Amicus Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of various diseases, including Parkinson’s disease

Amicus Therapeutics, Inc., is a biopharmaceutical company that develops drugs for the treatment of various diseases, including Parkinson’s disease. Amicus Therapeutics reported the following financial data (in thousands) for three recent years:

For Years Ended December 31 Year 3 Year 2 Year 1 Cash and cash equivalents $  69,485 $ 24,074 $  43,640 Net cash flows from operations (100,139) (51,669) (45,794) 

a. Determine the monthly cash expenses for Year 3, Year 2, and Year 1. Round to one decimal place.

b. Determine the ratio of cash to monthly cash expenses for Year 3, Year 2, and Year 1 as of December 31. Round to one decimal place.

c. Based on (a) and (b), comment on Amicus Therapeutics’ ratio of cash to monthly operating expenses for Year 3, Year 2, and Year 1.

Answer:

a. 

Year 3:  $8,344.9 per month ($100,139 ÷ 12)

Year 2:  $4,305.8 per month ($51,669 ÷ 12)

Year 1:  $3,816.2 per month ($45,794 ÷ 12)

b. 

Year 3:  8.3 months ($69,485 ÷ $8,344.9)

Year 2:  5.6 months ($24,074 ÷ $4,305.8)

Year 1:  11.4 months ($43,640 ÷ $3,816.2)

c. 

At the end of Year 1, Amicus Therapeutics had 11.4 months of cash and cashequivalents remaining to use in operations. 

At the end of Year 2, Amicus had 5.6 months of cash and cash equivalents to use in operations. However, during Year 2, Amicus issued over $130 million of common stock, which was used to purchase short-term investments of $128 million. If the short-term investments of $128 million are included as being available to convert to cash, Amicus has 35.3 months of available cash to use in operations at the end of Year 2.

At the end of Year 3, Amicus had 8.3 months of cash and cash equivalents to use in operations. However, during Year 3, Amicus issued over $256 million of additional stock and at the end of Year 3 had short-term investments of $145 million. If the short-term investments of $145 million are included as being available to convert to cash, Amicus has 25.7 months of available cash to use in operations at the end of Year 3. 

Overall, Amicus has been able to support its operations by issuing additional stock. However, its negative cash flows have increased from $(45,794) in Year 1 to $(100,139) in Year 3. Unless Amicus had generated positive cash flows from operations, its ability to continue raising funds from issuing stock or debt will be limited. Thus, in the long run, Amicus must generate positive cash flows from operations to survive.