Ocugen Inc. (NASDAQ:OCGN) is a clinical-stage biotechnology company developing gene and cell therapies using its proprietary platforms. They aim to restore retinal function in various ocular diseases. Since I last covered OCGN, the company has made promising strides targeting conditions such as retinitis pigmentosa [RP], geographic atrophy related to dry age-related macular degeneration [dAMD], Stargardt disease, and wet AMD. It also has an intriguing candidate addressing defects in knee cartilage. Additionally, OCGN is part of the $5 billion NIAID-funded NextGen initiative for an inhaled COVID-19 vaccine. In my view, their unique approach to gene therapies still has significant potential. It also has enough funding until Q3, 2025, which should be enough to deliver more definitive clinical trial data on OCU400. Thus, I reiterate my “buy” rating on OCGN for investors who understand the inherent clinical trial risks.

OCU400 Phase 3 Trials: Business Overview

In March 2024, I rated Ocugen as a promising speculative “buy.” I believed OCGN’s OCU400 gene therapy program and $5 billion NIAID-funded study for an inhaled COVID-19 vaccine seemed bullish enough to justify a bullish stance. Since then, the stock has risen, somewhat validating my views. Yet, it’s been volatile and remains just 10.0% higher than the last time I covered OCGN. Thus, I’ll examine the recent pipeline advancements, the current funding scenario, and the company’s future potential in this update.

Source: Corporate Presentation. August 2024.

Currently, OCGN is a clinical-stage biotech developing gene and cell therapies leveraging its proprietary platforms. It has a first-in-class Modifier Gene Therapy and Regenerative Cell Therapy focused on articular cartilage lesions. Additionally, OCGN develops inhalable vaccines to support public health based on its original mucosal vaccine technology using a chimpanzee adenovirus-vectored (ChAd) approach.

The company’s gene therapy pipeline includes OCU400, OCU410, and OCU410ST. In my view, OCU400 remains the company’s main value driver. OCU400 is indicated for retinitis pigmentosa [RP] with RHO mutations and has received the FDA’s Regenerative Medicine Advanced Therapy [RMAT] designation for RP. Note that this designation is related to NR2E3 and RHO mutations. Additionally, since June 2024, OCU400 has been dosing patients in its new Phase 3 liMEliGhT trials for RP. The FDA even approved an Expanded Access Program [EAP] for OCU400 to treat adults aged 18 and older, including patients with diverse RP gene mutations. I believe these are key wins for OCGN as RP affects about 300,000 individuals in the US and Europe and 1.6 million worldwide.

Furthermore, the European Medicines Agency [EMA] will accept OCU400’s Phase 3 trials. If those trials are successful, OCGN could also quickly obtain regulatory clearance in the EU. It’s worth mentioning that OCGN plans to submit OCU400’s Biologics License Application [BLA] and Marketing Authorization Application [MAA] in 2026. So, OCGN continues progressing towards a one-treatment-for-life approach to RP patients, which should unlock considerable shareholder value.

Beyond OCU-400, the company has OCU410 (AAV-hRORA). This is a one-dose treatment for Geographic Atrophy [GA] secondary to dry age-related macular degeneration (dAMD). The company completed dosing in the Phase 1/2 ArMaDa study with this modifier gene candidate. According to OCGN, GA affects approximately 1 million people in the US, and dAMD impacts around 10 million patients in the US and 266 million worldwide. OCGN reported it had initiated Phase 2 with a larger cohort. Additionally, OCU410ST targets Stargardt disease. This means OCU410ST could potentially benefit around 100,000 US and EU patients. They’re currently finalizing Phase 1 in their Phase 1/2 GARDian study. We should get Phase 2 by Q3 2024.

Moreover, OCGN’s biologics program has OCU200 (Transferrin-Tumstatin). This is an IND-ready candidate for diabetic retinopathy and wet AMD. Furthermore, OCGN’s regenerative medicine has a cell therapy called NeoCart. This is an autologous chondrocyte-derived neocartilage with an FDA RMAT designation. NeoCart theoretically repairs knee cartilage defects by harvesting a small amount from the patient. Then, OCGN cultures chondrocyte cells in a lab and implants the newly grown cartilage back into the knee.

It’s worth highlighting that management expects NeoCart Phase 3 will depend on funding availability. However, Phase 3 should commence in 2H2024 if possible. I like that the NeoCart study compares it against chondroplasty, the standard of care for knee cartilage repair. Unfortunately, OCGN has struggled to secure funding for this new NeoCart study since the Phase 3 trial design in December 2022. However, the current Good Manufacturing Practice (cGMP) facilities have received final clearance and occupancy certificates for NeoCart production.

So, it’s nonetheless encouraging progress. Moreover, I believe it could become a major value driver if OCGN reaches FDA approval for OCU400. After all, that would free up resources for NeoCart, a promising program previously acquired from Histogenics after a reverse merger.

Upcoming Value Drivers: NIAID Support For OCU500

I also want to highlight that OCGN continues working with the $5 billion NextGen project to develop the OCU500. This mucosal vaccine candidate against COVID-19 could also become a prominent value driver, especially if COVID-19 side effects persist. Other companies also participate in this National Institute of Allergy and Infectious Diseases [NIAID] initiative. Still, OCGN’s collaboration with NIAID does cover trial costs. So, OCGN has to focus on supplying clinical study materials, which shouldn’t be too demanding.

Moreover, NIAID plans to submit OCU500’s IND this year to kick off Phase 1 trials. Hopefully, this will also report promising results for more effective and user-friendly vaccine alternatives against COVID-19 and other respiratory diseases. Also, OCGN’s latest earnings call cited they’re making significant progress in their clinical programs. Management also did a public offering of 30.4 million shares at $1.15 per share, raising $35 million in gross proceeds. Interestingly, OCGN dipped 11% after this news. However, I believe this much-needed financing will reassure long-term investors until OCU400 delivers late-stage clinical data on its Phase 3 trials. So, I actually think it was a smart move, even though the market reacted slightly negatively to the raise.

Still Compelling: Valuation Analysis

Currently, OCGN trades at a $348.3 million market cap, roughly a 10.0% increase since my last coverage. After my previous article, the stock has been somewhat volatile, reaching a 52-week high of $2.11 per share. On the balance sheet, OCGN holds $15.7 million in cash and equivalents against $2.9 million in financial debt. It’s worth noting that their short-term liquidity has declined from the $26.4 million in cash and short-term investments reported earlier. However, on August 2, 2024, the company successfully raised an additional $35.0 million through an equity offering, which management states extends their cash runway into Q3 2025. I calculate that, including the latest equity raise, OCGN’s short-term available liquidity now stands at $50.7 million.

Moreover, I estimate OCGN’s latest quarterly cash burn at $10.4 million by adding its CFOs and Net CAPEX. This suggests a cash runway of about 4.9 quarters, aligning with management’s projections. It’s also worth mentioning that OCGN has advanced OCU400 into Phase 3 trials since my last article. So, it’s now well-positioned for its planned BLA submission by 2026. While their current cash reserves may not carry them all the way to the BLA submission, they should be sufficient to produce more concrete Phase 3 trial data. If OCGN can confirm OCU400’s efficacy and safety in these trials, I imagine the market will start pricing OCGN as a viable contender in the RP market.

For context, the RP market size is forecasted to grow to $21.4 billion by 2033, presenting a significant TAM for OCGN. This potential TAM remains the main value driver for the company through OCU400, and I believe they have enough funding to produce data to sustain their upcoming BLA. If this candidate receives FDA approval in 2026, it should translate into a significantly higher market cap for OCGN.

To put OCGN’s valuation into perspective, consider that other one-time gene therapies (like OCU400) are often priced between $373,000 and $2.1 million per treatment. Thus, OCGN’s revenue potential is substantial, given that OCU400 targets a market of up to 300,000 patients with RP. If the company captures a conservative 1% of this TAM, that equates to 3,000 patients. So, even assuming a pessimistic price of $100,000 per therapy for OCU400 would result in approximately $300.0 million in revenues.

Moreover, OCGN’s sector’s forward P/S ratio is 3.9. Thus, if OCU-400 is approved, it could justify a significantly higher valuation for the stock. Naturally, this is just a glimpse into the company’s valuation potential. After all, we don’t know what the exact pricing will be for OCU400. Also, reimbursement policies will play a crucial role in its market adoption because it will be somewhat cost-prohibitive for patients otherwise. However, this hypothetical scenario shows that even under exceedingly conservative assumptions, OCGN appears quite cheap at its current market cap of $348.3 million. Therefore, with OCGN’s progress continuing as planned and the upside potential now closer than before, I believe it’s fair to reiterate my “buy” rating on OCGN.

Investment Caveats: Risk Analysis

Naturally, the main risk for OCGN at this point is the outcome of its upcoming Phase 3 trial data for OCU400. If these trials yield disappointing results, it could eliminate a vital value driver for OCGN’s valuation. This could very well lead to significant shareholder losses. Moreover, by the time we receive Phase 3 data, the company will have accumulated more cash burn. Thus, lackluster trial results and depleted cash reserves would be a double whammy for the shares.

However, I believe a bullish stance is justified based on today’s data and the recent progress into Phase 3 trials since my last article. Nevertheless, OCGN remains a somewhat speculative investment until we see definitive Phase 3 trial data and OCU400’s FDA approval. This is why I think OCGN is a “buy” for investors who understand the inherent clinical trial risks.

Reiterated “Buy”: Conclusion

Overall, OCGN’s investment thesis hasn’t fundamentally changed since my last article. However, since then, the company has made promising progress on OCU400. I believe they have a reasonable chance of obtaining FDA approval for this drug candidate. This would be huge for OCGN because it would let it tap into a sizeable TAM. However, it would also validate its broader IP portfolio, and I think several other programs could also become major value drivers over time. Also, OCGN has enough resources for OCU400’s Phase 3 trials, so I believe it’s fair to remain bullish on the shares. Hence, I reiterate my “buy” rating for OCGN for investors who understand the embedded clinical trial risks.