Ocugen (NASDAQ:OCGN) provided additional details on Feb. 2 about its partnership with Indian vaccine developer Bharat Biotech. The two companies are co-developing Covaxin, Bharat Biotech’s Covid-19 vaccine, for the U.S. market. OCGN stock jumped 80% on the news.
More gains were had on Feb. 5 when OCGN stock gained 62% on the day. However, it was the news on Feb. 7 that the company had sold three million shares to institutional investors at $7.65 a share, which put its stock on a collision course with the moon.
In pre-market Feb. 8 trading, Ocugen’s shares gained more than 60% on this news. Up 214% as I write this midday, the possibility of buying its shares for less than $2 — where it traded before the Feb. 2 details — is looking next to impossible.
Last week, I had been planning to write a column about the little dip Ocugen stock took after its Feb. 2 announcement — its share price fell 14% on Feb. 3 to close at $2.81 –and whether investors should buy on the slight dip or wait to buy it below $2.
By the time I got around to it, Friday and Monday’s action made that argument irrelevant.
However, I do feel confident in stating that investors considering an investment in Ocugen should wait for its share price to come back to the real world.
Why Should Investors Wait to Buy OCGN Stock?
Any time you can buy a stock for a 13% discount is a good day in my books. You could have done that last week before Sunday’s hoopla ruined that possibility. However, before you hit the buy key, you might want to consider what all this latest news means for the biotech company.
First, the original announcement regarding Ocugen’s plans to co-develop Covaxin with Bharat Biotech came just before Christmas 2020. The press release was full of superlatives.
“We are delighted to collaborate with Bharat Biotech to potentially bring COVAXIN™ to the US market. In the face of the coronavirus pandemic, it is incumbent upon all of us to find solutions that have the potential to save lives and restore normalcy to our day-to-day activities,” said Dr. Shankar Musunuri, Ocugen’s Chief Executive Officer and co-founder.
“We have been very pleased with the safety and immunogenicity demonstrated by the Phase 1 and Phase 2 trials of COVAXIN™ and are encouraged with the progress of the Phase 3 trials in India. We believe this unique yet traditional approach to vaccination holds great potential to appeal to a broad range of the population.”
However, that was merely a letter of intent—the Feb. 2 announcement filled in some of the blanks from December’s press release.
Ocugen gets the U.S. rights to Covaxin. As such, it’s responsible for getting the vaccine through the Food and Drug Administration’s (FDA) regulatory approval process and its subsequent commercialization in the U.S. For this, it will get 45% of the profits generated from the U.S. market.
Bharat Biotech will supply the initial doses of Covaxin in the U.S. once Ocugen’s received Emergency Use Authorization (EUA) from the FDA. It will also provide for the transfer of the technology used to manufacture the vaccine in India to the U.S. In return, Bharat gets 55% of U.S. profits.
InvestorPlace’s Mark Hake recently reminded investors that Bharat Biotech hasn’t publicly detailed its findings, if any, of its ongoing Phase 3 clinical trial in India.
Furthermore, although the Indian government has allowed for its distribution throughout the country, the company has warned people with weak immune systems to avoid getting the shot.
My colleague believes Occugen’s business case for Covaxin in the U.S. is riddled with holes, not the least of which is the fact it has to undergo three phases of clinical trials before pitching EUA to the FDA.
As for the $23-million private place, the markets are all jazzed because investors were willing to pay a 46% premium to its Feb. 5 closing price. Investors usually get a bit of a discount.
But for investors to suggest that OCGN stock is now worth $18 because some unnamed institutional investors were willing to pay $7.65 is sheer madness.
The same holes in its business case still exist despite the irrational exuberance shown by investors — institutional and retail.
It Might Not Fetch $2
As I stated earlier, before Ocugen’s Feb. 2 announcement, OCGN stock was trading around $1.81. That was 17% lower than where it was trading when Hake wrote about the stock in January.
InvestorPlace’s Josh Enomoto believes that Ocugen is barking up the wrong tree with Bharat, arguing, “Since Ocugen deals with advanced gene therapies, shouldn’t it collaborate on an advanced vaccine platform?”
As a result, he argues that OCGN is, at best, a gamble, and at worst, a complete waste of time.
The last time I actually wrote about Ocugen was in August 2020. At the time, Bharat Biotech wasn’t even in the picture. The talk was about OCU400, the company’s gene therapy drug intended to cure retinal diseases such as Retinitis Pigmentosa (RP).
There had been little to no news from the summer until the initial announcement in December, the follow-on details on Feb. 2, and the $23 million private placement just announced.
No longer a penny stock due to its recent moonshot, Ocugen wouldn’t be my first, second, or third pick when it comes to speculative healthcare stocks.
Five days ago, you could buy its stock for less than $2. Now, at $17.74 as I write this, I wouldn’t touch Occugen at current prices.
Not by a longshot.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
