When Ocugen (NASDAQ:OCGN) last reported earnings, there was an item that should have caught investors’ attention. And it’s a big reason, I believe, that OCGN stock is not drawing a lot of attention even from the likes of Robinhood investors.
The company said they would continue to be making at-the-market (ATM) offerings of its common stock. Ocugen has already made ATM offering in both May and June. However, according to Shankar Musunuri, Ocugen chairman and chief executive officer, the company is not done diluting its common shares.
“We were successful in raising capital through our ATM programs to extend our runway into first quarter of 2021,” said Musunuri. “We will continue to raise capital to support our short and midterm value creation goals for our patients as well as shareholders.”
However, even Ocugen management seems to view this as a risky gambit. Tezcan Gecgil referenced this item that was in the company’s Form 424B5 filed with the Securities and Exchange Commission (SEC). According to management, “Investing in our common stock involves a high degree of risk.”
With that in mind, it’s time to stay far away from OCGN stock.
Ocugen Operates In a Very Narrow Niche
At first glance, Ocugen may look attractive because it operates in the category of “gene therapy.” But it doesn’t take much digging to understand that Ocugen operates in a very narrow niche. In the case of Ocugen it is using gene therapy in an attempt to cure blindness diseases.
This is the risk/reward reality of many biotech firms. They frequently operate in small niche areas. If a company like Ocugen can bring a drug candidate to market, its stock will go significantly higher. However, biotech firms like Ocugen also have the potential to have its shares drop to zero.
If you want to understand Ocugen’s business a little better, Josh Enomoto recently wrote about the science behind the company’s drug candidates. However Enomoto didn’t challenge the overall thesis that Ocugen is a long way from bringing one of its candidates to market.
This means the company looks closer to having its shares go to zero. And that is bad news for investors in OCGN stock.
A Thin Pipeline And No Products
Last month, I wrote that Ocugen had received a U.S. Orphan Drug Tag for its lead candidate, OCU400. If successful, this drug will treat gene mutation-associated retinal diseases such as Retinitis Pigmentosa (RP). Other candidates in the company’s pipeline include a potential treatment for macular degeneration and another for neovascular disorders.
However in addition to having a thin pipeline, the company does not have a product on the market. But that’s not the only bad news. OCU400, has only begun the clinical trial stage. That means Ocugen won’t have a product, or revenue, until 2025 at the earliest.
But here’s the even more daunting problem. OCU400 is not the first drug that has received a U.S. Orphan Drug tag. Unfortunately its last candidate to do so, OCU300 did not make it through the clinical trial stage.
OCGN Stock Faces a Delisting Threat
How do I know that Ocugen will continue to dilute its shares? Quite frankly it honestly has no choice. On Sep. 8, 2020, the company was granted a 180-day extension to bring their share price up or face delisting.
I have to state this very clearly. The company first received a delisting notice on Dec. 27, 2019. This is an extension of that window. And so you have to imagine that there won’t be further extensions. And that means the company will have to take some form of action between now and early March to stay listed.
It could execute a reverse stock split. But that does investors no favor either. Perhaps the best opportunity for Ocugen shareholders is if the company becomes a buyout target. But when you’re simply betting on the least of many bad outcomes, it’s usually a signal that you should pursue other stocks.
But as I noted above, you don’t have to believe me. Just pay attention to what the company management is trying to tell you.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019.
