Here's Why We're Not Too Worried About Matinas BioPharma Holdings' (NYSEMKT:MTNB) Cash Burn Situation

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 Matinas BioPharma Holdings (NYSEMKT:MTNB) shareholders should 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 Matinas BioPharma Holdings

When Might Matinas BioPharma Holdings 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. In September 2020, Matinas BioPharma Holdings had US$63m in cash, and was debt-free. In the last year, its cash burn was US$18m. So it had a cash runway of about 3.5 years from September 2020. Importantly, though, analysts think that Matinas BioPharma Holdings will reach cashflow breakeven before then. If that happens, then the length of its cash runway, today, would become a moot point. You can see how its cash balance has changed over time in the image below.

How Is Matinas BioPharma Holdings' Cash Burn Changing Over Time?

Whilst it's great to see that Matinas BioPharma Holdings has already begun generating revenue from operations, last year it only produced US$96k, so we don't think it is generating significant revenue, at this point. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. Over the last year its cash burn actually increased by 47%, which suggests that management are increasing investment in future growth, but not too quickly. However, the company's true cash runway will therefore be shorter than suggested above, if spending continues to increase. 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.

How Easily Can Matinas BioPharma Holdings Raise Cash?

Given its cash burn trajectory, Matinas BioPharma Holdings shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. Companies can raise capital through either debt or equity. Many companies end up issuing new shares to fund future 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.

Matinas BioPharma Holdings has a market capitalisation of US$270m and burnt through US$18m last year, which is 6.7% of the company's market value. Given that is a rather small percentage, it would probably be really easy for the company to fund another year's growth by issuing some new shares to investors, or even by taking out a loan.

So, Should We Worry About Matinas BioPharma Holdings' Cash Burn?

As you can probably tell by now, we're not too worried about Matinas BioPharma Holdings' cash burn. For example, we think its cash runway suggests that the company is on a good path. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. Shareholders can take heart from the fact that analysts are forecasting it will reach breakeven. After taking into account the various metrics mentioned in this report, we're pretty comfortable with how the company is spending its cash, as it seems on track to meet its needs over the medium term. Taking a deeper dive, we've spotted 4 warning signs for Matinas BioPharma Holdings you should be aware of, and 1 of them is significant.

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This article by Simply Wall St is general in nature. 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.
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