Ocugen (NASDAQ:OCGN) stock is probably not a name that most investors know. However, Ocugen burst onto people’s radar on July 27, when it surged 67%.
And it did so on shocking volume; more than 300 million Ocugen shares traded hands in one frenzied session.
Even after that huge move, Ocugen remains an unknown quantity. The stock trades for under a dollar per share, and is still down year-to-date even after the recent gains. The stock is back in play now because it picked up the Food & Drug Administration’s (FDA) orphan drug status for its lead clinical candidate.
Despite that big step, Ocugen has a long road between here and a commercial product. This is what’s happened with Ocugen and what the future may look like going forward.
How We Got Here
If you look at a long-term chart of OCGN stock, you’ll see trading history back to 2014. However, Ocugen itself hasn’t been public that long.
Instead, Ocugen merged with Histogenics last year. Histogenics had sought to create restorative cell therapies to help fight pain, among other applications. However, its clinical pipeline didn’t pan out, so the stock was left nearly worthless. Ocugen merged with Histogenics to obtain its Nasdaq listing and access to the capital markets.
These sorts of mergers with busted companies are fairly common in the biotech space. Still, they’re not a great sign. Particularly in a hot biotech and initial public offering (IPO) market like we’ve had in recent years, most biotech firms have had no trouble raising money through a traditional IPO.
Investors should immediately be more skeptical of a company like Ocugen that used a reverse merger to go public instead of subjecting itself to usual IPO scrutiny.
The skepticism toward Ocugen was well-founded. The stock started trading around $2 a share after the merger was finalized, but shares tanked almost immediately to below a buck and eventually settled at a low of a measly 17 cents per share. Up until the bounce at the end of July, in fact, there’d been virtually nothing happening with Ocugen from either a business developments or stock price perspective.
FDA Gives Some Hope
On July 27, the FDA approved Ocugen’s request for Orphan Drug Designation for OCU400. OCU400 is Ocugen’s lead candidate. The company describes the product, saying: “A novel gene therapy product candidate, OCU400 has the potential to be broadly effective in restoring retinal integrity and function across a range of genetically diverse inherited retinal diseases.”
These retinal diseases are not especially common in the population. As such, there aren’t too many companies doing research and development work in the space. This allows a company like Ocugen to get access to the orphan drug pipeline.
Approved orphan drugs receive tax credits, enhanced product exclusivity, and other perks. It’s essential for a tiny biotech firm like Ocugen to get this designation approved when working on a drug with a limited market potential.
Long Road To Success
This designation is great, however, Ocugen remains a tiny company that is a long way from being self-sufficient. As of June, Ocugen had $15 million in cash. Given its recent burn rate, that may sustain the company for around a year at the current trajectory.
That’s better than nothing – Ocugen doesn’t run the risk of exhausting its cash tomorrow. Still, it could be a problem if the company’s next clinical data readout doesn’t produce strong results. The company doesn’t see potential approval for OCU400 coming until around 2025, even assuming things continue to go well.
It’s a complicated and risky path from here to there; shareholders should expect a bumpy ride.
OCGN Stock Verdict
Ocugen’s shares are likely to remain a trader’s delight in coming weeks and months. It comes with the territory. At a share price of 50 cents and a market capitalization of less than $40 million, it doesn’t take much money to swing the share price around. Thus, if you’re looking for some exciting short-term trades, OCGN stock could be a worthy hunting ground.
For long-term investors, however, approach Ocugen with the utmost caution. There’s almost no way to reasonably forecast whether or not the company will be able to convert this FDA designation into a meaningful comeback.
Make no mistake, the market had left this company for dead just a month ago. And if it can’t come up with more positive news, its continued survival will be in grave doubt. This is a company that only true speculators should consider holding.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.
