In the most recent twelve months, Moleculin Biotech Inc’s (NASDAQ:MBRX) earnings loss has accumulated to -$6.61M. Although some investors expected this, their belief in the path to profitability for MBRX may be wavering. Savvy investors should always reassess the situation of loss-making companies frequently, and keep informed about whether or not these businesses are in a strong cash position. 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. Looking at MBRX’s latest financial data, I will gauge when the company may run out of cash and need to raise more money. See our latest analysis for MBRX
What is cash burn?
MBRX currently has $9.27M in the bank, with negative cash flows from operations of -$5.44M. Since it is spending more money than it makes, the business is “burning” through its cash to run its day-to-day operations. The cash burn rate refers to the rate at which the company uses up its supply of cash over time. The riskiest factor facing investors of MBRX is the potential for the company to run out of cash without the ability to raise more money, i.e. MBRX goes out of business. Unprofitable companies operating in the exciting, fast-growing biotech industry often face this problem, and MBRX is no exception. These companies face the trade-off between running the risk of depleting its cash reserves too fast, or the risk of falling behind competition on innovation and gaining market share by investing too slowly.
When will MBRX need to raise more cash?
MBRX has to pay its employees and other necessities such as rent and admin costs in order to keep its business running. These costs are called operational expenses, which is sometimes shortened to opex. Over the last twelve months, opex (excluding one-offs) increased by 62.58%, which is rather substantial. My cash burn analysis suggests that MBRX has a cash runway of 1.6 years, given its current level of cash holdings. This may mean it will be coming to market sooner than shareholders would like. Furthermore, even if MBRX kept its opex level at the current $5.6M, it will still be coming to market in about 1.7 years. Although this is a relatively simplistic calculation, and MBRX may reduce its costs or raise debt capital instead of coming to equity markets, 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? In the context of your portfolio, you should always seek to diversify, especially if you have a relatively high exposure to MBRX. Hopefully, the analysis has shed some light on the risks you should bear in mind as a shareholder of MBRX, in particular, its tight cash runway moving forward. Now that we’ve accounted for opex growth, you should also look at expected revenue growth in order to gauge when the company may become breakeven.
Are you a potential investor? This analysis isn’t meant to deter you from buying MBRX, but rather, to help you better understand the risks involved investing in loss-making companies. The outcome of my analysis suggests that if MBRX maintains the rate of opex growth, it will run out of cash in the upcoming years. The potential equity raising resulting from this means you could potentially get a better deal on the share price when the company raises capital next.
Good management manages cash well – take a look at who sits on MBRX’s board and the CEO’s back ground and experience here. If you believe you should cushion your portfolio with something less risky, scroll through my list of highly profitable companies to add to your portfolio..NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures. Operating expenses include only SG&A and one-year R&D.