I am neutral on Ocugen (OCGN) because Wall Street’s bullishness on the stock and its strong growth momentum are offset by the highly speculative nature of the business. (See Analysts’ Top Stocks on TipRanks)
Currently, the company is running up heavy losses, and is dependent on regulatory approvals to become profitable.
Ocugen is a biopharmaceutical company that is focused on developing and selling innovative vaccines, as well as gene therapies to cure diseases related to blindness.
Strengths
Currently, Ocugen is focused on developing a COVID-19 vaccine candidate that is under review by regulators, including the United States Federal Drug Administration.
The company is also working on modifier gene therapies that have the ability to cure multiple rare broad-range diseases with a single product. It is expected that clinical trials will start in the fourth quarter of 2021, and could be completed sometime in 2022.
Ocugen is also involved in creating innovative biological treatments for diabetic retinopathy, macular edema, and age-related macular degeneration.
Recent Results
Since Ocugen currently does not sell any drugs, it did not record any revenue during the second quarter of 2021. In addition, the company did not have any clinical-stage candidates in the quarter ended June 30, 2021.
The company reported $18.9 million in research and development expenses in the second quarter, as compared with $1.6 million in the previous year’s quarter. The expenses also included a $15-million upfront payment made to Bharat Biotech for the rights to COVAXIN in Canada.
Meanwhile, the general and administrative expenses for this quarter were $6.8 million, compared to $1.8 million in the previous year’s quarter. The increase in this segment of expenses was attributed to the $1.5-million increase in non-cash stock-based expenses, $2 million of proxy solicitation costs, and higher infrastructure costs in order to support the growth of Ocugen.
The company’s net loss was reported at $26 million, or $0.13 per share for the second quarter of 2021, versus a net loss of $16.2 million for the same quarter in the previous year.
Ocugen has a disappointing earnings history. It has missed analysts’ expectations in three of its last four quarters. However, the company did report that it was included in the Russell 3000 Index, which indicates the growing value of the biopharmaceutical company.
Valuation Metrics
Ocugen’s stock is hard to value based on historical valuation multiples, given that it has a short history as a publicly traded company. Furthermore, it has yet to turn a profit. That said, the company is expected to grow rapidly in the next few years and turn a normalized profit in 2022.
At the time of this writing, OCGN trades at a reasonable forward price-to-normalized earnings ratio of 19.4 times based on 2022 estimates. This looks even more attractive when considering the company’s strong growth momentum.
Wall Street’s Take
From Wall Street analysts, Ocugen earns a Moderate Buy consensus rating, based on two Buys assigned in the past three months. The average Ocugen price target of $12.50 implies 57.6% upside potential.
Summary and Conclusion
Ocugen is a highly speculative investment as it is currently running up heavy losses, and is bleeding cash, while investing aggressively in its hopes of gaining regulatory approval for several of its products.
If it succeeds in gaining regulatory approval, it could very well turn out to be a good investment at the current price, as its forward price-to-normalized earnings ratio is pretty attractive given the growth potential embedded in the company’s pipeline.
Furthermore, analysts are bullish on the stock at the current price.
While investors need to remember that this stock is highly speculative, the current share price looks like it could be an interesting time to add shares.
Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.
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