We're Keeping An Eye On Unicycive Therapeutics' (NASDAQ:UNCY) Cash Burn Rate
Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.
So, the natural question for Unicycive Therapeutics (NASDAQ:UNCY) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). Let's start with an examination of the business' cash, relative to its cash burn.
View our latest analysis for Unicycive Therapeutics
How Long Is Unicycive Therapeutics' 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 September 2023, Unicycive Therapeutics had US$14m in cash, and was debt-free. In the last year, its cash burn was US$20m. So it had a cash runway of approximately 9 months from September 2023. Importantly, analysts think that Unicycive Therapeutics will reach cashflow breakeven in around 19 months. Essentially, that means the company will either reduce its cash burn, or else require more cash. Depicted below, you can see how its cash holdings have changed over time.
How Is Unicycive Therapeutics' Cash Burn Changing Over Time?
Whilst it's great to see that Unicycive Therapeutics has already begun generating revenue from operations, last year it only produced US$675k, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. Over the last year its cash burn actually increased by a very significant 81%. 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.
How Easily Can Unicycive Therapeutics Raise Cash?
Since its cash burn is moving in the wrong direction, Unicycive Therapeutics shareholders may wish to think ahead to when the company may need to raise more cash. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.
Unicycive Therapeutics has a market capitalisation of US$35m and burnt through US$20m last year, which is 57% of the company's market value. From this perspective, it seems that the company spent a huge amount relative to its market value, and we'd be very wary of a painful capital raising.
Is Unicycive Therapeutics' Cash Burn A Worry?
We must admit that we don't think Unicycive Therapeutics is in a very strong position, when it comes to its cash burn. While its cash runway wasn't too bad, its cash burn relative to its market cap does leave us rather nervous. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. Separately, we looked at different risks affecting the company and spotted 6 warning signs for Unicycive Therapeutics (of which 3 are potentially serious!) you should know about.
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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.
