The current weakness in broader markets is also affecting penny stocks like Ocugen (NASDAQ:OCGN), which is working on treatments for rare eye diseases. On Aug. 10, OCGN stock was around 80 cents. As I write, the shares hover at 35 cents.
However, the company is not necessarily a battered bargain for long-term investors. Unless investors are ready to handle uncertainty over the fate of their hard-earned cash, they may want to keep away from OCGN stock, even at these low levels. Here’s why.
Malvern, PA-based Ocugen, formerly known as Histogenics Corporation, focuses on discovering therapies to treat rare eye conditions.
On Aug. 14, the company announced Q2 financial results, which showed no revenues. Put another way, the company does not make any money.
So far, management has been funding operations through the sale of common stock, warrants to purchase common stock, the issuance of convertible notes or debt. Net loss was $3.6 million, or 19 cents loss per share, for the three months ended June 30. The group’s cash equivalents totaled $15.1 million.
A Closer Look at OCGN Stock
The company has two technology pipelines. Its “Modifier Gene Therapy Platform” which addresses range of retinal diseases, and its “Novel Biologic Therapy for Retinal Diseases” which is developing OCU200 to treat diabetic macular edema.
Earlier in the year, the FDA granted its first gene therapy candidate OCU400 “orphan drug designation,” or ODD, which is for new drugs to treat a rare disease affecting less than 200,000 patients. However, the FDA’s website clarifies that the designation does not necessarily lead to approved drug any time soon.
Without any immediate revenues, Ocugen’s dwindling cash position is not likely to improve much.
In Form 424B5 filed with Securities and Exchange Commission (SEC) in mid-August, management warns potential investors that, “Investing in our common stock involves a high degree of risk.”
Ocugen and Risk
The list of risks center around “estimates regarding expenses, future revenue, capital requirements and timing and availability of and the need for additional financing;… uncertainties in obtaining successful clinical results for product candidates and unexpected costs that may result therefrom,… [and the] ability to operate under increased leverage and associated lending covenants.”
In fact, none of the recently filed reports wit the SEC gives any specific details about how or when the company may commercialize treatments that may bring in any revenue.
“The biotech industry, one of the most innovative in our society, depends on the free flow of risk capital to support the billion-dollar journey from idea to drug approval and clinical benefit,” said Philip Reilly of Boston-based Third Rock Ventures. “Relatively few metrics drive valuation. The most important of these is the ever-shifting perception of whether a company’s programs will complete the marathon to new drug approvals.”
The process from initiation of clinical trials to product launch could take approximately seven to ten years. At this point, Ocugen has no products at clinical trial levels. Therefore, potential investors should realize that they may have to wait for a very long time to see returns on their investment.
The Bottom Line
While Ocugen’s share price has decreased in recent weeks, a large number of market participants have put OCGN stock on their watch and possibly day-trading list.
However, with a clear path to revenue, OCGN stock is a risky bet. InvestorPlace.com contributor Lou Carlozo has recently written in detail about both sides of the speculation argument. He concludes, “speculation isn’t such a horrible thing so long as you understand the risks and manage your expectation.” I agree with him.
On the date of publication, Tezcan Gecgil did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The author has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.
