Is Blueprint Medicines (NASDAQ:BPMC) Using Too Much Debt?

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. Importantly, Blueprint Medicines Corporation (NASDAQ:BPMC) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Blueprint Medicines

How Much Debt Does Blueprint Medicines Carry?

As you can see below, at the end of June 2024, Blueprint Medicines had US$652.4m of debt, up from US$577.3m a year ago. Click the image for more detail. But it also has US$763.6m in cash to offset that, meaning it has US$111.2m net cash.

How Strong Is Blueprint Medicines' Balance Sheet?

The latest balance sheet data shows that Blueprint Medicines had liabilities of US$243.8m due within a year, and liabilities of US$639.5m falling due after that. On the other hand, it had cash of US$763.6m and US$85.1m worth of receivables due within a year. So its liabilities total US$34.7m more than the combination of its cash and short-term receivables.

Having regard to Blueprint Medicines' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$5.91b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Blueprint Medicines also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Blueprint Medicines wasn't profitable at an EBIT level, but managed to grow its revenue by 61%, to US$363m. With any luck the company will be able to grow its way to profitability.

So How Risky Is Blueprint Medicines?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Blueprint Medicines had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$348m and booked a US$205m accounting loss. However, it has net cash of US$111.2m, so it has a bit of time before it will need more capital. Blueprint Medicines's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Blueprint Medicines that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.