The narrative for Ocugen (NASDAQ:OCGN) stock to really take off is based on FDA approval of Bharat Biotech’s COVAXIN. That approval has not yet happened. However, recent news increases the possibility thereof.
Over the last week Ocugen has released news that has given investors hope mixed with trepidation. Let’s dive into that, because it makes for an interesting argument at the moment.
Flat Shares
Ocugen shares had been trading flat for the last six weeks. There was little to excite investors or make them believe that COVAXIN was any closer to FDA emergency use approval in the fight against Covid-19.
Just to get readers up to speed, Ocugen will receive 45% of profits from the U.S. sales of COVAXIN, Bharat Biotech’s vaccine. Most pundits appear to be skeptical of Ocugen’s chances because the U.S. market is fully supplied with homemade vaccines.
Something significant would have to transpire in order for COVAXIN to receive approval. There were serious concerns in India, where Bharat Biotech is from, about the risks of COVAXIN. All in all, it seemed that its chances of U.S. sales were dimming by the day.
Headlines have been filled with concerns of new, more dangerous strains of Covid-19 and emerging fears that approved vaccines may not be enough to combat the spread.
So, when Ocugen released positive results from Bharat Biotech in its Phase 3 trials on April 21, OCGN shares spiked. The results indicate that COVAXIN is 78% effective in preventing Covid-19 after a second dose, and 100% effective in protecting against severe disease.
Investors perked up at suggestions that the companies would seek FDA emergency use approval. And share prices shot up.
Markets though, seem to be getting a bit wiser based on what happened next.
Float Increasing by 10 Million Shares
Two days later Ocugen announced on April 23 that it will be undertaking a direct offering anticipated to bring in $100 million. The company is issuing 10 million shares at $10.
Investors look very skeptical of the timing based on share price movement when the news was announced. Viewed through a skeptic’s glasses, it does indeed look like Ocugen is simply attempting to raise $100 million from the news without indicating the strategic purpose.
If this capital raise were attached to news that Ocugen was building vaccine manufacturing facilities then investors would really have a reason to get behind it. As it stands, investors are clearly worried that Ocugen is simply raising capital that will benefit it and not shareholders in the long run.
Ocugen has a current public float of 182.63 million shares. That will increase to 192.63 million shares if all goes according to plan. That means that 5.48% dilution occurs and Ocugen hasn’t shown investors that it is indeed closer to FDA approval.
Those investors are selling on the news which makes OCGN stock a particularly interesting stock right now.
Approval
When I last wrote about Ocugen back in February concerns about the UK variant of Covid-19 were top of mind. There was a lot of fear at that time that the UK variant might prove too virulent for vaccines approved then. It is very similar to the situation which is occurring now. It’s likely more fear based than reality based.
According to the CDC, 28% of the U.S. population is currently fully vaccinated. 41% have received at least one shot. So let’s assume that at least 41% have a 0% chance of ever receiving COVAXIN. After all, those people will receive a second shot of the same 2-dose vaccine.
According to MIT Technology Review the U.S. may soon reach a point where it has a surplus of vaccines. Following a production increase the U.S. “will soon have many more doses—and not enough people who want them.”
In states like Idaho many appointments have gone unfulfilled. The bigger issue is convincing the public to get vaccinated, not COVAXIN’s ability to do a better job than other vaccines.
That’s why I’d recommend not buying OCGN stock now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
