Is Zenas BioPharma (NASDAQ:ZBIO) In A Good Position To Invest In Growth?

We can readily understand why investors are attracted to unprofitable companies. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. Having said that, unprofitable companies are risky because they could potentially burn through all their cash and become distressed.

So should Zenas BioPharma (NASDAQ:ZBIO) 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. We'll start by comparing its cash burn with its cash reserves in order to calculate its cash runway.

View our latest analysis for Zenas BioPharma

How Long Is Zenas BioPharma's Cash Runway?

A company's cash runway is the amount of time it would take to burn through its cash reserves at its current cash burn rate. In December 2024, Zenas BioPharma had US$351m in cash, and was debt-free. Looking at the last year, the company burnt through US$120m. Therefore, from December 2024 it had 2.9 years of cash runway. That's decent, giving the company a couple years to develop its business. You can see how its cash balance has changed over time in the image below.

How Well Is Zenas BioPharma Growing?

One thing for shareholders to keep front in mind is that Zenas BioPharma increased its cash burn by 292% in the last twelve months. If that's not bad enough, it actually saw operating revenue decrease by a whopping 90% over the last year, suggesting the company is going through some sort of dangerous transition. In light of the above-mentioned, we're pretty wary of the trajectory the company seems to be on. While the past is always worth studying, it is the future that matters most of all. 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 Zenas BioPharma Raise Cash?

Zenas BioPharma revenue is declining and its cash burn is increasing, so many may be considering its need to raise more cash in the future. Generally speaking, a listed business can raise new cash through issuing shares or taking on debt. 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).

Since it has a market capitalisation of US$303m, Zenas BioPharma's US$120m in cash burn equates to about 40% of its market value. 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.

How Risky Is Zenas BioPharma's Cash Burn Situation?

On this analysis of Zenas BioPharma's cash burn, we think its cash runway was reassuring, while its falling revenue has us a bit worried. Summing up, we think the Zenas BioPharma's cash burn is a risk, based on the factors we mentioned in this article. An in-depth examination of risks revealed 3 warning signs for Zenas BioPharma that readers should think about before committing capital to this stock.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies, and this list of stocks growth stocks (according to analyst forecasts)

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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.