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Will Botanix Pharmaceuticals Ltd burn out?

Botanix Pharmaceuticals Ltd (ASX: BOT) is in the midst of a research and development programme that seeks to further understand and utilise cannabidiol, an ingredient found in cannabis, to treat skin conditions.

Scientific research by Botanix and others has found that cannabidiol “plays a significant role” in combatting skin conditions by normalising skin growth, reducing inflammation, infection, and decreasing the production of excessive oils.

Botanix has contributed to such studies and played a part in the further understanding of the medical benefits of cannabidiol having recently announced that clinical studies of its BTX 1503 product produced positive results.

The pharmaceutical company stated that its study of BTX 1503 has shown that it can combat white heads, black heads and other skin complications.

But the research and development has come at a cost.

The question is: Is Botanix spending too much?

For the quarter ended 31 December 2017 Botanix announced that it had spent about $2 million, with the bulk of that going towards research and development, and it finished the period with cash and cash equivalents of about $2.2 million.

At its current burn rate, based on its latest cash flow report, the end of Botanix’s financial runway is fast approaching.

What’s more, when stacked up against other medical marijuana companies Auscann Group Holdings Ltd (ASX: AC8) and the Hydroponics Company Ltd (ASX: THC), Botanix’s financial standing appears worse.

Botanix is burning cash at a much faster rate and has significantly less cash behind it than both those companies.

As such Bontanix has gone into a trading halt as it prepares to make an announcement regarding capital raising.

Research and development is obviously an expensive process but the rate at which Botanix is burning through its funds would raise questions for many.

It also illustrates that the management of other medical marijuana companies appears to be taking more disciplined approaches than that of Botanix’s management.

Botanix shares are expected to resume trading on Monday.

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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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