Here's Why We're Not At All Concerned With Intra-Cellular Therapies' (NASDAQ:ITCI) Cash Burn Situation

Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

Given this risk, we thought we'd take a look at whether Intra-Cellular Therapies (NASDAQ:ITCI) shareholders should be worried about its cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called its negative free cash flow). First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

Check out our latest analysis for Intra-Cellular Therapies

Does Intra-Cellular Therapies Have A Long Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In September 2024, Intra-Cellular Therapies had US$1.0b in cash, and was debt-free. In the last year, its cash burn was US$63m. That means it had a cash runway of very many years as of September 2024. Notably, however, analysts think that Intra-Cellular Therapies will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. The image below shows how its cash balance has been changing over the last few years.

How Well Is Intra-Cellular Therapies Growing?

Intra-Cellular Therapies managed to reduce its cash burn by 61% over the last twelve months, which suggests it's on the right flight path. And revenue is up 46% in that same period; also a good sign. Overall, we'd say its growth is rather impressive. While the past is always worth studying, it is the future that matters most of all. So you might want to take a peek at how much the company is expected to grow in the next few years.

How Easily Can Intra-Cellular Therapies Raise Cash?

We are certainly impressed with the progress Intra-Cellular Therapies 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. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Since it has a market capitalisation of US$9.0b, Intra-Cellular Therapies' US$63m in cash burn equates to about 0.7% of its market value. So it could almost certainly just borrow a little to fund another year's growth, or else easily raise the cash by issuing a few shares.

So, Should We Worry About Intra-Cellular Therapies' Cash Burn?

As you can probably tell by now, we're not too worried about Intra-Cellular Therapies' cash burn. For example, we think its cash runway suggests that the company is on a good path. And even its cash burn reduction was very encouraging. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. Taking an in-depth view of risks, we've identified 1 warning sign for Intra-Cellular Therapies that you should be aware of before investing.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.