There's no doubt that money can be made by owning shares of unprofitable businesses. For example, biotech and mining exploration companies often lose money for years before finding success with a new treatment or mineral discovery. 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.

So should Lyra Therapeutics (NASDAQ:LYRA) shareholders be worried about its cash burn? In this article, we define cash burn as its annual (negative) free cash flow, which is the amount of money a company spends each year to fund its growth. Let's start with an examination of the business' cash, relative to its cash burn.

View our latest analysis for Lyra Therapeutics

Does Lyra Therapeutics Have A Long Cash Runway?

A company's cash runway is calculated by dividing its cash hoard by its cash burn. When Lyra Therapeutics last reported its balance sheet in September 2023, it had zero debt and cash worth US$103m. Importantly, its cash burn was US$57m over the trailing twelve months. Therefore, from September 2023 it had roughly 22 months of cash runway. Importantly, analysts think that Lyra Therapeutics will reach cashflow breakeven in 5 years. That means unless the company reduces its cash burn quickly, it may well look to raise more cash. Depicted below, you can see how its cash holdings have changed over time.

How Well Is Lyra Therapeutics Growing?

At first glance it's a bit worrying to see that Lyra Therapeutics actually boosted its cash burn by 30%, year on year. Also concerning, operating revenue was actually down by 12% in that time. Considering both these metrics, we're a little concerned about how the company is developing. 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.

How Hard Would It Be For Lyra Therapeutics To Raise More Cash For Growth?

While Lyra Therapeutics seems to be in a fairly good position, it's still worth considering how easily it could raise more cash, even just to fuel faster growth. Issuing new shares, or taking on debt, are the most common ways for a listed company to raise more money for its business. Commonly, a business will sell new shares in itself to raise cash and drive 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.