business
We can readily understand why investors are attracted to unprofitable companies. 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 should Adaptimmune Therapeutics (NASDAQ:ADAP) shareholders be worried about its 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.
Check out our latest analysis for Adaptimmune Therapeutics
Does Adaptimmune Therapeutics Have A Long Cash Runway?
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. In June 2022, Adaptimmune Therapeutics had US$258m in cash, and was debt-free. In the last year, its cash burn was US$29m. Therefore, from June 2022 it had 9.0 years of cash runway. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. The image below shows how its cash balance has been changing over the last few years.
How Well Is Adaptimmune Therapeutics Growing?
Adaptimmune Therapeutics managed to reduce its cash burn by 78% over the last twelve months, which suggests it's on the right flight path. This reduction was no doubt supported by its strong revenue growth of 89% in the same period. Overall, we'd say its growth is rather impressive. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.
How Easily Can Adaptimmune Therapeutics Raise Cash?
We are certainly impressed with the progress Adaptimmune Therapeutics has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Companies can raise capital through either debt or equity. Commonly, a business will sell new shares in itself to raise cash and drive growth. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.
Adaptimmune Therapeutics has a market capitalisation of US$271m and burnt through US$29m last year, which is 11% of the company's market value. Given that situation, it's fair to say the company wouldn't have much trouble raising more cash for growth, but shareholders would be somewhat diluted.
How Risky Is Adaptimmune Therapeutics' Cash Burn Situation?
It may already be apparent to you that we're relatively comfortable with the way Adaptimmune Therapeutics is burning through its cash. For example, we think its revenue growth suggests that the company is on a good path. Its cash burn relative to its market cap wasn't quite as good, but was still rather encouraging! Taking all the factors in this report into account, we're not at all worried about its cash burn, as the business appears well capitalized to spend as needs be. Separately, we looked at different risks affecting the company and spotted 4 warning signs for Adaptimmune Therapeutics (of which 1 can't be ignored!) you should know about.
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.
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