Valeritas Holdings Inc (NASDAQ:VLRX) announced a loss of -$43.39M in its most recent earnings update. Although some investors expected this, their belief in the path to profitability for VLRX may be wavering. A crucial question to bear in mind when you’re an investor of an unprofitable business, is whether the company will have to raise more capital in the near future. Below, I’ve analysed the most recent financial data to help answer this question. View our latest analysis for Valeritas Holdings

What is cash burn?

VLRX currently has $42.26M in the bank, with negative cash flows from operations of -$27.03M. The biggest threat facing VLRX’s investor is the company going out of business when it runs out of money and cannot raise any more capital. Furthermore, it is not uncommon to find loss-makers in an industry such as healthcare. The industry is highly competitive, with companies racing to invest in innovation at the risk of burning through its cash too fast.

When will VLRX need to raise more cash?

In VLRX’s case, its opex fell by 8.87% last year, which may signal the company moving towards a more sustainable level of expenses. However, even with declining costs, the current level of cash is not enough to sustain VLRX’s operations and the company may need to come to market to raise more capital within the year. Even though this is analysis is fairly basic, and VLRX still can cut its overhead further, or open a new line of credit instead of issuing new equity shares, the outcome of this analysis still gives us an idea of the company’s timeline and when things will have to start changing, since its current operation is unsustainable.

What this means for you:

Are you a shareholder? Hopefully, the analysis has shed some light on the risks you should bear in mind as a shareholder of VLRX, in particular, its tight cash runway moving forward. In addition to this analysis, I suggest you take a look at their expected revenue growth to determine the timing of future profitability as well.

Are you a potential investor? The risks involved in investing in loss-making VLRX means you should think twice before diving into the stock. However, this should not prevent you from further researching it as an investment potential. The outcome of my analysis suggests that even if VLRX maintains this negative rate of opex growth, it will run out of cash within the year. This suggests an opportunity to enter into the stock, potentially at an attractive price, should VLRX come to market to fund its growth.

An experienced management team on the helm increases our confidence in the business – have a peek at VLRX’s CEO experience and the tenure of the board here. If you believe you should cushion your portfolio with something less risky, scroll through my list of highly profitable companies to add to your portfolio..

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.