Ocugen  (NASDAQ:OCGN) is a biotech stock that is now a very interesting yet very risky and challenging business development. If its vaccine named Covaxin receives approval from the FDA to market the vaccine in the United States, OCGN stock may skyrocket.

On the other hand, if this decision is delayed or never materializes, OCGN stock might tank. So what’s the real deal with OCGN stock?

OCGN Stock: A Quick Fundamentals Refresher

About one month ago I wrote another article about Ocugen, “The Excitement Around Ocugen Is Irrational” stating “OCGN is another biotech stock that’s surged recently, but it’s too risky and extremely overvalued.” My verdict, based on financial analysis, was that OCGN stock is not just risky, it is insanely overpriced. No second thoughts on that.

The close date of the article published was $10.02 per share. One month later is it now trading at $6.35 per share. Has the excitement I wrote about evaporated? Yes and no.

Yes, because investors realized that the stock went too fast too high based on hopes, ignoring the gravity that is “valuation”. Maybe the FOMO effect and some Reddit forums or other social media mentions made OCGN stock a hot meme stock.

No, because now too many business prospects and a lot of money is at stake for the company. How much? About 652 million of revenue. For a company with zero revenue, this is a huge number.

So in this article, I will stick to the two what-if scenarios that exist now for Ocugen. The fundamentals I covered in my previous article.

Why Joining a Party too Late Most Probably is Not a Good Idea

The first what-if scenario is as follows. According to Reuters “Ocugen plans to sell 100 mln Indian vaccine doses in the U.S. in 2021.”

Focus on the following key statements now mentioned in this report.  It is what this article is all about, what can happen to OCGN stock. “The United States has already authorized COVID-19 vaccines developed by Pfizer/BioNTech, Moderna and Johnson & Johnson for emergency use.”

“Bharat Biotech says as many as 40 countries are interested in COVAXIN and it has already sought emergency approvals in Brazil and the Philippines. Cracking the U.S. market would be a significant milestone for the company and India’s vaccine industry, which is the world’s largest.”

To sum it up Ocugen has a partnership with Indian company Bharat Biotech to market the Covaxin vaccine in the United States.

A reported price of $14.50 per dose is mentioned on the web and Ocugen is entitled to 45% of the profits in the United States.

Now a tricky part is the word profits. Because Ocugen will both import shots, so profit will be higher, and then will produce it too so profits will be much lower in the latter case.

With 100 million doses for $14.50 per dose then the math tells us there is potential for $1.45 billion of revenue in the United States. Revenue, not profit.

But let us be super optimistic and super simplistic and assume that Ocugen will have a 45% share of a $14.5 per dose vaccine as pure profit so the profit made will be as mentioned earlier $652.50 million. We ignore taxes and production costs. To prove a point.

On Yahoo! Finance we see that Ocugen for 2020 on its balance sheet reported 184,13 million shares.

Now assuming that all profit or $652.50 million goes to equity, and simplifying again ignoring the small debt that the company has, then we derive a book value per share of $3.54. With a stock price now at $6.70 we will have a Price-to-Book value of about 1.89.

This scenario is of course very simplified but is simply made to point that even then on a relative basis OCGN stock will be overvalued as a good Price-to-Book value ratio is under 1.0 to consider a stock relatively undervalued.

Now for the what-if scenario that’s worse.

This scenario has two parts. First Ocugen decides to market the Covaxin Vaccine at a lower price than the mentioned one of $14.50 per dose? Why?

An article on FiercePharma  about the price of vaccines in the United States stated that “In initial deals with the U.S. government, Pfizer and BioNTech’s vaccine costs $19.50 per dose, compared with $15 for Moderna’s shot, $16 for Novavax’s program, $10 for Johnson & Johnson’s vaccine and $4 for AstraZeneca’s.”

So Ocugen should decide to cut the price of its vaccine to beat the price of Johnson & Johnson (NYSE:JNJ) and AstraZeneca (NASDAQ:AZN) vaccines.

This means a much lower profit for Ocugen. Bad news. President Biden has set a top priority on the vaccine rollout and great progress is already being made. Vaccinations are happening at a satisfying pace in the United States. And the pie of vaccines decreases for Ocugen as long as it is not getting the FDA approval.

The second part of this scenario, and the worst of all for OCGN stock, is that the vaccine may never get FDA approval. In this case, the stock most probably will probably go into freefall.

Bottom line: OCGN Stock May Surge or May Tank

Roll a dice. Visit a fortune teller. Pick your scenario. With such risk and expected volatility, it is advisable to stay away for now.

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

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.