Is Ventyx Biosciences (NASDAQ:VTYX) In A Good Position To Deliver On Growth Plans?

There's no doubt that money can be made by owning shares of unprofitable businesses. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So should Ventyx Biosciences (NASDAQ:VTYX) shareholders be worried about its cash burn? In this report, we will consider the company's annual negative free cash flow, henceforth referring to it as the 'cash burn'. Let's start with an examination of the business' cash, relative to its cash burn.

Our free stock report includes 2 warning signs investors should be aware of before investing in Ventyx Biosciences. Read for free now.

Does Ventyx Biosciences Have A Long Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. As at December 2024, Ventyx Biosciences had cash of US$217m and no debt. Looking at the last year, the company burnt through US$131m. That means it had a cash runway of around 20 months as of December 2024. That's not too bad, but it's fair to say the end of the cash runway is in sight, unless cash burn reduces drastically. You can see how its cash balance has changed over time in the image below.

View our latest analysis for Ventyx Biosciences

How Is Ventyx Biosciences' Cash Burn Changing Over Time?

Ventyx Biosciences didn't record any revenue over the last year, indicating that it's an early stage company still developing its business. Nonetheless, we can still examine its cash burn trajectory as part of our assessment of its cash burn situation. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 22% over the last year suggests some degree of prudence. 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.

Can Ventyx Biosciences Raise More Cash Easily?

Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Ventyx Biosciences 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. One of the main advantages held by publicly listed companies is that they can sell shares to investors to raise cash and fund 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.

Since it has a market capitalisation of US$103m, Ventyx Biosciences' US$131m in cash burn equates to about 127% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

How Risky Is Ventyx Biosciences' Cash Burn Situation?

Even though its cash burn relative to its market cap makes us a little nervous, we are compelled to mention that we thought Ventyx Biosciences' cash runway was relatively promising. Summing up, we think the Ventyx Biosciences' cash burn is a risk, based on the factors we mentioned in this article. Separately, we looked at different risks affecting the company and spotted 2 warning signs for Ventyx Biosciences (of which 1 is a bit unpleasant!) you should know about.

Of course Ventyx Biosciences 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 with high insider ownership.

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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.