OK, let’s wrap our heads around this one: Ocugen (NASDAQ:OCGN) has a $1.4 billion market capitalization. But its entire pipeline is still in preclinical trials for various ophthalmic conditions. And it’s been around for just over five years. What is going on with OCGN stock?
A similar company in the space, EyePoint Pharmaceuticals (NASDAQ:EYPT) has been around for more than 30 years, has a drug on the market and was spun-off from a division of ophthalmic heavy-hitter Bausch & Lomb. It has a market cap of $278.5 million.
What’s the difference? Reddit. Robinhood. And the fact that OCGN announced that it was the U.S. distributor of a Covid-19 vaccine that’s produced in India.
Losing Sight of OCGN Stock
The question is, how did a company looking to cure eye diseases end up as a potential distribution partner for a Covid-19 vaccine?
Connections, I suppose.
But then again, does it really matter?
The fact that people — and institutions — jumped into this stock and continue jumping into this stock is either amazing or amazingly depressing.
First of all, this tiny ophthalmic company has no real distribution channels for the drug in the U.S. and isn’t big enough to dedicate staff to run a national distribution operation.
It’s not like they’re going to have this stuff dropped in a warehouse and then ship packages to pharmacy chains and hospitals. And they’re not going to drive it around in a delivery truck they rented. At least I hope that isn’t the plan.
I don’t know because that level of detail isn’t important. I mean, even with 230 million Americans vaccinated and a growing surplus of the current approved vaccines, having another vaccine from a country in dire need of effective vaccines — in India, Covid-19 cases are spiking dramatically — isn’t a priority. At all.
Yet OCGN stock is up 533% year-to-date — 457% in the past three months.
FOMO on Steroids
The trouble here is, new investors that have more money than market-savvy ones are buying into whatever cult stocks they see on their favorite social media channel. When it goes viral, these thinly traded stocks rise, and these investors think they’re onto something big.
Then the short-sellers roll in and bet on the stock’s demise. When investors keep buying, they blow the short-sellers out and the ensuing “short squeeze” sends the stock even higher, further accelerating the cult stock’s status.
But all this is empty speculation. It’s fun, and if you know when to walk away, it can be lucrative. But it’s the gamification of investing, or should I say, trading. And OCGN stock is a poster child of social media investors with FOMO (fear of missing out).
Steak 0, Sizzle 1
Dollars to doughnuts, OCGN stockholders aren’t in this for the company’s eye medications under development. As I noted previously, EYPT has been in this market for 30 years and has drugs on the market. And patents. And distribution deals. And it’s trading at a quarter of the valuation of OCGN, in this heady market.
Also bear in mind that ophthalmic drugs are notoriously difficult to make money on. An ophthalmologist once explained to me that Medicare doesn’t cover a lot of new eye meds because the calculation is, being blind isn’t fatal. So, Medicare supports drugs that help heart attacks, strokes and chronic conditions that can kill people.
What’s more, OCGN isn’t going to have a drug on the market for years, even if trials go well. And this is a hotly competitive space, so it’s up against pricing and scale issues as well.
So, we’re left with all this being about an India-made Covid-19 vaccine distribution deal that isn’t even approved in India yet. And after Indian approval, it still has to get U.S. approval.
Roll the dice if you like, just understand the game you’re playing.
On the date of publication, GS Early has no position in the stock featured in this article. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time. He’s seen a few things and heard most of it before.