Ocugen Has a Longer Road To Paying off Than People Think

I’ve long been skeptical toward Ocugen (NASDAQ:OCGN) stock. To some degree, I still am.

A bunch of glass vials of SARS-CoV-2 vaccines.
Source: Shutterstock

OCGN is pushed as a vaccine play, thanks to its partnership with India’s Bharat Biotech, but some investors miss the fact that the partnership is skewed sharply in Bharat’s favor.

Ocguen only has rights to distribution in the U.S. It must do all the heavy lifting (financially and operationally) to get Bharat’s Covaxin to market. In return, the company receives just 45% of any profits.

So the idea that OCGN stock is the next Moderna (NASDAQ:MRNA) is quite a stretch. The geographical limitations on the Covaxin license, the past failures in the legacy ocular pipeline, and the profit-sharing agreement leave OCGN at a seeming disadvantage to even the likes of Inovio (NASDAQ:INO) or Sorrento Therapeutics (NASDAQ:SRNE).

The push/pull in OCGN stock reflects these two facts. When Bharat released positive data last month, OCGN soared. It’s since dropped 41% in a matter of days.

After this most recent fade, however, OCGN does look at least intriguing, even to this skeptic.

There’s still a lot of work to do, certainly. But Ocugen has the cash and the product. If it can execute, there’s potential upside, even given the constraints of the Bharat deal.

Good News Gets Punished?

I can certainly see how the trading in OCGN over the past few months, and few weeks, would be confusing.

After all, it seems like Ocugen has delivered mostly good news over that stretch. Data from Bharat on Covaxin gets more detailed and seemingly more positive.

The second interim results released in April showed 100% protection against hospitalization. OCGN soared on that news. Early this month, Bharat showed effectiveness against the key variants that have alarmed scientists of late.

OCGN actually trades below where it did in early February, though, after the stock tripled following an equity offering priced above the market. It will open today at around $8.60.

Now, comparing OCGN to past peaks has an obvious problem: the stock has seen bubbly trading both in February and the second half of April. Some level of correction was needed in both instances.

That said, there is a case that the most recent selling has gone a little too far (and indeed shares have found a temporary bottom at the moment). With OCGN approaching $9, the math here can work.

The Math for OCGN Stock

On March 31, Ocugen had $45 million in cash, and 188.2 million shares outstanding. A $100 million equity offering priced at $10 followed in April.

Ocugen should close Q2 with about $135 million in cash, assuming its burn rate accelerates as it builds out the infrastructure for Covaxin. That’s probably, though not definitely, enough to get the vaccine to market. Substantial dilution thus seems unlikely.

Ocugen has a fully diluted market capitalization of nearly $1.8 billion. (That figure includes about 10 million options and warrants outstanding at March 31.)

So there’s a simplistic question to ask about OCGN stock: can the company generate $2 billion in profit off Covaxin?

Looking to Moderna

That’s likely the minimum required to see any upside here. It’s difficult to assign any material value to the company’s owned pipeline, given the company had a market capitalization below $50 million before the Bharat deal was signed.

After all, $2 billion is a reasonably high bar. Again, Ocugen only gets 45% of the profits, so Covaxin must generate $4.5 billion or so in earnings.

We can see from Moderna earnings what the profit profile might look like. Treating previously produced inventory at cost, Moderna’s gross margins were 78% in the first quarter.

Just to get to $4.5 billion in gross profit, then, Covaxin needs to generate nearly $6 billion in revenue.

At Moderna’s $19 per dose price, we’re looking at about 300 million doses even before operating expenses. Add in those expenses (it’s tough to estimate, but a few hundred million seems in the ballpark) and Covaxin perhaps needs to move something in the range of 350 million doses.

Can Covaxin hit that bogey? It does seem tough.

Moderna is guiding for 200 million to 250 million doses just in the second quarter, but much of that supply is going to international markets.

For OCGN stock to rise from here, Covaxin probably needs to be one of the most commonly used vaccines domestically, while competing not only with Moderna, but Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and presumably others.

That’s the bet when it comes to OCGN. Honestly, it’s not a bet I’m terribly interested in taking. But with OCGN stock pulling back, reasonable investors probably can disagree.

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


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