The Risk-Reward Ratio of Ocugen Stock Is Positive

Ocugen (NASDAQ:OCGN) is a biopharma company and unlike so many of its peers, the company has no exposure to a vaccine for the novel coronavirus. But that’s not the problem with OCGN stock. The problem is that, after a 10.68% slide on Sept. 4, OCGN stock has fallen  by more than 37% in 2020.

A close-up of someone's eye
Source: Shutterstock
Trading at a price of 33 cents, it’s a penny stock.  That’s not too great, considering that it traded above $700 in 2015.

Ocugen operates in a compelling area: treating rare and underserved eye diseases. That isn’t the biggest sector of the biotechnology market, but it’s not tiny, either. Last year, the global ophthalmic drugs market was worth $31 billion, and it is forecast to grow at a compound annual growth rate (CAGR) of 5% through 2027.

“Per the World Health Organization (WHO), in 2019, approximately 2.2 billion people were visually impaired,” notes Grand View Research. “In addition, over 39 million had vision loss, nearly 188.5 million people suffered from mild vision impairment, and over 217 million people were experiencing moderate to severe vision impairment.”

In other words, the global ophthalmic drug market is huge.  But the price action of Ocugen stock indicates that the company isn’t getting an adequate part of that market.

OCGN Stock has Potential, But Don’t Expect Miracles

Stocks can tumble to very low levels for many reasons, none of which are positive. Biotechnology names trading for the price of a “cup of coffee” or lower usually have superior competition, failings on the clinical front, or both.

But Ocugen’s drugs are not failing their clinical trials because the company has three drugs in the pre-clinical stage. So while none of its drugs has reached Phase 1, at least it has a drug pipeline. Plus, a fourth Ocugen product recently was granted orphan drug status by the Food & Drug Administration (FDA). So this is not some one-trick biotech pony that’s entirely dependent on the success of a single product.

The company is also taking steps to conserve cash and eliminate wasteful projects.  Among these steps are canceling trials that aren’t paying off as hoped and discontinuing its OCU300 drug for ocular Graft. The company stated:

“Ocugen discontinued the Phase 3 trial and initiated a workforce reduction as part of this shift in focus towards its gene therapy platform and novel biologics program aimed at curing blindness diseases. Ocugen expects the workforce reduction will result in approximately $2.0 million in annualized cost savings commencing in 2021.”

Ocugen also sold equity in May and June, netting $15.4 million of cash, which extends its survival timeline to the first quarter of next year.

Even if it’s assumed that Ocugen has enough cash to survive through Q1,  that’s just seven months. That means time is of the essence because, as noted above, the company doesn’t yet have a drug in a Phase 1 trial, and those trials can take anywhere from a few months to a year.

See Things Clearly

At its current price of 33 cents, 100 shares cost $33, a sum nearly all investors can afford to lose.

If investors see things clearly (no pun intended), including Ocugen’s inability to turn a profit and its potentially limited survival timeline, there’s actually some money to be made from the shares. That’s  because it’s possible that any whiff of good news could vault OCGN stock to 60 cents or 70 cents.

The shares are good for trading. If investors approach Ocugen as such and not the second coming of Amgen (NASDAQ:AMGN), they’ll make a profit or take no more than a small loss.

On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Todd Shriber has been an InvestorPlace contributor since 2014.

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