Is TFF Pharmaceuticals (NASDAQ:TFFP) 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. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should TFF Pharmaceuticals (NASDAQ:TFFP) 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. The first step is to compare its cash burn with its cash reserves, to give us its 'cash runway'.

View our latest analysis for TFF Pharmaceuticals

How Long Is TFF Pharmaceuticals' Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. As at June 2022, TFF Pharmaceuticals had cash of US$21m and no debt. Importantly, its cash burn was US$31m over the trailing twelve months. So it had a cash runway of approximately 8 months from June 2022. Importantly, analysts think that TFF Pharmaceuticals will reach cashflow breakeven in 2 years. Essentially, that means the company will either reduce its cash burn, or else require more cash. The image below shows how its cash balance has been changing over the last few years.

How Is TFF Pharmaceuticals' Cash Burn Changing Over Time?

Whilst it's great to see that TFF Pharmaceuticals has already begun generating revenue from operations, last year it only produced US$157k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. With the cash burn rate up 32% in the last year, it seems that the company is ratcheting up investment in the business over time. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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 TFF Pharmaceuticals To Raise More Cash For Growth?

Since its cash burn is moving in the wrong direction, TFF Pharmaceuticals shareholders may wish to think ahead to when the company may need to raise more cash. 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 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).

TFF Pharmaceuticals has a market capitalisation of US$115m and burnt through US$31m last year, which is 27% of the company's market value. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.

How Risky Is TFF Pharmaceuticals' Cash Burn Situation?

We must admit that we don't think TFF Pharmaceuticals is in a very strong position, when it comes to its cash burn. While its cash burn relative to its market cap wasn't too bad, its cash runway does leave us rather nervous. One real positive is that analysts are forecasting that the company will reach breakeven. Summing up, we think the TFF Pharmaceuticals' cash burn is a risk, based on the factors we mentioned in this article. Taking a deeper dive, we've spotted 2 warning signs for TFF Pharmaceuticals you should be aware of, and 1 of them is significant.

Of course TFF Pharmaceuticals 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.