Acurx Pharmaceuticals (NASDAQ:ACXP) Will Have To Spend Its Cash Wisely

Just because a business does not make any money, does not mean that the stock will go down. 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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Acurx Pharmaceuticals (NASDAQ:ACXP) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Acurx Pharmaceuticals

When Might Acurx Pharmaceuticals 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. When Acurx Pharmaceuticals last reported its June 2024 balance sheet in August 2024, it had zero debt and cash worth US$6.4m. In the last year, its cash burn was US$12m. So it had a cash runway of approximately 6 months from June 2024. To be frank, this kind of short runway puts us on edge, as it indicates the company must reduce its cash burn significantly, or else raise cash imminently. You can see how its cash balance has changed over time in the image below.

How Is Acurx Pharmaceuticals' Cash Burn Changing Over Time?

Acurx Pharmaceuticals didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. During the last twelve months, its cash burn actually ramped up 70%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For Acurx Pharmaceuticals To Raise More Cash For Growth?

Since its cash burn is moving in the wrong direction, Acurx Pharmaceuticals 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.

Acurx Pharmaceuticals has a market capitalisation of US$30m and burnt through US$12m last year, which is 41% of the company's market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

So, Should We Worry About Acurx Pharmaceuticals' Cash Burn?

We must admit that we don't think Acurx Pharmaceuticals is in a very strong position, when it comes to its cash burn. Although we can understand if some shareholders find its cash burn relative to its market cap acceptable, we can't ignore the fact that we consider its cash runway to be downright troublesome. Once we consider the metrics mentioned in this article together, we're left with very little confidence in the company's ability to manage its cash burn, and we think it will probably need more money. On another note, Acurx Pharmaceuticals has 6 warning signs (and 2 which are concerning) we think you should know about.

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