We're Interested To See How Theravance Biopharma (NASDAQ:TBPH) Uses Its Cash Hoard To Grow

Just because a business does not make any money, does not mean that the stock will go down. 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, the natural question for Theravance Biopharma (NASDAQ:TBPH) shareholders is whether they should be concerned by its rate of 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Theravance Biopharma

When Might Theravance Biopharma 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 March 2024, Theravance Biopharma had US$100m in cash, and was debt-free. In the last year, its cash burn was US$18m. That means it had a cash runway of about 5.4 years as of March 2024. Importantly, though, analysts think that Theravance Biopharma will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Theravance Biopharma Growing?

Theravance Biopharma managed to reduce its cash burn by 89% over the last twelve months, which is extremely promising, when it comes to considering its need for cash. Pleasingly, this was achieved with the help of a 27% boost to revenue. We think it is growing rather well, upon reflection. While the past is always worth studying, it is the future that matters most of all. For that reason, it makes a lot of sense to take a look at our analyst forecasts for the company.

Can Theravance Biopharma Raise More Cash Easily?

We are certainly impressed with the progress Theravance Biopharma has made over the last year, but it is also worth considering how costly it would be if it wanted to raise more cash to fund faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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$456m, Theravance Biopharma's US$18m in cash burn equates to about 4.0% of its market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

How Risky Is Theravance Biopharma's Cash Burn Situation?

As you can probably tell by now, we're not too worried about Theravance Biopharma's cash burn. For example, we think its cash burn reduction suggests that the company is on a good path. And even its revenue growth was very encouraging. One real positive is that analysts are forecasting that the company will reach breakeven. After considering a range of factors in this article, we're pretty relaxed about its cash burn, since the company seems to be in a good position to continue to fund its growth. We think it's very important to consider the cash burn for loss making companies, but other considerations such as the amount the CEO is paid can also enhance your understanding of the business. You can click here to see what Theravance Biopharma's CEO gets paid each year.

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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.

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