Ocugen (OCGN) is a biotechnology firm engaging in the development and commercialization of therapies for eye diseases. Its pipeline of therapies includes OCU400, OCU410, OCU200, OCU100, and OCU300. The company was founded in 2013, and is headquartered in Malvern, Pennsylvania.
Shares of Ocugen have gains of 71.5% year-to-date, and 12-month gains of 1,655%. I am bearish on OCGN stock. Its fundamentals and valuation do not justify its soaring price.
Furthermore, Ocugen has gained a meme stock status and is more a speculative play rather than a company with solid fundamentals. (See Analysts’ Top Stocks on TipRanks)
Ocugen Business News
Ocugen became a popular biotech stock in 2021 because it is co-developing the Covaxin COVID-19 vaccine with India-based Bharat Biotech. Ocugen has a business agreement to market Covaxin in the U.S. and Canada, and keep 45% of its profits.
The key problem is that Covaxin has not been given yet approval by the FDA in the United States and therefore Ocugen has reported no revenue in FY 2017, 2018, and 2019 and only revenue of $42,620 in FY 2020.
The company has a bold vision “to Develop Gene Therapies to Cure Blindness Diseases and Develop a Vaccine to Save Lives from COVID-19.”
On December 9, 2021, Ocugen announced advancing OCU400 into clinical trials. OCU400 is “a modifier gene therapy candidate for the treatment of retinitis pigmentosa resulting from genetic mutations found in NR2E3 and Rhodopsin.”
On November 26, news that “the U.S. Food and Drug Administration (FDA) has issued a clinical hold on the Company’s Investigational New Drug application (IND) to evaluate the COVID-19 vaccine candidate, BBV152, known as COVAXIN™ outside the United States,” was not positive for Ocugen.
The company has stated that it anticipates being in communication with the FDA to address the deficiencies found.
Ocugen has also filed an Emergency Use Authorization (EUA) application with the FDA to use Covaxin on children. This is an important development to monitor for revenue generation.
Q3 Results
In Q3 2021, the net loss reported was $10.8 million, which widened compared to a net loss of $10.5 million in Q3 2020. Total revenue reported for Q3 2021 was $0, but the number of shares used in calculating net loss per common share (basic and diluted) increased to 198,790,980 compared to 141,591,218 in Q3 2020.
This simply means that net loss per share of common stock (basic and diluted) for Q3 2021 was $0.05 less than the net loss of $0.07 per share for Q3 2020, due to the stock dilution.
Fundamentals
Burning cash without any sales can only work for a limited amount of time.
The financial strength of Ocugen may seem high due to the very low D/E equity of 0.03 according to Gurufocus, but taking into consideration that operating cash flow, net income, and free cash flow have been negative as of 2013, fundamentals are very weak overall.
Valuation is rich too, as the current market capitalization of $1.06 billion is fully disconnected from Ocugen’s financials. According to Simply Wall Street, OCGN is relatively overvalued based on its P/B Ratio (10.5x) compared to the U.S. Biotechs industry average (2.7x).
Key Risks
Ocugen has a pipeline of products that all are either in clinical or preclinical trials other than the COVID-19 vaccine.
These products are aimed at the indications of gene mutation-associated retinal degeneration, dry age-related macular degeneration, diabetic macular edema, diabetic retinopathy, and age-related macular degeneration.
The FDA approval for Covaxin may never come, or arrive after other pharmaceutical companies have already gained a market share in providing vaccines.
It may be a crucial decision for Ocugen to focus on developing its gene therapy technology platform, rather than expecting positive results only from Covaxin, which are highly uncertain now.
OCGN stock has a Smart Score of 6 out of 10, which suggests the stock is likely to perform along with the overall market.
Wall Street’s Take
Ocugen has a Moderate Buy consensus based on two Buys and two Holds. The average Ocugen price target of $8.75 represents a 65.1% upside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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