Stock Analysis

We're Not Very Worried About UroGen Pharma's (NASDAQ:URGN) Cash Burn Rate

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NasdaqGM:URGN
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Even when a business is losing money, it's possible for shareholders to make money if they buy a good business at the right price. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

Given this risk, we thought we'd take a look at whether UroGen Pharma (NASDAQ:URGN) 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). We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

See our latest analysis for UroGen Pharma

How Long Is UroGen Pharma's Cash Runway?

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. When UroGen Pharma last reported its balance sheet in June 2021, it had zero debt and cash worth US$121m. Importantly, its cash burn was US$94m over the trailing twelve months. So it had a cash runway of approximately 15 months from June 2021. Importantly, analysts think that UroGen Pharma will reach cashflow breakeven in around 20 months. So there's a very good chance it won't need more cash, when you consider the burn rate will be reducing in that period. You can see how its cash balance has changed over time in the image below.

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NasdaqGM:URGN Debt to Equity History November 4th 2021

How Is UroGen Pharma's Cash Burn Changing Over Time?

Whilst it's great to see that UroGen Pharma has already begun generating revenue from operations, last year it only produced US$32m, so we don't think it is generating significant revenue, at this point. As a result, we think it's a bit early to focus on the revenue growth, so we'll limit ourselves to looking at how the cash burn is changing over time. With cash burn dropping by 4.9% it seems management feel the company is spending enough to advance its business plans at an appropriate pace. 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 UroGen Pharma Raise Cash?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for UroGen Pharma to 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. 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).

UroGen Pharma's cash burn of US$94m is about 22% of its US$422m market capitalisation. 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 UroGen Pharma's Cash Burn A Worry?

On this analysis of UroGen Pharma's cash burn, we think its cash runway was reassuring, while its cash burn relative to its market cap has us a bit worried. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. While we're the kind of investors who are always a bit concerned about the risks involved with cash burning companies, the metrics we have discussed in this article leave us relatively comfortable about UroGen Pharma's situation. Taking an in-depth view of risks, we've identified 1 warning sign for UroGen Pharma that you should be aware of before investing.

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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