Will Ultragenyx Pharmaceutical (NASDAQ:RARE) Spend Its Cash Wisely?

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. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether Ultragenyx Pharmaceutical (NASDAQ:RARE) 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). Let's start with an examination of the business' cash, relative to its cash burn.

Check out our latest analysis for Ultragenyx Pharmaceutical

How Long Is Ultragenyx Pharmaceutical's 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. When Ultragenyx Pharmaceutical last reported its balance sheet in September 2023, it had zero debt and cash worth US$442m. Importantly, its cash burn was US$553m over the trailing twelve months. Therefore, from September 2023 it had roughly 10 months of cash runway. Importantly, analysts think that Ultragenyx Pharmaceutical will reach cashflow breakeven in 4 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. You can see how its cash balance has changed over time in the image below.

How Well Is Ultragenyx Pharmaceutical Growing?

At first glance it's a bit worrying to see that Ultragenyx Pharmaceutical actually boosted its cash burn by 15%, year on year. At least the revenue was up 19% during the period, even if it wasn't up by much. Considering the factors above, the company doesn’t fare badly when it comes to assessing how it is changing over time. 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.

Can Ultragenyx Pharmaceutical Raise More Cash Easily?

Given the trajectory of Ultragenyx Pharmaceutical's cash burn, many investors will already be thinking about how it might raise more cash in the future. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future growth. By comparing a company's annual cash burn to its total market capitalisation, we can estimate roughly how many shares it would have to issue in order to run the company for another year (at the same burn rate).

Ultragenyx Pharmaceutical has a market capitalisation of US$3.6b and burnt through US$553m last year, which is 15% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

Is Ultragenyx Pharmaceutical's Cash Burn A Worry?

Even though its cash runway makes us a little nervous, we are compelled to mention that we thought Ultragenyx Pharmaceutical's revenue growth 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, Ultragenyx Pharmaceutical has 3 warning signs (and 1 which is a bit unpleasant) 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 companies insiders are buying, 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.