Iovance Biotherapeutics (NASDAQ:IOVA) Is In A Good Position To Deliver On Growth Plans

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 while the successes are well known, investors should not ignore the very many unprofitable companies that simply burn through all their cash and collapse.

NASDAQ:IOVA) 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. Let’s start with an examination of the business’ cash, relative to its cash burn.” data-reactid=”29″>So should Iovance Biotherapeutics (NASDAQ:IOVA) 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. Let’s start with an examination of the business’ cash, relative to its cash burn.

View our latest analysis for Iovance Biotherapeutics ” data-reactid=”30″> View our latest analysis for Iovance Biotherapeutics

How Long Is Iovance Biotherapeutics’ Cash Runway?

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 June 2020, Iovance Biotherapeutics had US$772m in cash, and was debt-free. Looking at the last year, the company burnt through US$208m. That means it had a cash runway of about 3.7 years as of June 2020. Notably, however, analysts think that Iovance Biotherapeutics will break even (at a free cash flow level) before then. In that case, it may never reach the end of its cash runway. You can see how its cash balance has changed over time in the image below.

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How Is Iovance Biotherapeutics’ Cash Burn Changing Over Time?

how much the company is expected to grow in the next few years.” data-reactid=”50″>Iovance Biotherapeutics didn’t record any revenue over the last year, indicating that it’s an early stage company still developing its business. So while we can’t look to sales to understand growth, we can look at how the cash burn is changing to understand how expenditure is trending over time. During the last twelve months, its cash burn actually ramped up 66%. While this spending increase is no doubt intended to drive growth, if the trend continues the company’s cash runway will shrink very quickly. 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.

Can Iovance Biotherapeutics Raise More Cash Easily?

Given its cash burn trajectory, Iovance Biotherapeutics 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.

Iovance Biotherapeutics has a market capitalisation of US$4.5b and burnt through US$208m last year, which is 4.6% 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 Iovance Biotherapeutics’ Cash Burn?

2 warning signs for Iovance Biotherapeutics that investors should know when investing in the stock.” data-reactid=”55″>It may already be apparent to you that we’re relatively comfortable with the way Iovance Biotherapeutics is burning through its cash. For example, we think its cash runway suggests that the company is on a good path. Although its increasing cash burn does give us reason for pause, the other metrics we discussed in this article form a positive picture overall. 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. Its important for readers to be cognizant of the risks that can affect the company’s operations, and we’ve picked out 2 warning signs for Iovance Biotherapeutics that investors should know when investing in the stock.