Repare Therapeutics (NASDAQ:RPTX) Is In A Good Position To Deliver On Growth Plans

We can readily understand why investors are attracted to unprofitable companies. For example, although Amazon.com made losses for many years after listing, if you had bought and held the shares since 1999, you would have made a fortune. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

So should Repare Therapeutics (NASDAQ:RPTX) 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). The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

See our latest analysis for Repare Therapeutics

When Might Repare Therapeutics Run Out Of Money?

You can calculate a company's cash runway by dividing the amount of cash it has by the rate at which it is spending that cash. In September 2021, Repare Therapeutics had US$268m in cash, and was debt-free. In the last year, its cash burn was US$81m. Therefore, from September 2021 it had 3.3 years of cash runway. There's no doubt that this is a reassuringly long runway. You can see how its cash balance has changed over time in the image below.

How Is Repare Therapeutics' Cash Burn Changing Over Time?

In our view, Repare Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$858k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Its cash burn positively exploded in the last year, up 2,071%. Given that sharp increase in spending, the company's cash runway will shrink rapidly as it depletes its cash reserves. 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 Repare Therapeutics Raise Cash?

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

Repare Therapeutics has a market capitalisation of US$670m and burnt through US$81m last year, which is 12% 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.

How Risky Is Repare Therapeutics' Cash Burn Situation?

On this analysis of Repare Therapeutics' cash burn, we think its cash runway was reassuring, while its increasing cash burn has us a bit worried. Based on the factors mentioned in this article, we think its cash burn situation warrants some attention from shareholders, but we don't think they should be worried. Separately, we looked at different risks affecting the company and spotted 5 warning signs for Repare Therapeutics (of which 2 are potentially serious!) you should know about.

Of course Repare Therapeutics may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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.