We're Keeping An Eye On Sesen Bio's (NASDAQ:SESN) Cash Burn Rate

By
Simply Wall St
Published
December 04, 2021
NasdaqGM:SESN
Source: Shutterstock

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.

So should Sesen Bio (NASDAQ:SESN) shareholders be worried about its 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Sesen Bio

How Long Is Sesen Bio's Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at September 2021, Sesen Bio had cash of US$175m and no debt. Importantly, its cash burn was US$65m over the trailing twelve months. That means it had a cash runway of about 2.7 years as of September 2021. Arguably, that's a prudent and sensible length of runway to have. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis
NasdaqGM:SESN Debt to Equity History December 5th 2021

How Well Is Sesen Bio Growing?

Sesen Bio actually ramped up its cash burn by a whopping 79% in the last year, which shows it is boosting investment in the business. As if that's not bad enough, the operating revenue also dropped by 42%, making us very wary indeed. 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. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Sesen Bio Raise More Cash Easily?

While Sesen Bio 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 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).

Sesen Bio has a market capitalisation of US$182m and burnt through US$65m last year, which is 36% of the company's market value. That's fairly notable cash burn, so if the company had to sell shares to cover the cost of another year's operations, shareholders would suffer some costly dilution.

Is Sesen Bio's Cash Burn A Worry?

On this analysis of Sesen Bio's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. On another note, we conducted an in-depth investigation of the company, and identified 4 warning signs for Sesen Bio (2 are a bit concerning!) that you should be aware of before investing here.

If you would prefer to check out another company with better fundamentals, then do not miss this free list of interesting companies, that have HIGH return on equity and low debt or this list of stocks which are all forecast to grow.

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