There's no doubt that money can be made by owning shares of unprofitable businesses. By way of example, Prime Medicine( NASDAQ:PRME ) has seen its share price rise 138% over the last year, delighting many shareholders. Nonetheless, only a fool would ignore the risk that a loss making company burns through its cash too quickly.
Given its strong share price performance, we think it's worthwhile for Prime Medicine shareholders to consider whether its cash burn is concerning. 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. First, we'll determine its cash runway by comparing its cash burn with its cash reserves.
How Long Is Prime Medicine's 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. When Prime Medicine last reported its March 2026 balance sheet in May 2026, it had zero debt and cash worth US$135m. Importantly, its cash burn was US$159m over the trailing twelve months. That means it had a cash runway of around 10 months as of March 2026. That's quite a short cash runway, indicating the company must either reduce its annual cash burn or replenish its cash. The image below shows how its cash balance has been changing over the last few years.
View our latest analysis for Prime Medicine
How Well Is Prime Medicine Growing?
At first glance it's a bit worrying to see that Prime Medicine actually boosted its cash burn by 42%, year on year. The revenue growth of 4.9% gives a ray of hope, at the very least. In light of the data above, we're fairly sanguine about the business growth trajectory. 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 Hard Would It Be For Prime Medicine To Raise More Cash For Growth?
Given the trajectory of Prime Medicine's cash burn, many investors will already be thinking about how it might raise more cash in the future. Companies can raise capital through either debt or equity. 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).
Prime Medicine's cash burn of US$159m is about 27% of its US$580m market capitalisation. That's not insignificant, and if the company had to sell enough shares to fund another year's growth at the current share price, you'd likely witness fairly costly dilution.
So, Should We Worry About Prime Medicine's Cash Burn?
Even though its increasing cash burn makes us a little nervous, we are compelled to mention that we thought Prime Medicine's revenue growth was relatively promising. Looking at the factors mentioned in this short report, we do think that its cash burn is a bit risky, and it does make us slightly nervous about the stock. On another note, we conducted an in-depth investigation of the company, and identified 5 warning signs for Prime Medicine (3 are significant!) that you should be aware of before investing here.
Of course Prime Medicine may not be the best stock to buy. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership .
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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.
