We're Keeping An Eye On Lytix Biopharma's (OB:LYTIX) 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, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether Lytix Biopharma (OB:LYTIX) shareholders should 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Lytix Biopharma

When Might Lytix Biopharma 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. In June 2023, Lytix Biopharma had kr100m in cash, and was debt-free. In the last year, its cash burn was kr78m. That means it had a cash runway of around 15 months as of June 2023. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

How Hard Would It Be For Lytix Biopharma To Raise More Cash For 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. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Since it has a market capitalisation of kr280m, Lytix Biopharma's kr78m in cash burn equates to about 28% of its market value. 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 Lytix Biopharma's Cash Burn A Worry?

Because Lytix Biopharma is an early stage company, we don't have a great deal of data on which to form an opinion of its cash burn. And it is worth keeping in mind that early stage companies are generally more risky than well established ones. Even though we don't think shareholders should be alarmed by its cash burn, we do think they should be keeping a close eye on it. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Lytix Biopharma (of which 4 are concerning!) 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.