Ocugen (NASDAQ:OCGN) is proving that in the crazy world of trading, bad news can be good news. After reporting on June 1, that it would discontinue a Phase 3 clinical trial for its lead drug candidate, OCU300 for ocular Graft vs. Host Disease (oGVHD), OCGN stock is remarkably climbing. In the last five trading days, the stock is up nearly 30%.
What gives? I took a peek at Ocugen’s stock chart and sure enough, there was a bit of a spike in volume in the first few trading days. But that simply suggests to me that traders are looking to give the stock a little boost before bailing out.
I don’t know of any news that would make this a legitimate pump-and-dump situation, but that doesn’t mean investors should not exercise caution. In fact, my advice is to leave OCGN stock to the traders as there is no long-term argument for Ocugen at this time.
Investors Have Their Attention Elsewhere
When I wrote about Ocugen in May, I pointed out that the company was struggling to capture investors’ attention. They are far more interested in treatments for Covid-19, including a potential vaccine for the novel coronavirus that causes it. Stocks like Moderna (NASDAQ:MRNA) and Gilead Sciences (NASDAQ:GILD) are prime examples of two stocks that are seeing their shares jump.
There are many small-capitalization biotech stocks like Ocugen that are being left out. But many of these stocks were looking solid before the pandemic. The thinking by many analysts is that these stocks will climb again once the market sorts out the winners and losers from the coronavirus.
Ocugen had already plummeted in October 2019. And by the time the market sold off in March, OCGN was a penny stock in danger of being delisted. The problem is simple enough. The company’s experimental treatments on retinal diseases are not capturing the attention of investors, particularly when the company now looks like it will be years away from bringing a drug to market.
Discontinuing a Clinical Trial Is Never Good News
In the past few months, biotech stocks linked to Covid-19 treatments have made huge moves just on rumors of “disappointing” trials. But Ocugen didn’t just report disappointing results, they actually canceled the trial.
The company says the move was not an indication that the treatment was unsafe. But admitting that a drug that was in a Phase 3 trial was now not getting the results that are expected is just as bad, if not worse.
OCGN Stock Is Swinging for the Fences and Hitting Singles
Ocugen is involved in gene therapy. The business case for OCGN stock is that it’s possible that the company can devise a “one to many” approach. That is, a singular gene defect may be the primary cause for many diseases. The implication would be that one treatment could be used to treat many diseases.
However, InvestorPlace’s Josh Enomoto recently described why that approach is part of the inherent risk in OCGN stock.
Yes, a single gene defect may be responsible for a host of diseases. But acknowledging this reality and providing a viable solution are two very different topics. That’s why the Food and Drug Administration has only approved four gene therapies to date.
Gene therapy has been the promise of biotech for 20 years. And the human genome still has not given up all its secrets. Ocugen is not the first company to try to crack the code, and it won’t be the last. But right now, investors are looking for home runs, and the best Ocugen is offering is singles.
Let me put it even more clearly. OCGN stock is down 45% for the year, and it started the year trading at 51 cents per share. Investors clearly don’t see a reason to jump to the stock’s defense. And now the company has discontinued a clinical trial for a drug that could have at least provided proof of concept.
And without that, there’s too much risk and not enough reward. Leave OCGN stock to the traders. There are better value plays among the biotech stocks.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.