Stock Analysis

We're Not Very Worried About Kinnate Biopharma's (NASDAQ:KNTE) Cash Burn Rate

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NasdaqGS:KNTE
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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, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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.

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

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When Might Kinnate Biopharma Run Out Of Money?

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 2020, Kinnate Biopharma had US$157m in cash, and was debt-free. Importantly, its cash burn was US$20m over the trailing twelve months. That means it had a cash runway of about 7.8 years as of September 2020. Even though this is but one measure of the company's cash burn, the thought of such a long cash runway warms our bellies in a comforting way. Depicted below, you can see how its cash holdings have changed over time.

debt-equity-history-analysis
NasdaqGS:KNTE Debt to Equity History March 3rd 2021

How Is Kinnate Biopharma's Cash Burn Changing Over Time?

Because Kinnate Biopharma isn't currently generating revenue, we consider it an early-stage business. So while we can't look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. The skyrocketing cash burn up 102% year on year certainly tests our nerves. That sort of ramp in expenditure is no doubt intended to generate worthwhile long term returns. 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 Easily Can Kinnate Biopharma Raise Cash?

Given its cash burn trajectory, Kinnate Biopharma shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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.

Kinnate Biopharma's cash burn of US$20m is about 1.4% of its US$1.4b market capitalisation. That means it could easily issue a few shares to fund more growth, and might well be in a position to borrow cheaply.

How Risky Is Kinnate Biopharma's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Kinnate Biopharma's 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. Taking a deeper dive, we've spotted 3 warning signs for Kinnate Biopharma you should be aware of, and 1 of them is significant.

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What are the risks and opportunities for Kinnate Biopharma?

Kinnate Biopharma Inc., a biopharmaceutical company, focuses on the discovery and development of small molecule kinase inhibitors to treat genomically defined cancers in the United States.

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Risks

  • Makes less than USD$1m in revenue ($0)

  • Currently unprofitable and not forecast to become profitable over the next 3 years

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