We're Keeping An Eye On Oncternal Therapeutics' (NASDAQ:ONCT) Cash Burn Rate

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 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 Oncternal Therapeutics (NASDAQ:ONCT) shareholders is whether they should be concerned by its rate of cash burn. For the purposes of this article, cash burn is the annual rate at which an unprofitable company spends cash to fund its growth; its negative free cash flow. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Oncternal Therapeutics

How Long Is Oncternal Therapeutics' 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. As at September 2022, Oncternal Therapeutics had cash of US$71m and no debt. Importantly, its cash burn was US$34m over the trailing twelve months. That means it had a cash runway of about 2.1 years as of September 2022. That's decent, giving the company a couple years to develop its business. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Oncternal Therapeutics Growing?

Some investors might find it troubling that Oncternal Therapeutics is actually increasing its cash burn, which is up 44% in the last year. It's even more troubling to see that operating revenue fell 65% during the period. Considering these two factors together makes us nervous about the direction the company seems to be heading. Clearly, however, the crucial factor is whether the company will grow its business going forward. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

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

While Oncternal Therapeutics seems to be in a fairly good position, 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$72m, Oncternal Therapeutics' US$34m in cash burn equates to about 47% of its market value. That's high expenditure relative to the value of the entire company, so if it does have to issue shares to fund more growth, that could end up really hurting shareholders returns (through significant dilution).

How Risky Is Oncternal Therapeutics' Cash Burn Situation?

On this analysis of Oncternal Therapeutics' cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Summing up, we think the Oncternal Therapeutics' cash burn is a risk, based on the factors we mentioned in this article. Taking an in-depth view of risks, we've identified 4 warning signs for Oncternal Therapeutics that you should be aware of before investing.

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