Will Avalo Therapeutics (NASDAQ:AVTX) Spend Its Cash Wisely?

There's no doubt that money can be made by owning shares of unprofitable businesses. 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So, the natural question for Avalo Therapeutics (NASDAQ:AVTX) shareholders is whether they should be concerned by its rate of cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

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How Long Is Avalo Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. In September 2025, Avalo Therapeutics had US$112m in cash, and was debt-free. Importantly, its cash burn was US$52m over the trailing twelve months. So it had a cash runway of about 2.1 years from September 2025. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

Check out our latest analysis for Avalo Therapeutics

How Is Avalo Therapeutics' Cash Burn Changing Over Time?

In our view, Avalo Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$192k in the last twelve months. 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. With the cash burn rate up 42% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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.

Can Avalo Therapeutics Raise More Cash Easily?

While Avalo Therapeutics does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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 US$203m, Avalo Therapeutics' US$52m in cash burn equates to about 26% 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.

So, Should We Worry About Avalo Therapeutics' Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Avalo Therapeutics' cash runway was relatively promising. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about Avalo Therapeutics' situation. Taking a deeper dive, we've spotted 5 warning signs for Avalo Therapeutics you should be aware of, and 2 of them are a bit concerning.

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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.