KalVista Pharmaceuticals Inc (NASDAQ:KALV) announced a loss of -$20.09M in its most recent earnings update. Although some investors expected this, their belief in the path to profitability for KALV may be wavering. Cash is crucial to run a business, and if a company burns through its reserves fast, it will need to come back to market for additional capital raising. This may not always be on their own terms, which could hurt current shareholders if the new deal lowers the value of their shares. Today I’ve examined KALV’s financial data to roughly assess when the company may need to raise new capital. Check out our latest analysis for KalVista Pharmaceuticals
What is cash burn?
KALV currently has $26.46M in the bank, with negative cash flows from operations of -$22.52M. The riskiest factor facing investors of KALV is the potential for the company to run out of cash without the ability to raise more money. Unprofitable companies operating in the exciting, fast-growing biotech industry often face this problem, and KALV is no exception. These companies face the trade-off between running the risk of depleting its cash reserves too fast, or falling behind competition on innovation and gaining market share by investing too slowly.
When will KALV need to raise more cash?
Over the last twelve months, opex (excluding one-offs) increased by 36.82%, which is considerably high. Though, my cash burn analysis suggests that KALV has a cash runway of over three years, with its current level of cash holdings. This means the company’s expenditure can continue to grow at the same rate without having to come to market anytime soon. Although this is a relatively simplistic calculation, and KALV may reduce its costs or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.
What this means for you:
Are you a shareholder? Although KALV’s opex is growing at a double-digit rate, investors can breathe easy knowing it probably won’t be coming to market any time soon. However, this analysis still doesn’t tell us when KALV will become breakeven. I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well.
Are you a potential investor? Even though KALV is growing its opex extremely fast, there’s plenty of cash runway for the company, meaning that there’s no urgent need for KALV to raise further cash. This means, if you like the company as a possible investment, and believe the market has undervalued its growth potential, there’s no immediate benefit in waiting to invest. However, you should make sure you consider all the company’s fundamentals and have a strong investment case before you dive in!
An experienced management team on the helm increases our confidence in the business – have a peek at KALV’s CEO experience and the tenure of the board here. If risky loss-making stocks do not appeal to you, see my list of highly profitable companies to add to your portfolio..
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.