Stock Analysis

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

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NasdaqGM:DICE
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Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should DICE Therapeutics (NASDAQ:DICE) shareholders 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. Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for DICE Therapeutics

How Long Is DICE Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When DICE Therapeutics last reported its balance sheet in June 2022, it had zero debt and cash worth US$282m. In the last year, its cash burn was US$56m. So it had a cash runway of about 5.0 years from June 2022. While this is only one measure of its cash burn situation, it certainly gives us the impression that holders have nothing to worry about. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqGM:DICE Debt to Equity History September 11th 2022

How Is DICE Therapeutics' Cash Burn Changing Over Time?

Because DICE Therapeutics isn't currently generating revenue, we consider it an early-stage business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. The skyrocketing cash burn up 107% year on year certainly tests our nerves. With spending growing that quickly, shareholders will be hoping that the money is prudently spent. Clearly, however, the crucial factor is whether the company will grow its business going forward. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Hard Would It Be For DICE Therapeutics To Raise More Cash For Growth?

While DICE Therapeutics does have a solid cash runway, its cash burn trajectory may have some shareholders thinking ahead to when the company may need to raise more cash. Companies can raise capital through either debt or equity. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

DICE Therapeutics has a market capitalisation of US$865m and burnt through US$56m last year, which is 6.5% of the company's market value. 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.

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

As you can probably tell by now, we're not too worried about DICE Therapeutics' cash burn. In particular, we think its cash runway stands out as evidence that the company is well on top of its spending. While we must concede that its increasing cash burn is a bit worrying, the other factors mentioned in this article provide great comfort when it comes to the cash burn. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Separately, we looked at different risks affecting the company and spotted 3 warning signs for DICE Therapeutics (of which 2 shouldn't be ignored!) you should know about.

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About NasdaqGM:DICE

DICE Therapeutics

DICE Therapeutics, Inc., a biopharmaceutical company, builds various oral therapeutic candidates to treat chronic diseases in immunology and other therapeutic areas.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth0
Past Performance0
Financial Health6
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Flawless balance sheet and slightly overvalued.