Ocean Biomedical: Some New Targets, No Clinical Data. Not For Me

Topline Summary

Ocean Biomedical (NASDAQ:OCEA) is a multi-pronged, recently formed biotech trying to generate lead candidates for clinical development. While they have some encouraging preclinical data, this is a very tough sell for me, since all programs that make it to clinic have the prerequisite of encouraging preclinical data, and this does not give you a sense of how the project will fare in future trials. With no other guidance on how or when these trials are going to happen, OCEA appears to be at a standstill for now, and I would absolutely look elsewhere for your near- or mid-term opportunities.

Pipeline Overview

OCEA is attempting to facilitate the translation of basic research innovations into commercialized pharmaceutical products. They feel that differentiators for their approach includes more involvement of the product originator at a university or medical center, a "program agnostic" view that prioritizes programs that have generated the most data, and a diverse range of unmet needs that they're tackling, including fibrosis and malaria.

They also have a pair of programs in oncology, which they've been focusing their press releases on, and which I feel at least a bit confident in analyzing. None of their product candidates are currently in clinical trials, with no particular guidance on when these trials might be initiated.

Anti-Chi3l1

The first target I want to highlight is Chi3l1, a processor of carbohydrates in the body. Elevated levels of Chi3l1 have been demonstrated in various forms of cancer, including (most notably for OCEA) lung cancer and glioblastoma. These elevated levels also appear to lead to worse prognosis.

OCEA recently highlighted a publication in Cancer Research demonstrating the impact of Chi3l1 on glioma cell states, characterizing the various mechanisms by which the protein can lead to more cancerous cell features in culture. Then, they showed that an antibody blocking Chi3l1 was able to inhibit the growth of glioblastoma xenografts in mice.

Similarly, targeting Chi3l1 in preclinical models of non-small cell lung cancer (NSCLC) has yielded impressive growth inhibition.

It's worth noting that OCEA has alluded to various approaches for targeting Chi3l1. First is the most obvious: a monoclonal antibody that binds and inhibits it. Tale as old as time at this point, and this is one approach with interesting preclinical efficacy.

More interesting, in my opinion, are the 2 bispecific antibodies that the company has disclosed. Bispecific antibodies are relatively new treatment options for a few cancers (most notably acute lymphoblastic leukemia) where the antibody is designed to bind 2 different molecules at one time. So far, we've seen bispecifics approved that ligate the molecule of interest on cancer cells with CD3 on T cells, hoping to bring them together and make a nice, happy massacre of the tumor cell.

However, OCEA's approach with bispecifics (and one that is emerging in different pockets of oncology research) is to target 2 seemingly completely different molecules. Both bind Chi3l1, but one binds to PD-1, and the other binds to CTLA-4. You'll likely recognize these as the first immune checkpoints to be exploited for efficacy in solid tumor oncology.

Researchers have shown some preliminary evidence that the PD-1 axis can be regulated by Chi3l1, and that inhibiting both of these at the same time can induce synergistic tumor cell killing.

As a final note here, I'll emphasize that none of these antibodies is currently in the clinic, and we have not received word on when they'll be moved into patients. So it remains to be seen whether Chi3l1 is an important target or not.

Financial Overview

In their Q2 2023 filing, OCEA held $1.16 million in cash, with another $1 million in restricted cash, for total current assets of $2.16 million. They also have a few backstop agreements to purchase shares for proceeds, as well as a pre-existing equity line with White Lion Capital to sell up to $75 million in shares. The agreements were listed as another asset of $18.76 million.

Meanwhile, they had an operating loss of $2.68 million, with other losses incurred like change in fair value of their backstop forward purchase asset transaction costs, and interest bringing the net loss up to $13 million for the quarter, and around $80 million for the first half of 2023. Many of these losses were incurred as part of the broader acquisition of Ocean by Aesther Healthcare Acquisition Corporation to form the new OCEA.

All while spending only $28,000 on research and development. At the current operational losses, the company has maybe 1 quarter of cash on hand, but with upwards of almost $19 million in share sale agreements, this could very well be pushed to more like 7 quarters at a maximum, but that would also require no changes in the amount that they can generate from share sales or in the expenses they incur.

Strengths and Risks

There's no mincing words here: the biggest risk this company has is that it currently doesn't have a pipeline, at least in appearance. They tout preclinical findings that look cool and promising. But at the same time, they tout positive financial coverage in their press releases.

The only pro that OCEA currently has going for it is that they have a really cool scientific story building. Chi3l1 looks good in preclinical studies and has a good theoretical foundation for anticancer therapy at this time.

However, pretty much every single drug that makes it into clinical trials, whether it fails or not, has to have shown this level of efficacy and theoretical grounding to move forward. There are more failures than you can count, and you'd be able to trace the development of that compound back to the "very cool" discovery of how this target was the master regulator, the missing link to finally address unmet needs.

Every now and then, a target pops up like this to make a big difference. A lot of our leaps forward come from this kind of research. But it comes at the cost of many, many, MANY more failures. So if you're reading this looking to get in on the ground floor, just know the risk. Imagine it's the late 90s during the dotcom bubble. You can buy 1000 different online companies. There will only be one Amazon. Would you have chosen right?

That's the kind of situation you face when considering buying into the hype of a company like this. Incredible risk, potentially incredible reward. But it will be a long wait.

Bottom Line Summary

Unequivocally, if my brother came to me with this stock idea, I would steer him away unless he is looking to play volatility, because I believe that's about the only thing that's guaranteed here for the foreseeable future. For a cautious investor, this is nowhere near ready for prime time, and I'm not seeing in any guidance where they have any plans to move into clinical trials. Their R&D expenditure almost suggests that there's not really much meaningful work of any kind being done at this time at OCEA.

Therefore, if you're interested and think this target looks very promising, I would suggest waiting on the sidelines. You will almost certainly have a lot of time to make a call. If you buy in today, expect a lot more financial challenges to come.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.