We're Not Worried About Madrigal Pharmaceuticals' (NASDAQ:MDGL) Cash Burn

editorial-team@simplywallst.com (Simply Wall St)

Thu, Feb 27, 2025, 4:12 AM 4 min read

Just because a business does not make any money, does not mean that the stock will go down. 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 the harsh reality is that very many loss making companies burn through all their cash and go bankrupt.

So, the natural question for Madrigal Pharmaceuticals (NASDAQ:MDGL) shareholders is whether they should be concerned by its rate of cash burn. For the purpose of this article, we'll define cash burn as the amount of cash the company is spending each year to fund its growth (also called 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 Madrigal Pharmaceuticals

How Long Is Madrigal Pharmaceuticals' Cash Runway?

A cash runway is defined as the length of time it would take a company to run out of money if it kept spending at its current rate of cash burn. When Madrigal Pharmaceuticals last reported its December 2024 balance sheet in February 2025, it had zero debt and cash worth US$931m. Looking at the last year, the company burnt through US$438m. Therefore, from December 2024 it had 2.1 years of cash runway. Notably, however, analysts think that Madrigal Pharmaceuticals will break even (at a free cash flow level) 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.

debt-equity-history-analysis — NasdaqGS:MDGL Debt to Equity History February 27th 2025

How Is Madrigal Pharmaceuticals' Cash Burn Changing Over Time?

In our view, Madrigal Pharmaceuticals doesn't yet produce significant amounts of operating revenue, since it reported just US$180m in the last twelve months. 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 35%, 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. So you might want to take a peek at how much the company is expected to grow in the next few years.

Can Madrigal Pharmaceuticals Raise More Cash Easily?

Given its cash burn trajectory, Madrigal Pharmaceuticals shareholders may wish to consider how easily it could raise more cash, despite its solid cash runway. 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. We can compare a company's cash burn to its market capitalisation to get a sense for how many new shares a company would have to issue to fund one year's operations.

Madrigal Pharmaceuticals has a market capitalisation of US$6.8b and burnt through US$438m last year, which is 6.5% of the company's market value. That's a low proportion, so we figure the company would be able to raise more cash to fund growth, with a little dilution, or even to simply borrow some money.

So, Should We Worry About Madrigal Pharmaceuticals' Cash Burn?

As you can probably tell by now, we're not too worried about Madrigal Pharmaceuticals' cash burn. In particular, we think its cash burn relative to its market cap stands out as evidence that the company is well on top of its spending. While its increasing cash burn wasn't great, the other factors mentioned in this article more than make up for weakness on that measure. There's no doubt that shareholders can take a lot of heart from the fact that analysts are forecasting it will reach breakeven before too long. Looking at all the measures in this article, together, we're not worried about its rate of cash burn; the company seems well on top of its medium-term spending needs. Its important for readers to be cognizant of the risks that can affect the company's operations, and we've picked out 1 warning sign for Madrigal Pharmaceuticals that investors should know when investing in the 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.