Until a month ago, Ocugen (NASDAQ:OCGN) was a little-known biotechnology penny stock. OCGN stock sold for less than 50 cents a share and trading volume was minimal.
Then everything changed. The company shocked the world with a Covid-19 vaccine distribution deal.
At this point, biotech companies announcing something to do with Covid-19 is pretty boring. We’ve heard that story a million times over the past year.
However, Ocugen’s move was totally different. This isn’t just the company launching some early-stage investigative clinical program. Rather, Ocugen is partnering to distribute a vaccine that is already almost ready to go and has gone through considerable testing.
If Ocugen can pull this thing over the finish line as far as U.S. approval goes, OCGN stock could have far more upside ahead of it.
As it is, OCGN stock has already leapt from the pennies to $10 per share. It’s now averaging a gargantuan 80 million shares of trading volume every day. So will the buyers be rewarded? Let’s dive in.
Bharat Biotech and OCGN Stock
All the excitement started on Feb. 2 when Ocugen unveiled its commercial partnership with India’s Bharat Biotech. Bharat has developed COVAXIN, a vaccine candidate for the novel coronavirus. Bharat has already advanced COVAXIN to a massive stage 3 clinical trial with more than 25,000 enrollees.
If the data comes out well from that, it should pave the way to approval from the Food and Drug Administration (FDA). Ocugen will be responsible for obtaining U.S. regulatory approvals. Assuming those come through, Ocugen would handle the commercialization of the product for the American market.
In return for all that hard work, Ocugen will get 45% of the profits from the partnership. The other 55% will stay with Bharat for finding and developing the vaccine in the first place.
The Financial Impact
There’s a reasonably good chance of this vaccine working. For one thing, India has already authorized its use on an emergency basis, and with the huge Phase 3 trial underway already.
Bharat is clearly going aggressively for a huge market. It’s not just running this as a public relations stunt. So this is a credible vaccine candidate that could conceivably take large market share both in the U.S. and internationally.
Is that enough to justify Ocugen’s current $2 billion or so market capitalization? That’s the trickier question. Ocugen will need to spend a good deal of money trying to get regulatory approval for the vaccine in the United States.
Passing that hurdle, Ocugen will need to sell enough vaccines in the U.S. to earn more than $4 billion in net profits. That, in turn, would justify its own $2 billion valuation after paying out its profit-sharing obligation back to Bharat.
The one big thing that gives me pause on all this is Ocugen’s track record. The company has been a total failure up until this point. That’s not an overstatement.
From the company’s own annual report: “To date, we have not commercialized any products or generated any revenues from the sale of products.” That’s right, the company has generated no revenues historically despite being listed for the better part of a decade.
It’s certainly possible that Ocugen’s team made a great pitch and thus earned this juicy partnership with Bharat. Still, you’d think Bharat could find a more promising partner for its vaccine if the company thought it was going to have substantial success in the American market.
OCGN Stock Verdict
If you had to own one of the smaller Covid-19 vaccine companies, Ocugen is a reasonable choice. I’d much rather own Ocugen with a clearly-viable product than a Covid-19 stock like iBio (NYSEAMERICAN:IBIO) which has a long track record of failing to advance any vaccines past the clinical development stage.
In Ocugen, there’s a real meaningful shot at success as Bharat has already done a bunch of the heavy lifting.
That said, it’s far from a sure thing this will end up panning out. While the vaccine has made good progress in India, it will probably take a while to get anywhere with the FDA. Also, Ocugen’s deal is specifically limited on the extent of the distribution rights.
If the vaccine is an international success but doesn’t gain market share in the U.S., OCGN stock would still end up selling off.
Plus, there’s the issue of market demand. As of Feb. 26, the U.S. has already given 46 million first dose vaccinations and 21.5 million people are fully vaccinated. That’s a considerable portion of the population, and it’s rising with every passing week.
Does Ocugen have enough time to get this vaccine through FDA approval and onto the market before the demand for Covid-19 vaccines dries up? Only time will tell.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.