Can Ocugen (NASDAQ:OCGN) pull off a comeback? The long-shot biotech stock is down more than 97% from its 52-week high. But, if the company makes progress with its Phase 3 clinical trial of OCU400, Ocugen stock could rebound. For the average investor, is this a worthwhile proposition?
Unlike VBI Vaccines (NASDAQ:VBIV), Ocugen has a long way to go before it’s ready for prime time. With $15.3 million in cash on hand, zero revenue, and trailing twelve-month operating losses of $15.5 million, the company needs capital. In other words, Ocugen stock will likely see dilution this year.
However, this is par for the course with clinical-stage biotech stocks. Biotech can be a tough sector to find winning investments. If you do your homework, you can find great opportunities. But for generalist investors, it can be hard to handicap this unpredictable industry.
Let’s dive in and see why you are better off skipping Ocugen stock.
Handicapping Upside with Ocugen Stock
As InvestorPlace’s Chris Lau discussed last month, Ocugen’s flagship therapy (OCU300), is a treatment for ocular graft-versus-host disease (oGVHD). This rare autoimmune disease can cause loss of vision. With no existing approved treatment for oGVHD, OCU300 could be a big winner for Ocugen stock. That is, if the treatment receives approval from the U.S. Food and Drug Administration.
But that remains a big “if.” OCU300 is still in the throes of its Phase 3 clinical trial. Ocugen does not expect top-line results until the second half of this year. In the meantime, all investors can do is sit and wait.
OCU300 is not the only therapy in their pipeline, though Ocugen’s other treatments are still in the pre-clinical stage. Like the situation with VBI Vaccines, investing in Ocugen requires ample conviction in a single drug’s success.
Scouring earnings transcripts, press releases, and other public information, it’s tough to find more breadcrumbs to help (or hurt) the case for Ocugen stock. The most important facts have been widely disseminated and are priced into shares. Accounting opportunities against risks, is Ocugen worth a buy?
Is Ocugen Upside Worth The Risk?
As I mentioned above, dilution is likely in the cards for Ocugen stock. But the company has some positives in terms of capitalization. Last month, InvestorPlace’s Vince Martin broke down Ocugen’s capital needs. Along with cash on hand, Ocugen has $8 million pending from the sale of a non-core asset. However, there are some doubts the transaction will close.
Ocugen also has a partnership with Chinese-based CanSino Biologics (OTCMKTS:CASBF). This deal gives CanSino commercialization rights for Ocugen’s treatments in Greater China. But, this partnership reduces Ocugen’s capital requirements going forward. In addition, it helps to confirm the prospects of OCU300, as well as the other retinal treatments in Ocugen’s pipeline.
Why did Ocugen go the reverse merger route, and not have an IPO of its own? Martin brought up this point in his analysis, and I concur. Ocugen may have an experienced management team and a compelling treatment in its pipeline, but they’re not the hottest clinical-stage biotech out there. There’s good reason why investors have shunned this stock after its reverse merger.
Weighing pros against cons, the biggest certainty with Ocugen stock is uncertainty. On paper, the company appears to be a solid, yet long-shot, proposition. Until we see progress with the Phase 3 clinical trials, all bets are off whether Ocugen shares will soar (or crater) in the coming years.
It’s Tough to Predict the Unpredictable
OCU300 could be winner for Ocugen stock. However, we have at least six months until we see a modicum of results. Until then, investing in Ocugen shares is speculation. It’s tough to predict the unpredictable, and that’s especially the case with the biotech space.
Biotech stocks can be comparable to wildcat drilling. Spreading your capital widely, most of the time you’ll wind up with zero results. But those rare times you strike oil can more than make up for the losses. The challenge is knowing what to look for. For the average retail investor, biotech stocks may be too speculative to be worthwhile. It’s hard to make money when you have a limited understanding of your underlying investments.
With this in mind, the best bet is to avoid Ocugen stock. Shares could skyrocket if OCU300 shows positive top-line results. Conversely, shares could fall to new lows if results do not match expectations. It may be temping to place a buy order and hope for the best. Long-term, however, investing success requires discretion, not speculation. Seek more solid opportunities elsewhere, and put Ocugen on hold for now.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.