Investing in biotech stocks can be inherently risky. Ocugen (OCGN), though, does not appear to be worth the gamble. The biopharmaceutical company's partnership with Bharat Biotech in developing Covaxin, a COVID-19 vaccine, had Ocugen investors hopeful for future profits following authorization from the Food and Drug Administration (FDA). Unfortunately, that authorization has yet to happen -- and appears increasingly unlikely to arrive. In the meantime, Ocugen's business is accumulating losses and burning through money.
To better understand just how risky Ocugen is as an investment, let's consider the following numbers.
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$206.9 million in stock and warrants issued
Since its inception through the end of 2021, Ocugen raised $206.9 million from the proceeds of sold shares and warrants. Last year alone, Ocugen raised $129.2 million from the issue of common stock; this was crucial for the company as its operations do not yet generate positive cash flow.
On Feb. 22, the healthcare company announced another share offering with gross proceeds of $53.5 million. Ocugen says the money will be used for "general corporate purposes, capital expenditures, working capital and general and administrative expenses." That's akin to regular day-to-day operations and isn't a terribly great reason to be diluting shareholders.
The danger for investors is that as stocks slide further, the company will need to issue more shares in order to raise the same amount of money in the future. In the past year, while the S&P 500 has risen by nearly 10%, shares of Ocugen have crashed a mammoth 71%.
$58 million in operating expenses
This past year, Ocugen reported operating expenses of over $58 million. That's nearly three times the $21.3 million it reported a year earlier. It's understandable for a biotech company to invest in its own business and pipeline to bolster research and development. But Ocugen's finances are bloated with general and administrative (G&A) expenses. In 2021, G&A totaled $22.9 million and had risen 187% over a single year.
Ocugen's management partially attributed the G&A jump to $3 million spent on "stockholder meetings and proxy solicitation." But that's not a great reason for an early-stage company to be burning through shareholder funds. For young businesses, keeping costs down is key to minimizing cash burn. Even more nerve-wracking is that Ocugen anticipates its G&A will continue to rise in the 2022 fiscal year as the company builds out its accounting, legal, and other departments, in what it calls "corporate infrastructure costs."
$47.9 million in cash burn
As a result of all its spending, Ocugen exhausted $47.9 million on day-to-day operating activities in 2021. That's more than three times the $14.7 million the company spent on operating activities a year ago. While fluctuations in cash can be justified, this jump can be chalked up to Ocugen's net loss of $58.4 million, which was predominantly made up of operating expenses.
Given Ocugen's modest amount of cash on hand -- slightly over $24 million at the start of the year -- this cash burn is particularly significant. To make up for lost cash, Ocugen will need to raise funds on an ongoing basis, especially if they expect expenses to rise again in the future.
$0 in revenue
The biggest reason to avoid Ocugen stock is that the company has yet to generate any money, and there's no telling if it will reach profitability anytime soon. This month, the FDA declined to issue a pediatric Emergency Use Authorization for Covaxin, the COVID-19 vaccine that Ocugen has co-developed with Bharat Biotech. While Covaxin is approved in other parts of the world, Ocugen will only share in the vaccine's profits from Canada and the U.S. Neither country has authorized Covaxin for use, leaving Ocugen's immediate prospects for generating meaningful revenue slim.
Investors are better off avoiding Ocugen
By now, it should be clear why Ocugen isn't a tenable investment. There's too much risk in the business and given the increases in spending, especially in G&A, the cash burn may not get better anytime soon. If you're buying shares of Ocugen, you need to prepare yourself for the very likely scenario that the company issues more shares and that the value of your investment will significantly decline in value.
If you're looking for growth stocks, there are far safer options to consider than Ocugen.
