Recently, two biotech firms have peaked the interest of Reddit traders. The allure of these two companies has much to do with their triple or even quadruple-digit gains over the past year.
There’s only one problem: When you look forward five-years, both of these stocks look deeply in the red.
Has Reddit selected another group of besieged businesses yet again, or are these two stocks in fact, turnaround stories that could make you rich?
Ocugen (OCGN) is a Reddit pick in part due to it co-developing and making a coronavirus vaccine that was originally created by Bharat Biotech. Given the world’s large demand for vaccines, the short-term potential of this deal could be huge. There is lots of room for more coronavirus vaccines to be given, but the details are where I believe Reddit has it wrong.
Bharat Biotech’s “Covaxin” vaccine has been proven to be effective and safe in phase 3 trials, but it has not received approval yet in America. That’s an issue.
Also, Ocugen’s deal to monetize only covers America, where vaccination is rapidly progressing with other vaccines already approved for sale. So, the revenue potential is maybe less than Reddit traders are wishing for.
Then, there is the fact that Ocugen will get just 45% of the profits from sales in America. The company is an early-stage biotech that does not yet have any clinical development projects and it is not a drug maker.
Without a history of profitably manufacturing anything and with a product developed completely by another company, it looks to be on shaky ground and investors should know it is much riskier than it might seem at first.
Humanigen (HGEN) is another biotech company that Reddit loves and is also doing a coronavirus project. Instead of a vaccine, the company is developing its antibody therapy lenzilumab in phase 3 trials to test its effectiveness at saving COVID-19 patients.
In its recent update in March, the company reported that lenzilumab reduced the chances of needing a ventilator by up to 54%. That’s a very promising development, and investors should be excited. But again, the details are more complicated.
Certain populations are more likely to have a severe covid case when compared to younger people. But also, these vulnerable people are the ones most likely to be vaccinated against the disease. Around 65.9% of adults over 65 are already vaccinated. And those numbers will only go up.
So, with the market size decreasing, and Humanigen still having to finish its phase 3 trials and apply for approval before it can even start bringing in revenue. It’s obvious that Humanigen’s drug will save lives, but that does not mean a fortune for the company or the investors who invest in it.