We Think Day One Biopharmaceuticals (NASDAQ:DAWN) Can Afford To Drive Business Growth

We can readily understand why investors are attracted to unprofitable companies. 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. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

Given this risk, we thought we'd take a look at whether Day One Biopharmaceuticals (NASDAQ:DAWN) shareholders should be worried about its 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

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Does Day One Biopharmaceuticals Have A Long Cash Runway?

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 2025, Day One Biopharmaceuticals had cash of US$473m and no debt. In the last year, its cash burn was US$165m. Therefore, from March 2025 it had 2.9 years of cash runway. Importantly, though, analysts think that Day One Biopharmaceuticals will reach cashflow breakeven before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

See our latest analysis for Day One Biopharmaceuticals

How Is Day One Biopharmaceuticals' Cash Burn Changing Over Time?

In our view, Day One Biopharmaceuticals doesn't yet produce significant amounts of operating revenue, since it reported just US$162m 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 cash burn dropping by 4.8% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Day One Biopharmaceuticals Raise More Cash Easily?

While Day One Biopharmaceuticals is showing a solid reduction in its cash burn, 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 looking at a company's cash burn relative to its market capitalisation, we gain insight on how much shareholders would be diluted if the company needed to raise enough cash to cover another year's cash burn.

Since it has a market capitalisation of US$671m, Day One Biopharmaceuticals' US$165m in cash burn equates to about 25% of its market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

Is Day One Biopharmaceuticals' Cash Burn A Worry?

As you can probably tell by now, we're not too worried about Day One Biopharmaceuticals' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While its cash burn relative to its market cap wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. One real positive is that analysts are forecasting that the company will reach breakeven. 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. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 1 warning sign for Day One Biopharmaceuticals that potential shareholders should take into account before putting money into a stock.

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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.