In This Article:
Just because a business does not make any money, does not mean that the stock will go down. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. But while history lauds those rare successes, those that fail are often forgotten; who remembers Pets.com?
So should Rallybio (NASDAQ:RLYB) 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.
View our latest analysis for Rallybio
When Might Rallybio Run Out Of Money?
A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Rallybio last reported its September 2024 balance sheet in November 2024, it had zero debt and cash worth US$75m. Importantly, its cash burn was US$51m over the trailing twelve months. So it had a cash runway of approximately 18 months from September 2024. 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. You can see how its cash balance has changed over time in the image below.
How Is Rallybio's Cash Burn Changing Over Time?
In our view, Rallybio doesn't yet produce significant amounts of operating revenue, since it reported just US$598k in the last twelve months. Therefore, for the purposes of this analysis we'll focus on how the cash burn is tracking. While it hardly paints a picture of imminent growth, the fact that it has reduced its cash burn by 20% over the last year suggests some degree of prudence. 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 Easily Can Rallybio Raise Cash?
Even though it has reduced its cash burn recently, shareholders should still consider how easy it would be for Rallybio 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$30m, Rallybio's US$51m in cash burn equates to about 170% of its market value. That suggests the company may have some funding difficulties, and we'd be very wary of the stock.