Is Blueprint Medicines (NASDAQ:BPMC) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Blueprint Medicines Corporation (NASDAQ:BPMC) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Blueprint Medicines

What Is Blueprint Medicines's Debt?

As you can see below, Blueprint Medicines had US$642.1m of debt at December 2024, down from US$680.4m a year prior. However, it does have US$615.5m in cash offsetting this, leading to net debt of about US$26.7m.

A Look At Blueprint Medicines' Liabilities

We can see from the most recent balance sheet that Blueprint Medicines had liabilities of US$260.8m falling due within a year, and liabilities of US$620.4m due beyond that. Offsetting this, it had US$615.5m in cash and US$77.6m in receivables that were due within 12 months. So its liabilities total US$188.1m more than the combination of its cash and short-term receivables.

Since publicly traded Blueprint Medicines shares are worth a total of US$5.75b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Blueprint Medicines has a very light debt load indeed. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Blueprint Medicines can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Blueprint Medicines wasn't profitable at an EBIT level, but managed to grow its revenue by 104%, to US$509m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

Despite the top line growth, Blueprint Medicines still had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$212m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through US$197m of cash over the last year. So suffice it to say we do consider the stock to be risky. When I consider a company to be a bit risky, I think it is responsible to check out whether insiders have been reporting any share sales. Luckily, you can click here ito see our graphic depicting Blueprint Medicines insider transactions.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.