Topline Summary and Update
There is a truism in biotech that an author on Seeking Alpha has to respect. Even if you’re right about a stock, you’re only right until you’re wrong. With Ocean Biomedical, Inc. (NASDAQ:OCEA), my personal feelings were initially very negative, since they weren’t yet to the spot in development where they would have any data, so there was essentially nothing to judge them by, realistically.
From late August and for the rest of 2023, my article looked prophetic, as OCEA fell almost 90% into the depths of penny stock land. Then, almost out of nowhere, they’ve vaulted back into the microcap range, erasing a lot of my “prediction.”
You’re right until you’re wrong.
Only in this case, OCEA’s fundamental story is still being brainstormed, in my view. As with all biotechs, there’s the possibility that the long-term trajectory is upward, but that is still not a chance I’d be willing to take with this one. Let’s take a closer look to see what has (and hasn’t) changed.
Pipeline Updates
OCEA remains mainly in the translational phase of their development, attempting to find a product candidate that has meaningful promise in the clinic. Last time, I covered in some detail their efforts to target the carbohydrate modulator Chi3l1, with an antibody capable of slowing the growth of brain tumor xenografts in mice.
The most recent update with the Chi3l1 project was the announcement that they published findings suggesting that Chi3l1 helps to keep immune cells from entering the tumor proper, inhibiting an antitumor immune response. In this context, blocking Chi3l1 could theoretically be a means of enhancing the benefit of immunotherapy.
The company guided in their press release that these findings are providing more and more support for filing an IND, which seems highly likely for their monoclonal antibody approach.
Now, the news that really seemed to be a catapult for OCEA out of the depths has been the announcement that their joint venture partner, Virion Therapeutics, will be presenting a late-breaking oral talk at APASL, highlighting data from a phase 1B trial of VRON-0200, intended as a functional cure of Hepatitis B infection. These data will be presented on March 28.
No details are forthcoming about what the presentation will highlight exactly, but given how little time it’s been since the partners announced study initiation, it seems likely to be promising data. We’ll just have to wait to see. Considering OCEA now owns 50% of Virion, this could have significant implications for the company’s future.
Financial Overview
Alarmingly, the financial picture has not changed at all for OCEA since my last article, which is very unusual given that they’ve been floating on their August quarterly filing for over 6 months now. They’ve even received notice from Nasdaq about late filings. That is definitely not the kind of news you want to be announcing in your rare rounds of press releases.
As of that last filing, though, OCEA’s operating expenses were small at $2.7 million, although they did have a large interest cost. With an agreement to sell shares in place, they had around 1 to 2 years of cash and potential cash on hand to fund operations. And that was assuming their small outlays do not grow.
Strengths and Risks
Strength – Costs remain very low
OCEA has managed to stay their hand from building out too big an operational outlay. This has bought a lot of time for them to plan an optimal move, although we should remain aware that the poor communication on the financial front means we don’t know how this is developing, whether costs have risen a lot, particularly as they’ve committed resources to acquiring a 50/50 stake in Virion.
Risk – Still no product of their own
OCEA’s announcement congratulating Virion on the late-breaking presentation is the first sign of anything related to human data, and we have to respect that this has not fundamentally changed their own pipeline prospects. Although they have a big stake in Virion (which is not a publicly traded company), it would be much nicer if you could invest more directly in OCEA’s own pipeline, not in their investments.
Risk – Poor filing compliance indicates something very unusual
In my time looking at biotech companies (which started well before adopting this pseudonym), I’ve only seen one instance where a company was derelict on its quarterly filing timings. And it always meant chaos. There’s the distant possibility that something enormously positive has slowed OCEA down and prevented them from filing. Something like… they know they’re going to be acquired, so there’s not much motivation to get things done.
But it could also be a sign of general disorder in the company’s operations, that they can’t afford or don’t have the people needed to keep the ball moving straight. In that past situation, it was absolutely not a good sign, and it’s very much not a confidence builder here, either. Couple that with slow news drip on a preclinical pipeline, and it’s hard to get excited about much that OCEA has going on.
Bottom Line Summary: Why the Change in Rating?
The last time I covered OCEA, my sentiment was a strong sell. Under no circumstances would I have considered risking my own money on the equity, and if my brother was a holder, I would have begged him to reconsider that. Since then, they’ve fallen and gotten back up.
I’ll acknowledge this: there is possibly something to that Virion news coming in a few weeks. But I rest assured that there are very few situations where a phase 1b readout is going to be definitive evidence. We’ve seen crazy moves upward for the likes of Janux Therapeutics, Inc. (JANX) and Apogee Enterprises, Inc. (APOG) Therapeutics on the basis of such early data, but you’re not going to get a definitive signal in this phase of development.
Furthermore, with the lack of communication from OCEA, I have very little confidence in their managerial stewardship at this time. My upgrade from “strong sell” to “hold” is an acknowledgment that the news we’re about to see has the potential to cause an irrational move upward, especially if it shows data that can be hyped up in some way. But I don’t think that’s based on fundamental values that the company has built out.
Essentially, there is a chance that this stock could be put on a rocket with this data readout. However, if those findings are not extremely exciting (which phase 1 trial data rarely are, even if they’re in a late-breaking presentation), OCEA hasn’t really moved far from my previous sentiment, and the bleeding is likely to continue. I wouldn’t short sell them, but there’s also no way I would consider risking funds on the long shot of their success in the upcoming meeting.
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