The allure of penny stocks is easy to understand. Simply put, a little can go a long way.  

For example, investing $1,000 in a stock that’s trading for $1 dollar could net you a significant gain if the stock moves just a little higher. And penny stocks can make big moves quickly.  

Of course, it’s only fair to note the opposite is true as well. Penny stocks carry significant risk including a loss of your entire investment. Adding more risk to this is that these stocks typically carry high short interest.  

However, like any asset class in your portfolio, you shouldn’t view all penny stocks the same way. By performing your due diligence, you can find penny stocks that may be worth a speculative risk.  

Investors can often find penny stocks in the biotech and pharmaceutical sectors. This article highlights Ocugen (NASDAQ:OCGN) and Amarin (NASDAQ:AMRN) that highlight the risk and (potential) reward of penny stock investing.  

So You’re Saying There’s a Chance? 

Ocugen is a biotechnology company that has zero revenue. The company went public in 2014 in what was effectively a reverse merger with the Histogenics Corporation. Suffice it to say, if you were an early investor in OCGN stock, you probably sold a long time ago. 

The company has been working for years on commercializing a gene therapy treatment for retinal disorders. But it currently only has one drug candidate in a Stage 3 clinical trial. And as investors in this sector know that is no guarantee that the drug will gain approval.  

That's a big reason OGCN was trading for literally pennies prior to the pandemic. However, the company was swept up in the meme stock movement when it partnered with Bharat Biotech on its coronavirus vaccine candidate, Covaxin.  

Specifically, Ocugen agreed to oversee the manufacturing and distribution of Covaxin in the United States and Canada. The company is also overseeing getting the vaccine approved through the FDA.  

In return, Ocugen will get 45% of any profits that Covaxin generates in both countries. And there’s some reason to believe that could happen. Covaxin is not an mRNA vaccine. Rather, it’s an inactivated viral vaccine which is an approach that is currently used in flu vaccines. 

Also, unlike the current vaccines, Covaxin is an intranasal spray. The thinking is that this delivery method may help it succeed in ways that the current vaccines are lacking.  

Any revenue would be better than none. Still, with several vaccines already commercially available, Covaxin is not high on the FDA’s list. The company is not expecting approval until 2023 at least. And Ocugen has already said it only has enough cash on hand to get it through about the middle of 2023.  

At What Price Victory? 

Amarin tells investors a cautionary tale of a different type. Unlike Ocugen, Amarin has a product on the market. And right around the time the pandemic hit, you may have started to see commercials for Vascepa.  

That’s because, in 2019, Amarin received an expanded use label that, while more limited than the company was hoping for, did give Vascepa approval, “...along with certain medicines (statins), to reduce the risk of heart attack, stroke and certain types of heart issues requiring hospitalization in adults with heart (cardiovascular) disease, or diabetes and 2 or more additional risk factors for heart disease.” 

The problem comes down to competition. Vascepa uses a concentrated, precise form of fish oil as its primary component. Fish oil has been proven to have some effect at lowering triglyceride levels which is what Vascepa was initially approved to treat.  

The issue is that the company faces competition from generic manufacturers. And this is in addition to competing with existing over-the-counter fish oil supplements. Amarin is also struggling to get Vascepa approved in Europe even as sales in the United States are falling year-over-year.  

Better Trades Than Investments 

Both OCGN and AMRN pose significant risks for investors at this time. The risk with Ocugen is that it may never bring a product to market. And the risk with Amarin may be that its best may already be behind it. 

But if you’re an investor with a high-risk tolerance and speculative capital to put to work on the long or short side of a trade, both stocks may offer the payoff that you’re looking for.