Is Lyra Therapeutics (NASDAQ:LYRA) In A Good Position To Deliver On Growth Plans?

We can readily understand why investors are attracted to unprofitable companies. 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, the natural question for Lyra Therapeutics (NASDAQ:LYRA) shareholders is whether they should be concerned by its rate of cash burn. In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

View our latest analysis for Lyra Therapeutics

How Long Is Lyra Therapeutics' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Lyra Therapeutics last reported its balance sheet in September 2022, it had zero debt and cash worth US$110m. Looking at the last year, the company burnt through US$44m. That means it had a cash runway of about 2.5 years as of September 2022. Importantly, analysts think that Lyra Therapeutics will reach cashflow breakeven in 5 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. The image below shows how its cash balance has been changing over the last few years.

How Is Lyra Therapeutics' Cash Burn Changing Over Time?

In our view, Lyra Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$1.6m in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Over the last year its cash burn actually increased by a very significant 84%. Oftentimes, increased cash burn simply means a company is accelerating its business development, but one should always be mindful that this causes the cash runway to shrink. 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 Hard Would It Be For Lyra Therapeutics To Raise More Cash For Growth?

While Lyra 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. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Lyra Therapeutics' cash burn of US$44m is about 69% of its US$64m market capitalisation. That's very high expenditure relative to the company's size, suggesting it is an extremely high risk stock.

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

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Lyra Therapeutics' cash runway was relatively promising. One real positive is that analysts are forecasting that the company will reach breakeven. Even though we don't think it has a problem with its cash burn, the analysis we've done in this article does suggest that shareholders should give some careful thought to the potential cost of raising more money in the future. On another note, Lyra Therapeutics has 4 warning signs (and 1 which is a bit concerning) we think you should know about.

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.