We Think Wave Life Sciences (NASDAQ:WVE) Needs To Drive Business Growth Carefully

We can readily understand why investors are attracted to unprofitable companies. For example, although software-as-a-service business Salesforce.com lost money for years while it grew recurring revenue, if you held shares since 2005, you'd have done very well indeed. 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.

So should Wave Life Sciences (NASDAQ:WVE) 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.

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When Might Wave Life Sciences 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. As at March 2025, Wave Life Sciences had cash of US$243m and no debt. In the last year, its cash burn was US$181m. That means it had a cash runway of around 16 months as of March 2025. While that cash runway isn't too concerning, sensible holders would be peering into the distance, and considering what happens if the company runs out of cash. The image below shows how its cash balance has been changing over the last few years.

Check out our latest analysis for Wave Life Sciences

How Well Is Wave Life Sciences Growing?

At first glance it's a bit worrying to see that Wave Life Sciences actually boosted its cash burn by 30%, year on year. Also concerning, operating revenue was actually down by 7.1% in that time. Considering both these metrics, we're a little concerned about how the company is developing. 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 Hard Would It Be For Wave Life Sciences To Raise More Cash For Growth?

Even though it seems like Wave Life Sciences is developing its business nicely, we still like to consider how easily it could raise more money to accelerate growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Many companies end up issuing new shares to fund future 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).

Wave Life Sciences has a market capitalisation of US$1.1b and burnt through US$181m last year, which is 17% of the company's market value. As a result, we'd venture that the company could raise more cash for growth without much trouble, albeit at the cost of some dilution.

So, Should We Worry About Wave Life Sciences' Cash Burn?

Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Wave Life Sciences' cash runway was relatively promising. We don't think its cash burn is particularly problematic, but after considering the range of factors in this article, we do think shareholders should be monitoring how it changes over time. Readers need to have a sound understanding of business risks before investing in a stock, and we've spotted 2 warning signs for Wave Life Sciences that potential shareholders should take into account before putting money into a stock.

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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.