Ocugen stock is a good speculative buy but there’s 1 key risk

By:
on May 7, 2024
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  • Ocugen shares have surged by over 183% in 2024.
  • The company is working on OCU400, a drug to treat a rare eye condition.
  • There are elevated dilution risks as the cash on hand can only last until Q4.

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Ocugen (NASDAQ: OCGN) stock price has launched higher since last year, helped by the rising hopes that OCU400 will be approved by the Food and Drug Administration (FDA). The stock surged by over 378% from its lowest point in September and by 183% this year. 

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OCU400 could be a gamechanger

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Ocugen is a biotech company that gained popularity during the Covid-19 pandemic as it worked on OCU500, a Covid vaccine. At the time, its stock surged to a high of $17.46, giving it a market valuation of over $12 billion.

Now, the focus among investors has turned to OCU400, a new drug that will treat a rare condition known as retinitis pigmentosa. This is a hereditary disease that leads to black pigmentation and gradual degeneration of the retina.

It is estimated that the disease targets over 1.6 million people globally and that its market size is in the billions of dollars. There are over 110k patients in the United States. Analysts believe that its market size will jump to over $30 billion by 2033. 

The drug is now commonly treated by Luxturna, a drug manufactured by Roche. A recent statement established that the drug is highly unaffordable since it goes for $850,000. This means that Ocugen’s drug, if successful, could gain market share, especially when it is priced lower than Luxturna.

There is a high possibility that OCU400 will get approved since it has moved to the third phase of testing. In April, the FDA cleared its Investigational New Drug (IND) amendment to start phase three study of the drug. In a statement at the time, the company’s founder and CEO said:

“Until now, there has been only one marketed product to treat one of the 100 gene mutations associated with RP. Now there is real hope for all RP patients who haven’t had a treatment option.”

Ocugen hopes that the drug will be approved by 2026. As a result, its upcoming financial results will likely not have too much in terms of revenue. The key data to watch will be its loss and the strength of its balance sheet.

The most recent results revealed that Ocugen had $39.5 million in cash and equivalents, down from $90.9 million in the same period in 2022. Its cash balance has dropped in each quarter. Its total net loss in the past five quarters stood at over $90 million.

Therefore, there is a high possibility that Ocugen will raise cash later this year. In a statement in April, the company said that its cash balances will last until Q4’24, meaning that a cash raise will happen before that. Ocugen has boosted its outstanding shares from 1.57 million in 2020 to over 256 million today. 

Ocugen stock price forecast

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Ocugen stock

OCGN chart by TradingView

Turning to the daily chart, we see that the OCGN stock price formed a double-top pattern at $2.07 and then nosedived to a low of $1.10 in April. As it dropped, it moved below the key support level at $1.33, the neckline of this pattern.

It has now bounced back and moved above the 50-day and 100-day Exponential Moving Averages (EMA), which is a positive sign. The Relative Strength Index (RSI) has pointed upwards, pointing to renewed momentum. 

I suspect that the stock will rise to the key resistance point at $2.07 ahead of its earnings. However, as noted above, investors should be aware of the rising dilution risk.

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