We're Not Very Worried About Bicycle Therapeutics' (NASDAQ:BCYC) 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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So, the natural question for Bicycle Therapeutics (NASDAQ:BCYC) shareholders is whether they should be concerned by its rate of 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). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

See our latest analysis for Bicycle Therapeutics

When Might Bicycle Therapeutics Run Out Of Money?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at September 2024, Bicycle Therapeutics had cash of US$891m and no debt. Looking at the last year, the company burnt through US$204m. Therefore, from September 2024 it had 4.4 years of cash runway. Notably, however, analysts think that Bicycle Therapeutics will break even (at a free cash flow level) before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Bicycle Therapeutics Growing?

One thing for shareholders to keep front in mind is that Bicycle Therapeutics increased its cash burn by 324% in the last twelve months. But the silver lining is that operating revenue increased by 49% in that time. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 Easily Can Bicycle Therapeutics Raise Cash?

While Bicycle Therapeutics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. Many companies end up issuing new shares to fund future 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).

Bicycle Therapeutics' cash burn of US$204m is about 20% of its US$1.0b market capitalisation. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

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

On this analysis of Bicycle Therapeutics' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. Cash burning companies are always on the riskier side of things, but after considering all of the factors discussed in this short piece, we're not too worried about its rate of cash burn. Taking a deeper dive, we've spotted 3 warning signs for Bicycle Therapeutics you should be aware of, and 1 of them is a bit unpleasant.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.