Shares of small-cap stocks are typically more likely to double (or more) in a short period, say, one year. But these companies also tend to be substantially riskier than more-established corporations. That's why it's essential to proceed with extreme caution when looking at these smaller companies.
With that in mind, let's look at two small-cap stocks that boast significant upside potential, at least if we go by average price targets assigned by Wall Street analysts. The companies in question are Ocugen (OCGN 1.11%) and BioXcel Therapeutics (BTAI). Are these biotech stocks worth buying right now?
1. Ocugen: Implied upside of 287%
With a share price of just $2.13 as of this writing, Ocugen isn't just a small-cap stock, it is also a penny stock. But not to worry! The company's average price target currently sits at $8.25, according to Yahoo! Finance. That works out to a potential upside of a little more than 287%. Not too shabby. But should investors bet on this biotech? The company has been looking to enter the coronavirus vaccine market for more than a year.
Unfortunately, it ran into several regulatory headlines. Although the company's candidate, Covaxin, proved 77.8% overall effective and 93.4%% effective against severe cases of COVID-19 in a phase 3 clinical trial conducted in India, the U.S. Food and Drug Administration (FDA) declined to grant it emergency use authorization (EUA), instead encouraging Ocugen to apply for full approval after another late-stage study in the U.S.
Unfortunately, the FDA recently put Ocugen's planned phase 2/3 study for Covaxin on clinical hold. To understand the reason behind this regulatory decision, let's go over some background information first. India-based Bharat Biotech is the company that originally developed Covaxin. In early April, the World Health Organization announced that it was suspending the supply of Covaxin through UN procurement agencies following a less-than-stellar inspection by the organization of Bharat Biotech's manufacturing process for the vaccine.
In response to this news, Ocugen voluntarily paused the dosing of participants in its phase 2/3 study, leading to the FDA's clinical hold. At this point, it is safe to say that Covaxin's prospects in the U.S. are getting less attractive with each passing day. The widespread availability of other vaccines, coupled with the fact that we have made tremendous progress with the pandemic -- not to mention the time it will take for Covaxin to earn approval (if it gets that far) -- all spell trouble for Ocugen's candidate.
Meanwhile, the biotech has been awaiting EUA for Covaxin in Canada since July 2021. Ocugen currently has no products on the market, it does not generate any revenue, and it is consistently unprofitable. Further, none of the company's other programs are anywhere close to earning the green light.
Given all these factors, it's best to stay away from this company, even with the street's optimistic projections. There are better biotech stocks to consider on the market.
2. BioXcel: Implied upside of 517%
BioXcel Therapeutics' shares are currently changing hands for just under $13. The company's average price target, according to Yahoo! Finance, is $79.82. For those keeping score at home, that's a potential upside of nearly 517%. That's huge, and to get this out of the way, I do not believe the company has what it takes to reach this goal within a year. But if the company can deliver even a quarter of those returns in the next 12 months, that'd still be amazing.
More importantly, could BioXcel Therapeutics deliver juicy long-term gains? The biotech's platform is centered on using artificial intelligence-based approaches to discover and develop treatments in two primary therapeutic areas: neuroscience and immuno-oncology. The company recently earned FDA approval for its leading pipeline candidate, Igalmi, a sublingual film for the treatment of acute agitation (psychological and behavioral symptoms) associated with schizophrenia and bipolar disorders.
Igalmi did encounter its share of regulatory roadblocks. For instance, the FDA had initially set a PDUFA goal date (the latest date by which it was supposed to complete the review of the application for the medicine) of Jan. 5. The agency pushed the date back by three months, which caused BioXcel Therapeutics' shares to drop.
Still, the biotech will now be able to generate some revenue from this product. It had no therapies on the market before this approval. What is the commercial opportunity for Igalmi? BioXcel Therapeutics estimates a patient population of about 7.3 million adults in the U.S. and up to 25 million episodes of agitations annually. Current treatment options and standards of care are inadequate.
That opens up the door for Igalmi to grab a decent share of this market and perhaps successfully generate hundreds of millions of dollars -- if not more than $1 billion -- annually at its peak. BioXcel Therapeutics' market cap is currently just $363 million. In my view, the potential success of Igalmi in this indication alone isn't baked into BioXcel's stock price. It's also worth noting that the biotech is working on other indications for Igalmi that could increase its potential target market.
For instance, the medicine is being developed as a potential treatment for agitation associated with Alzheimer's disease and major depressive disorder. Naturally, there is no guarantee that Igalmi will earn approval for these indications. The company could run into more clinical or regulatory headwinds, too. Even so, given the potential of Igalmi and BioXcel Therapeutics' tiny market cap, the company looks attractive, especially for those investors with above-average risk tolerance.