Ocugen Looks Very Dicey at Current Levels

Stock Market

Until recently, Ocugen (NASDAQ:OCGN) stock was trading below $1 a share. This biotech company, which was founded in 2013, did not have much traction with its various drug candidates.

a representation of floating molecules

Source: Shutterstock

But things changed in a big way when Ocugen announced a partnership with Bharat Biotech, which is based in India. The company is the developer of Covaxin, which is a vaccine candidate for the novel coronavirus.

Ocugen’s deal with Bharat Biotech is focused on the distribution the vaccine in the U.S. market. Ocugen would also get 45% of the profits.

So yes, this news sparked a huge surge in OCGN stock. The price would soar to a high of $19. Although, things have settled during the past couple weeks and OCGN stock is now at $8.

Is this a good entry point? Or is OCGN stock just too risky right now? Well, let’s take a look:

It’s All About Covaxin

The Covaxin vaccine has undergone significant testing in India and the results have been encouraging. In a trial of 25,800 patients – which included the backing of the Indian Council of Medical Research (ICMR) – the efficacy rate was 81%. There is also evidence that it is effective against the emerging variants of the virus.

According to Ocugen CEO, Dr. Shankar Musunuri, in the deal’s press release:

The evaluation of Covaxin has resulted in several unique product characteristics including long-term persistence of immune responses to multiple viral proteins, as opposed to only the spike protein, and has demonstrated broad spectrum neutralizing capability with heterologous SARS-CoV-2 strains, thus potentially reducing or eliminating escape mutants. Requiring only a standard vaccine storage temperature of 2-8oC and with the potential to treat all age-groups, Covaxin may offer an important option to protect lives across America.

Yet it’s important to consider that these results are not final.  In other words, there should be some caution.

It is also not clear how the Food and Drug Administration will approach this. The agency may want to have a U.S.-based trial as well.  If so, this could significantly delay the commercialization and mute the revenue prospects.

After all, the U.S. market is already getting saturated with top-notch vaccines from companies like Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), Novavax (NASDAQ:NVAX) and Johnson & Johnson (NYSE:JNJ). According to the Biden administration, states should make all adults eligible for a vaccine by May 1.

Ocugen CEO Shankar Musunuri told Reuters that his company will begin distribution of Covaxin in the second quarter and there could be the sale of up to 100 million does. But given the realities of the market in the U.S., this really does look overly ambitious.

Besides, even if Covaxin gets emergency approval, there will likely skepticism for the U.S. population. There are already indications of vaccine hesitancy. This will certainly make it tougher for a vaccine to get traction, especially when its origin is from another country and is backed by a small biotech company.

Bottom Line On OCGN Stock

Ocugen is a pre-revenue company. In other words, it does not have experience in distributing a vaccine at scale. This will definitely be a risk factor and may cause concerns with the FDA.

It’s true that Covaxin could still have niche opportunities. For example, the vaccine might proved effective for younger populations. But then again, companies like Pfizer and Moderna are already working on such efforts.

Finally, Ocugen is currently working on various other drugs, such as to treat rare forms of blindness. But these will still take time to get to commercialization.

All in all, the valuation of OCGN stock is mostly based on the potential of Covaxin in the U.S. And unfortunately, the success of the vaccine does look like a long shot.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling.  He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.    

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