1 stock that has more than doubled this year that I wouldn’t touch with a 10 foot pole

Small biotech companies can be explosive. Massive gains of over 100% over relatively short periods of time are not that uncommon. This is what happened to Occugen (NASDAQ:OCGN) This year. The company’s shares are up 229% since January (as of this writing). As usual, Ocugen owes this recent series to significant clinical progress.

However, despite recent developments, the biotechnology sector remains far too risky for most investors. Here’s why Ocugen’s stock isn’t worth it right now.

Promising pipeline programs

Ocugen will be remembered by some for its failed attempt to become a major player in the COVID-19 vaccine market. However, biotechnology is turning a new page and pushing several candidates to take the next steps in their development. The lead asset in Ocugen’s portfolio is OCU400, a potential treatment for retinitis pigmentosa (RP). This group of rare genetic diseases linked to the eyes erodes patients’ vision, eventually causing blindness, or at least severely compromised vision.

If approved, OCU400 could be a one-time curative gene therapy for RP. Ocugen has launched a phase 3 clinical trial for the treatment. It plans to pursue approval in the United States and Europe.

What is the market potential of OCU400? If we take Ocugen’s estimates seriously, they are tempting. The biotech projects that OCU400 could be approved in 2026. Ocugen believes the therapy could generate between $30 billion and $47 billion in total revenue in the five years following approval. The company’s market capitalization is approximately $488 million as of this writing. So by all accounts, if these projections come true, Ocugen is seriously undervalued.

And that’s without counting the rest of the company’s pipeline. The biotech is developing OCU410 as a potential treatment for dry age-related macular degeneration, another eye disease. Ocugen projects sales of $75 billion in the first five years for the OCU410, which is currently in Phase 1/2 testing.

But there’s more to the story

With projections like those of some of its leading contenders, why isn’t the market adjusting accordingly and driving Ocugen’s stock price higher than it has been? already been this year? It’s simple: these are not risk-adjusted estimates. A biopharmaceutical industry product generating $75 billion in its first five years on the market is basically unknown outside of the COVID-19 vaccine market, and under extraordinary circumstances.

Ocugen still faces numerous risks that could completely derail its plans. The most obvious is that OCU400 may not prove effective in its ongoing late-stage clinical trial. The shares could become almost worthless if that happens. There are also a range of other potential clinical and regulatory pitfalls. The same goes for the OCU410, which is even more subject to these risks since it is still in its infancy. It’s telling that Ocugen doesn’t have a larger biotech partner on board to help it develop these drugs.

With sales forecasts of the kind the company is making for OCU400 and OCU410, you’d think big drugmakers would rush to sign lucrative licensing deals with Ocugen. The biological development of new drugs is often much more expensive and risky than the simple acquisition of promising assets. This is why the M&A scene in the biotech industry has been so active in recent years.

A licensing agreement would help reduce Ocugen’s risk associated with these therapies. The company would likely receive an upfront payment and help from a more experienced team to get these products to the regulatory finish line and beyond. Perhaps Ocugen is so sure of the outcome that he feels he doesn’t need help.

Or maybe the company’s products aren’t really that appealing — or maybe they are, and no biotech giant has been paying attention. Regardless, there’s more than meets the eye here, and in my opinion, the lack of a partner for one of Ocugen’s more than half-dozen programs is a signal alarm.

Turning now to the company’s financial situation, it ended the first quarter with $26.4 million in cash and equivalents, barely enough to sustain the various clinical studies it is conducting for a long time, including one in later phases.

Ocugen will almost certainly have to go through a funding round or two soon. Management could take advantage of the stock price surge to launch a secondary stock offering, which would likely cause its shares to decline. Or maybe Ocugen will issue debt. That said, Ocugen will need more than funding to become an attractive company. In my opinion, this biotechnology has too many unknowns, potential pitfalls and red flags. It’s best to stay away from stock.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

1 Stock That’s More Than Doubled This Year That I Wouldn’t Touch With a 10-Foot Pole was originally published by The Motley Fool