Ocugen (NASDAQ:OCGN) stock is down 20% today on news that the company is issuing an additional $50 million of common stock.
The share sale comes after OCGN stock jumped 13% over the past five trading sessions, hitting a high of $4.53, after the U.S. Food and Drug Administration (FDA) announced that it had lifted its clinical hold on the company’s Covid-19 vaccine candidate. Ocugen appears to be trying to take advantage of the higher share price and raise capital with the share sale.
However, investors generally look down on companies issuing additional stock. Why? It increases the number of outstanding shares and dilutes existing shareholders, weakening the value of shares in the process. This helps to explain why OCGN stock is tanking today on news of the $50 million sale of common stock.
What Happened With OCGN Stock
In a news release, Ocugen said it is issuing 15,973,420 million shares of its common stock for gross proceeds of approximately $53.5 million. The share sale is expected to close on Feb. 25, and the company says it will use the proceeds for “working capital” and “general corporate purposes.” Investment bank Cantor Fitzgerald is managing the sale on behalf of Ocugen.
Ocugen, which began life focused on treatments for eye diseases that cause blindness, has pivoted to focus on Covid-19 vaccine Covaxin. However, regulators in the United States and Canada have not yet approved the use of Covaxin to treat Covid-19 or any of its variants. Ocugen has partnered with a company in India called Bharat Biotech on the commercialization of Covaxin.
Why It Matters
The latest share sale is evidence that Ocugen likely needs additional capital to fund its operations while it tries to bring its Covid-19 vaccine to market in North America.
OCGN stock has been on a wild rise over the past 12 months. Shares have fallen 45% in the past six months and are now 76% below their 52-week high of $17.65. And that was before today’s 20% decline. With no clear path to getting Covaxin approved by the FDA or Health Canada, some investors fear that Ocugen’s options are limited.
What’s Next for Ocugen
OCGN stock is taking a beating today and being punished for news that the company is further diluting its stock. While the capital raise might be necessary, it does not sit well with investors. Investors would be well-advised to steer clear of today’s drop.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
