Ocugen (NASDAQ:OCGN) stock recently fell from a near-term peak of 10.95 on Feb. 26, to about $6.87 as of April 12. But this 37.7% drop isn’t indicative of how well OCGN stock has performed this year.
Ocugen is still up 280% year-to-date and 2,137% (21 times) in the past year. Nevertheless, I calculate that the stock is still worth at least 18% more from its opening price this week, and has a good chance of rising to $8.08 per share.
The recent drop in Ocugen stock could be due to the recent efficacy results of the Covid 19 vaccine, COVAXIN, offered by its Indian partner company Bharat Biotech. The companies have a deal where Ocugen receives 45% of the profits of any COVAXIN sales in the U.S.
COVAXIN was measured at 80.6% efficacy in Phase 3 clinical trials in India. The trial involved 25,800 people in a randomized study. The problem is this is much lower than the U.S. vaccines from Moderna (NASDAQ:MRNA) (95% efficacy) and Pfizer (NYSE:PFE).
In addition, Ocugen has yet to receive Emergency Use Authorization (EUA) in the U.S., although Bharat Biotech has received this EUA in India. The company is working with U.S. officials to “develop the regulatory pathway to EUA” in the U.S.
On the other hand, the COVAXIN vaccine has shown that it has “significant immunogenicity against emerging strains.” The company says this means its vaccine induces “immune responses against multiple protein antigens of the virus.” Maybe that will lead U.S. authorities to give its vaccine an EUA sometime in the future.
Scenario Analysis of Ocugen’s Value
In my last article on Ocugen, I came up with both a scenario and probability analysis for the value of OCGN stock. I want to update that here, given the recent news and the stock price action.
Let’s assume that just 5% of people in the U.S. (16.5 million) eventually receive the COVAXIN vaccine and that they take the 2 doses at $25 per dose. This works out to $825 million annually in revenue. Let’s assume 20% goes to overhead so that $660 million is distributable to both Ocugen and Bharat Biotech.
Since Ocugen would receive 45% of that amount, the net payment is $297 million. Let’s say that this continues over 10 years, but that a declining number of people get this over time. Therefore, instead of using a 10 times multiple, we use just a 5 times multiple, or $1.485 billion.
This $1.485 billion is 13.36% above today’s market capitalization of $1.31 billion, implying that OCGN stock is worth $7.79 per share. That is my scenario analysis estimate.
Next, let’s use some probability analysis to come up with a price target. Let’s assume there is a good chance, say 40% that OCGN stock could still fall another 20% from here. That means there is an expected return of -8.0% (i.e., 0.40 x -0.20).
However, let’s also assume that there is a good chance, say 40% that the stock could rise 14% (as in our scenario analysis. That gives an estimated return of 5.6% (i.e., 0.14 x 0.14). Finally, let’s assume there is a remaining 20% probability that the stock could rise 100% from here. That provides an estimated return of 20% (i.e., 0.20 x 1.0).
Therefore, since all these probabilities add up to 100%, we can add up the expected returns (ER). The first ER was -8%, the second was 5.6%, and the last was 20%. They add up to a total expected return of 17.6%. Thus, we can expect to see OCGN rise to $8.08 (i.e., $6.87 x 1.176).
This is a good deal lower than my previous price target of $12.73, but it incorporates more information, including the lower efficacy results. In addition, there is still no clear path to when the EUA for COVAXIN will be seen in the U.S. Therefore, the probability analysis results in a lower stock price target.
Keep in mind that analysts still have higher expectations for OCGN stock. For example, TipRanks.com reports that 4 analysts that have written on the stock in the last three months have an average target of $12.50. That is significantly above today’s price. Nevertheless, I believe that my price target of $8.08, is more conservative. However in both cases, look for OCGN stock to do well.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.