Ocugen (NASDAQ:OCGN) stock may be “hot” again. But that doesn’t make it a solid opportunity. Shares in the speculative biotech penny stock have soared since July, rallying from around 23 cents per share to around 44 cents per share today. And that’s after pulling back from recent highs topping 70 cents per share.
So, what’s going on here? Is this company, which recently received orphan drug designation for one of its treatments in development, on the cusp of another big move higher? Or, are investors (or should I say speculators) getting carried away? A little from column A, a little from column B. On one hand, the recent news increases the odds Ocugen finds success bringing a treatment to market.
But, even with those increased odds, this company remains a long shot. Sure, in the near term don’t expect OCGN stock to tumble back to prior prices. Given this penny stock remains a popular name to trade, speculators may be able to keep it at or above today’s valuation.
Long term? All bets are off. If the company prevails, shares could be worth many times what they trade for today. Yet, with this payoff only potentially happening years down the road, the risk/return still isn’t in your favor with this high risk, high potential return opportunity.
In short, steer clear at today’s prices. Even if FOMO and momentum traders could send shares temporarily higher.
Orphan Drug Designation and OCGN Stock
First things first, what’s orphan drug designation? InvestorPlace’s David Moadel broke it down in his Aug 12 write-up on Ocugen. In short, it’s when the FDA provides special status and incentives to drugs/therapies for treating rare diseases.
In the case of this company, the FDA granted this to its OCU400 treatment. OCU400 treats various inherited retinal diseases. That is to say, rare mutations that cause vision loss and blindness.
So, does this designation materially help this company’s prospects? And, by extension, the prospects of OCGN stock? Yes and no. One one hand, it does increase the odds this company succeeds in bringing a marketable treatment to market. With zero revenue coming in, but plenty of cash going out, the company doesn’t have much else to fall back on.
Dependent on capital raises to keep the lights on, investors aren’t buying on today’s fundamentals, but tomorrow’s potential. And, with said potential improving via the Orphan Drug Designation, it’s no surprise some life has been jolted into shares as of late.
However, speculators in this penny stock may be getting ahead of themselves. The recent news increases its chances of success. But, the company has a long way to go before it can “cash the check,” so to speak.
What’s Next for Shares?
Yes, the odds for Ocugen remain long. Yet, that doesn’t necessarily mean shares will crater to prior price levels anytime soon. Even if the company doesn’t release any more needle-moving news. How so? With the fast rise in popularity for this stock among the Robinhood trading community, speculators trading on FOMO and momentum (and not fundamentals) could continue to bid shares higher.
Yet, what makes this a short-term trade today doesn’t make it a great buy-and-hold type of opportunity.
What do I mean? Namely, the company’s “cash the check” moment remains years away. Phase 1/2 clinical trails for OCU400 won’t even begin until next year. As our own Ian Bezek wrote Aug 10, Ocugen itself doesn’t think it will get FDA approval for the treatment until 2025. Is buying this stock today, for the chance it pays off nearly five years out, worth the trouble?
In short, little reason to make OCGN stock a key position in your portfolio.
Don’t Risk Your Capital With This Long Shot
I agree its tempting to chase speculative biotech penny stocks like Ocugen. With the potential for shares to make triple-digit moves higher, these risky plays look like easy money for the taking. But, don’t fool yourself: buying this stock is more a gamble than a sound investment.
Sure, with orphan drug designation, the company’s OCU400 treatment stands a greater chance of obtaining regulatory approval. Yet, it won’t be until the middle of the decade before this drug could even potentially be brought to market. Buying now for a payoff long down the road doesn’t look like a great proposition.
So, what’s the play here? Some biotech plays, like novel coronavirus vaccine stocks such as Moderna (NASDAQ:MRNA), may be worth the risk. But, this situation? Not so much. Bottom line: sit things out, and don’t waste your time (or risk your capital) with OCGN stock.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
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