Here's Why We're Not Too Worried About Celldex Therapeutics' (NASDAQ:CLDX) Cash Burn Situation

We can readily understand why investors are attracted to unprofitable companies. By way of example, Celldex Therapeutics (NASDAQ:CLDX) has seen its share price rise 1,025% over the last year, delighting many shareholders. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

In light of its strong share price run, we think now is a good time to investigate how risky Celldex Therapeutics' cash burn is. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; 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 Celldex Therapeutics

When Might Celldex 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 March 2021, Celldex Therapeutics had cash of US$176m and such minimal debt that we can ignore it for the purposes of this analysis. In the last year, its cash burn was US$42m. Therefore, from March 2021 it had 4.2 years of cash runway. There's no doubt that this is a reassuringly long runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Celldex Therapeutics Growing?

On balance, we think it's mildly positive that Celldex Therapeutics trimmed its cash burn by 8.9% over the last twelve months. Revenue also improved during the period, increasing by 10%. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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.

Can Celldex Therapeutics Raise More Cash Easily?

We are certainly impressed with the progress Celldex Therapeutics has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. 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. 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.

Celldex Therapeutics' cash burn of US$42m is about 4.0% of its US$1.1b market capitalisation. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

Is Celldex Therapeutics' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Celldex Therapeutics' cash burn. For example, we think its cash runway suggests that the company is on a good path. Its weak point is its cash burn reduction, but even that wasn't too bad! Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. On another note, Celldex Therapeutics has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.

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This article by Simply Wall St is general in nature. 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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