We're Keeping An Eye On VYNE Therapeutics' (NASDAQ:VYNE) Cash Burn Rate

May 04, 2023

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 while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?

Given this risk, we thought we'd take a look at whether VYNE Therapeutics (NASDAQ:VYNE) shareholders should be worried about its cash burn. In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

See our latest analysis for VYNE Therapeutics

SWOT Analysis for VYNE Therapeutics

Strength

Currently debt free.

Balance sheet summary for VYNE.

Weakness

Expensive based on P/S ratio compared to estimated Fair P/S ratio.

Opportunity

Significant insider buying over the past 3 months.

Threat

Has less than 3 years of cash runway based on current free cash flow.

Not expected to become profitable over the next 3 years.

Is VYNE well equipped to handle threats?

How Long Is VYNE Therapeutics' 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 2022, VYNE Therapeutics had cash of US$31m and no debt. In the last year, its cash burn was US$29m. That means it had a cash runway of around 13 months as of December 2022. 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. The image below shows how its cash balance has been changing over the last few years.

debt-equity-history-analysis — NasdaqCM:VYNE Debt to Equity History May 4th 2023

How Is VYNE Therapeutics' Cash Burn Changing Over Time?

In our view, VYNE Therapeutics doesn't yet produce significant amounts of operating revenue, since it reported just US$477k in the last twelve months. 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. Even though it doesn't get us excited, the 48% reduction in cash burn year on year does suggest the company can continue operating for quite some time. 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 VYNE Therapeutics Raise More Cash Easily?

While VYNE Therapeutics is showing a solid reduction in its cash burn, 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. 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$20m, VYNE Therapeutics' US$29m in cash burn equates to about 144% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.

So, Should We Worry About VYNE Therapeutics' Cash Burn?

On this analysis of VYNE Therapeutics' cash burn, we think its cash burn reduction was reassuring, while its cash burn relative to its market cap has us a bit worried. Considering all the measures mentioned in this report, we reckon that its cash burn is fairly risky, and if we held shares we'd be watching like a hawk for any deterioration. Taking a deeper dive, we've spotted 6 warning signs for VYNE Therapeutics you should be aware of, and 4 of them don't sit too well with us.

Of course VYNE Therapeutics 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.