Ocugen Stock: Still Struggling (NASDAQ:OCGN)

In April I wrote a pessimistic note about Ocugen (NASDAQ:OCGN). Seven months later things have not improved with the share price down 34% in the past 6 months to $1.61. Here I review the recent Q3 2022 Earnings Call to look for signs of a change in fortune. I haven’t changed my pessimistic view of earlier this year. In fact it gets worse as there is now a new program on osteoarthritis to further challenge funding of the various programs.

COVID vaccines

As news from China makes clear, SARS-CoV-2 is not done with us yet. Nor is the race for the best COVID vaccine over. However some things are becoming clear. In the US and Europe the mRNA technology developed by Moderna (MRNA) and BioNTech (BNTX)/Pfizer (PFE) is clearly the winner, most significantly because the mRNA vaccines are outstanding and they are fast to develop/modify. Ocugen still seeks to get a life for its COVID vaccine technology, which now includes a mucosal vaccine.

The thing that convinces me that Moderna and BioNTech/Pfizer have won the COVID vaccine battle, at least in the West where Ocugen’s COVID vaccine licence applies, is that Astra Zeneca (AZN) has decided not to continue to pursue its COVID vaccine program. It is worth noting that Astra Zeneca’s number 2 revenue earner ($3.9 billion) in 2021 was its COVID vaccine Vaxzevira, but this was based on technology that has been superseded by mRNA vaccine technology. Astra Zeneca CEO Pascal Soriot took the view that it had better ways to deploy capital rather than becoming a late entrant to the mRNA vaccine technology. For me this is a loud statement about the vaccine game in 2022 and this goes beyond COVID. It leaves no room for companies like Ocugen with now outdated technology, even if it has innovation in licensed mucosal COVID vaccine technology from Bharat Biotech.

A big challenge for Ocugen is managing clinical trials in the US for its vaccine technology given the varied prior vaccine history in the community. Now patients who have previously received mRNA vaccines are included in the trials. This must introduce significant complexity to interpretation of trial results. The key focus by Ocugen now seems to be use of Covaxin as a booster, but this must compete with other boosters. My personal vaccine history (in Australia) gives a sense as to how Government has approached COVID vaccination. Initially I received 2 doses of the AstraZeneca vaccine, then a BioNTech/Pfizer mRNA booster, followed by a Moderna mRNA second booster. Where does Covaxin fit in this kind of vaccination program?

What about mucosal vaccines?

A recent headline in Nature asked the question as to whether nasal vaccines (inhaled or via drops) are a game changer. The focus of another Nature article was about China and how it might safely exit COVID lockdowns without massive numbers of deaths. That article makes the credible argument that a mucosal COVID vaccine could be part of the solution.

The point is that the jury is still out about mucosal vaccines as to whether they will be as effective as the injected mRNA vaccines, which provide outstanding protection. The ray of hope for Ocugen is that the mucosal vaccine from their Indian partner Bharat Biotech will prove to be effective at reducing spread of the SARS-CoV-2 virus, which the injected mRNA vaccines don’t do effectively. This is not yet proven, but mucosal vaccines have been approved for use in India (by Bharat Biotech) and China.

I’m an investor in Starpharma (OTCQX:SPHRY) which has a broad spectrum antiviral nasal spray (Viraleze) that is likely to be effective at addressing early SARS-CoV-2 infection. The modest success of this recently released product in UK, Europe and SouthEast Asia suggests to me that it is hard to convince people to use a nasal spray.

My take is that the market for Ocugen’s COVID vaccines, including the nasal vaccine, will continue to be marginal.

Ocugen’s gene therapy, protein and cell based programs ….so many

Clinical trials are expensive because there is a lot of detail needed to get into a position to conduct a clinical trial. And the trial itself consumes cash. This makes me cautious about undercapitalised biotechs undertaking multiple clinical trial programs, especially for diverse diseases.

Ocugen has a focus on the eye, but this includes a broad portfolio of rare diseases. What chance is there that these programs can be managed effectively? Surely some have more prospects than others, so why not prioritise and sequence programs? Ocugen has OCU400 in Phase 1/2 clinical trials for Retinitis Pigmentosa, OCU410 using the nuclear hormone receptor gene to treat Dry AMD (Age-related Macular Degeneration) (plus a variant OCU410ST for treating Stargardt disease), and OCU200, a novel fusion protein, for treating diabetic macular edema, diabetic retinopathy and Wet AMD.

And then there are Ocugen’s regenerative cell therapies, with NeoCart for orthopedics to reduce pain and accelerate healing in knee cartilage. The work needed for clinical success is broad and costly, from developing and building manufacturing processes sufficient for providing clinical material through to the development of protocols acceptable to the FDA. It is true that Ocugen has some successes (eg achieving RMAT (Regenerative Medicine Advanced Therapy) status for repair of knee lesions from the FDA), but this is just a start on the path to clinical success.

The point is that cell-based clinical therapies are complex (almost personalised) so manufacturing processes are complicated and highly specialised. I suspect that this means a very high price for the treatment, when there are other innovative (and cheaper) products under development in orthopedics.

I’m invested in two Australian companies with interesting product developments in the orthopedics area. One, Paradigm Biopharma (ASX:PAR), has a treatment for osteoarthritis (pain & function, inflammation, cartilage degeneration) using injectable Pentosan Polyphosphate (Zilosul), which has been successfully used in veterinary applications for many years. This program is entering Phase 3 trials in the US (Fast Track Designation, 50+ sites activated), Europe (UK reg and ethics approval, 12 sites selected) and Australia (8 sites activated), with a standardised protocol across the three geographies. The other, Regeneus (ASX:RGS), involves a product called Progenza which uses Mesenchymal Signalling Cells from adipose tissue to repair tissue and reduce pain and inflammation. Regeneus has a partnership with Japanese company Kyocera (OTCPK:KYOCY) to develop treatment for knee osteoarthritis in Japan. It is taking advantage of fast track encouragement of cell-based therapies in Japan.

Unlike Ocugen, both of these companies have major focus on their osteoarthritis products for a limited set of treatments. Paradigm is well funded, while Regeneus is a more risky proposition. Osteoarthritis is a huge market, but I’m unconvinced that Ocugen’s approach will produce a commercially successful product even if trials are successful. The NeoCart product seems difficult to scale up for a mass market. This is not a problem for the Paradigm Biopharma and Regeneus programs. I’ve given just two of my early stage investments in the osteoarthritis space here. I’m sure there are a number of similar opportunities with other companies.

In summary, there are a number of biotech companies focusing on each of the Ocugen clinical problems. There is no doubt that the various programs in Ocugen cover a variety of substantial clinical opportunities. Big pharma companies have diversity in their programs, but they also have $billions to spend on clinical developments.

Cash position

Ocugen increased Q3 R&D spend from $6.3 million in 2021 to $15.6 million in 2022; and this is just the start with so many early stage clinical programs, not to mention the COVID vaccine programs. Net loss in Q3 2022 was $21.9 million against cash equivalents and restricted cash of $101.6 million as of September 30 2022. The company claims to have a cash runway to Q4 2023 with help from US Government support for the COVID vaccine programs.

The numbers don’t add up for me. An optimistic Ocugen shareholder might say that the large number of programs means that there is not fatal focus on a program that might fail. The counter argument is that if the diversity of programs means that none of them can be executed properly, this is a recipe for failure.

How does the market view Ocugen?

Seeking Alpha authors are not engaged, with no articles in the last 30 days. As has been apparent for some time, there is a cohort of enthusiastic Wall Street analysts, with 3 strong buys, 2 buys and 1 hold out of 6 analysts covering the stock in the past 90 days. The Seeking Alpha Quant rating is a hold. I’m not sure that having a very positive Growth rating (A+) and a very poor Momentum rating (D+) makes a lot of sense.

The numbers speak for themselves, with OCGN down 74.5% year on year and no signs of good times.

Conclusion

Biotech investing is a challenge. Companies achieve public listing because their business model has attracted interest. A biotech company needs plans to fill a compelling need that will prove to be profitable, but timing conflated with need for cash are the obvious enemies of biotech success.

Ocugen has succeeded in partnering with substantial Indian vaccine maker Bharat Biotech, but it isn’t clear to me that this is enough for success in the markets that it plans to address (especially the US). Ocugen’s NeoCart osteoarthritis program is challenging and has elements (expensive, hard to manufacture product) which suggest success is unlikely. The ocular gene therapy space is the wild west, but in the wild west there is gold. The question is whether Ocugen has the technology, skills and sufficient cash to find the gold and cash in on the good times. I’m doubtful but I’d love to be proved wrong.

I am not a financial advisor but I’ve lived biotech for a long time. I hope that my comments concerning Ocugen are useful as you and your financial advisor consider biotech investing. In this article I mention three investments (Starpharma, Paradigm Biopharma (ASX:PAR) and Regeneus (ASX:RGS)) in my Australian biotech portfolio for illustrative purposes to compare with Ocugen’s mucosal vaccine and NeoCart osteoarthritis product. Investors should be aware that each of these companies is early stage and risky.