For biotech companies, it's never a good sign to have testy interactions with federal regulators. Ocugen (OCGN -8.33%) knows this all too well. The company's coronavirus vaccine candidate in development was placed on a clinical hold by the Food and Drug Administration (FDA) on April 12. A mere three days later, Ocugen earned another regulatory rebuke for its handling of data from a trial investigating a gene therapy for ocular diseases.
Should the more recent issue with regulators go unaddressed, there might be real financial consequences. Is this cause for shareholders to head for the hills, or is it a potential buying opportunity on the horizon?
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Penalties may be looming
None of Ocugen's medicines are approved for sale yet, so it doesn't make any revenue. Most of the time, when a biotech in a similar situation gets dinged by regulators, it's very bad news. Each pipeline project inching toward commercialization represents a significant portion of the company's expected future revenue, so any hiccup that delays or endangers that future revenue is a big deal.
But Ocugen's case is a bit different. The regulatory issue with its ocular gene therapy centers on the reporting of some of its older clinical trial data. The phase 3 study in question, which was completed in late May 2019, sought to investigate whether the company's candidate OCU310 was effective at treating dry eye disease.
Per a notice of noncompliance issued to the company by the regulators at the FDA on April 15, Ocugen failed to upload the trial's results to the government's website, Clinicaltrials.gov. While Ocugen isn't the only biotech that's currently noncompliant, FDA records suggest that this is a fairly rare occurrence, with only a couple of companies attracting the ire of regulators for not reporting their data appropriately in 2021.
Should Ocugen continue to be in a state of noncompliance, it could get demolished by a gargantuan fine. So: how big of a fine is it looking at, you ask?
A truly astronomical sum of -- drumroll, please -- up to $10,000. But no fine has been levied yet, so investors can breathe a sigh of relief. Even if Ocugen ends up paying the fine, it has more than $94.9 million in cash on hand. So, while this situation may make the biotech look a bit disorganized, there's no major financial threat here.
A related stock price dip?
But on the other hand, Ocugen's shares have fallen by more than 34% in the last 30 days. Still, there isn't any clear link between the FDA's threat and the price dip, which started in March.
Another question you might be asking is whether investors are eager to hear the results of the trial are since they've yet to be reported. Typically, such results are major catalysts for price movements of biotech stocks.
As it turns out, shareholders were already informed about the outcome of the trial in 2021's third-quarter update. Though OCU310 appeared to be safe, it didn't appear to be helpful for patients, and the study didn't reach its primary endpoints regarding symptom reduction. That caused Ocugen to terminate the program altogether, and no more work is being done on it.
Don't rush to buy it
Regardless of what happens with the clinical trial data issue, it almost certainly isn't going to lower share prices enough to present a buying opportunity, nor is it a strong reason to dump your shares.
Though Ocugen's noncompliance does raise a few questions about why management hasn't kept up with federal regulations, it does not detract from the value of other projects that are still in the company's pipeline. At least, it doesn't detract from the value of those projects yet.
If there are future incidents in which Ocugen violates standard regulatory requirements, it will start to paint a picture of deeper problems, even if the fines aren't terribly threatening. In the meantime, though, Ocugen's lack of revenue makes it a speculative purchase, as with most biotechs, so investors ought to plan accordingly.
