Ocuphire Pharma (OCUP) is a biopharmaceutical company that operates at the clinical stage. Its primary focus is developing and selling eye disorder therapies.

The main value for OCUP comes from its pipeline of highly potential therapies which the company hopes will turn into massive cash flow streams in the future. Its leading candidate at the moment is Nyxol eye drops, which are in Phase 3 clinical trials. These drops have the potential to help with dim light and night vision disturbances as well as mydriasis stemming from pharmacological inducement. They would need to be used only once a day and use zero preservatives, making Nyxol an attractive and potentially highly effective way to treat these eye conditions.

APX3330 is another major therapy that OCUP is working on, as it tries to maximize its effectiveness and profitability. The treatment is a twice-a-day oral tablet that is used to treat retinal and choroidal vascular diseases by targeting relevant pathways. (See Ocuphire Pharma stock chart on TipRanks)

Inherent Risks

While these products have had positive results thus far, and appear to be promising therapies with a reasonable chance of generating strong returns for investors at current prices, there are obviously still risks here.

First and foremost, until these products are being sold to the public and bringing in profits, they remain highly speculative investments. They must still prove themselves in clinical trials and then obtain necessary approvals before being effectively marketed and sold.

Secondly, the company is burning cash. Last quarter alone it burned nearly $6 million in cash, leaving Ocuphire with just $10.6 million in cash on hand. While its current ratio is very safe at 5.24x, it is clear that the company will need to raise cash soon. That cash is needed to tide it over until its products can begin generating cashflow for the company.

Given the uncertainty attached to its future cash flow stream, Ocuphire might have a difficult time raising debt on attractive terms. Additionally, its equity has sold off aggressively in recent months, meaning that any new equity issuances would be dilutive to shareholders.

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Valuation Metrics

That said, if OCUP is able to secure a partnership and/or some other form of creative financing to avoid severely diluting shareholders and to tide it over until its products hit the market, shareholders should reap rich rewards.

The company’s market cap is under $85 million and its leading therapies have the potential to bring in many multiples of that, in cash flow, over their effective lives.

Wall Street’s Take

From Wall Street analysts, OCUP earns a Strong Buy analyst consensus based on 3 Buy ratings in the past 3 months. Additionally, the average analyst Ocuphire price target of $24.67 puts the upside potential at an incredible 395.4%.

Summary and Conclusions

OCUP is a risky investment, given its small cash pile compared to its cash burn rate. Additionally, its future profitability is dependent upon several factors, including its leading therapies making it successfully through clinical trials. Additionally, the therapies will have to receive necessary regulatory approvals, and then effectively produced, marketed and sold.

In the meantime, management will have to creatively raise capital, as the company's access to the debt markets are likely limited and its equity does not trade at a particularly attractive valuation.

That said, if the company's therapies deliver and it can avoid massive shareholder dilution, investors should reap massive rewards relative to current share prices, as the consensus analyst price target implies.

Overall, this stock might make for an attractive speculative buy given its enormous upside potential, but investors should consider keeping their position size small to account for the high risk.

Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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