We're Keeping An Eye On Aptinyx's (NASDAQ:APTX) Cash Burn Rate

There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Aptinyx (NASDAQ:APTX) shareholders should be worried about its 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for Aptinyx

How Long Is Aptinyx's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In June 2021, Aptinyx had US$129m in cash, and was debt-free. Importantly, its cash burn was US$47m over the trailing twelve months. That means it had a cash runway of about 2.8 years as of June 2021. Arguably, that's a prudent and sensible length of runway to have. You can see how its cash balance has changed over time in the image below.

How Well Is Aptinyx Growing?

In the last twelve months, Aptinyx kept its cash burn steady. Meanwhile, its operating revenue raised the white flag and retreated 60% in just one year. Taken together, we think these growth metrics are a little worrying. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

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

Aptinyx seems to be in a fairly good position, in terms of cash burn, but we still think it's worthwhile considering how easily it could raise more money if it wanted to. 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.

Aptinyx's cash burn of US$47m is about 30% of its US$156m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

Is Aptinyx's Cash Burn A Worry?

Even though its falling revenue makes us a little nervous, we are compelled to mention that we thought Aptinyx's cash runway was relatively promising. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Aptinyx (of which 1 is significant!) 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.
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