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Wednesday, June 23, 2021

The Diffusion Pharmaceuticals Inc. (DFFN) stock is surging high, despite the rise in cash burn. Here is what’s happening?

Diffusion Pharmaceuticals Inc. (NASDAQ: DFFN) stock rise in pre-market by 5.94%, while DFFN stock shows a downswing in average trading by 0.98%. The increase in DFFN stock during pre-market is after the news broke out that their cash burn rate is not a sign of trouble. Yet, they are not worried, somewhat hopeful. Also, it is a typical pattern that just because a company is not making money does not necessarily mean that its stock will decline. Diffusion Pharmaceuticals is a publicly-traded biotechnology company that deals with drug development.


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Recent Development

Diffusion Pharmaceutical has experienced a gain of about 226% over the last year. Still, recently DFFN is not generating revenue, undergoing an upsurge in its cash burn (the cash that a company spends on its growth every year) rate.

In September 2020, Diffusion pharmaceutical reported its balance sheet, which had zero debt and cash worth US$13m. From the same month, DFFN had roughly 21 months of cash runway (Approximately the period in which Diffusion Pharmaceuticals Inc. (DFFN)  will not generate any money), whereas its cash burn was US$13m. Keeping in mind the above facts, the cash runway is not a significant concern for the investors. Instead, they are more curious to know what will happen if DFFN runs out of cash. Diffusion Pharmaceutical has recorded its cash burn rate up by 21% in the last year, which means that DFFN is investing its money in the business that arises a concern among investors that whether Diffusion Pharmaceuticals Inc. (DFFN) ‎will be able to grow its business in the near time.

Since Diffusion Pharmaceuticals is not generating revenue, it is considered an early-stage business. The cash burn of DFFN is US$13m that is about 12% of its US$103 m market capitalization which means that it is quite possible that DFFN could raise more cash for its growth without a lot of hurdles in its way but at the cost of some dilution. This will possibly clear the confusion and concerns of the investors about the future of DFFN shares.

Conclusion

The facts discussed in this article clarify that Diffusion Pharmaceutical’s cash burn relative to its market cap was propitious. Therefore the management of DFFN is not worried since Diffusion Pharmaceuticals Inc. (DFFN) ‎is not very much on the riskier side and can overcome the issue.

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