Ocugen Stock Is a Risky Proposition Despite Its High Valuation

If you’ve been keeping up with vaccine news over the past year, Ocugen (NASDAQ:OCGN) stock is a name that may not sound familiar. That’s because the company is not a vaccine manufacturer, but creates gene therapies for eye diseases.

a representation of floating molecules
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However, a deal to commercialize Bharat Biotech’s Covaxin in the U.S. puts the company in the vaccine limelight. Shares of OCGN stock were trading at 28 cents in December but are up to $8 now.

At face value, Ocugen seems like a great play. But the partnership has its upsides and downsides. For one, the deal is still in its early stages and Ocugen will only keep 45% of the profits. However, the vaccine has proven to be viable against the mutant variants which is good news.

Finally, the question remains on the potential market demand for Covaxin in the U.S. The current environment is dominated by large players like Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA).

Given the uncertainties, I would hold off on taking the plunge on OCGN stock until there are further developments.

OCGN Stock Soars

OCGN stock is on a steady incline this year after the company signed on to a deal to commercialize Bharat Biotech’s Covaxin in the U.S. The vaccine is produced in India in association with the National Institute of Virology. The vaccine essentially injects a dead virus into the system, which mounts the antibody response and increases immunity levels.

After the vaccine was deemed 81% effective against the virus, Bharat Biotech is now looking to distribute the vaccine in other countries. That’s where the deal with Ocugen comes in. The biotech firm’s core business has nothing to with vaccines and specializes in gene therapy for treating retinal diseases.

It’s worth noting that the company has no commercial product and reported a $16.5 million loss in 2020. However, Ocugen stock has been on a tear since announcing the deal to distribute Covaxin in the U.S.

Covaxin has a couple of things going for it. For instance, the formula has proven to be quite effective against coronavirus. In a recent study, 81% of the people who received the vaccine were immune against mild and severe versions of the virus were 100% were protected from severe cases.

Adding to this, the vaccine has also shown effectiveness against three variants of the virus. This includes the Brazilian variant SARS-CoV-2, B.1.128.2, the U.K. variant, B.1.1.7 and the Indian double mutant variant B.1.617.

Covaxin’s effectiveness makes this a great vaccine alternative as the coronavirus double mutant spreading like wildfire across India.

So, What’s The Catch?

Although the Bharat Biotech and Ocugen deal looks good on paper, there are a couple of things to consider. For one, Covaxin struggled to gain credibility in India when it was first introduced. Critics claimed there was a lack of transparency in the vaccine trials with one expert referring to it as “safe like water.”

Although the vaccine has shown greater efficacy in its Phase 3 trials, there are still many questions that remain unanswered. In the early days of its rollout, Covaxin received a lot of pushback with many claiming that the government owned some part of the vaccine’s intellectual property. Furthermore, the formula comes at a high cost with private hospitals required to pay 1,200 INR ($16) per dose.

A third thing to consider is the overall effectiveness. Covaxin’s efficacy rate of 81% isn’t as high as its vaccine peers. Pfizer’s formula is said to be 95% effective against the virus while Moderna’s is 94% effective. Both vaccines currently control a majority market share in the U.S., which will make it harder for Covaxin to leap ahead of its rivals.

Finally, and most importantly, is the vaccine’s ability to defeat new variants of the virus. Pfizer has confirmed that its vaccine will be effective against the Indian variant while Moderna is awaiting test results. The mRNA technology used by these companies also enables them to produce the vaccine against a new variant at a quicker pace This is a crucial element given the mutating quality of the virus.

The Bottom Line

Covaxin’s entry into the U.S. market is certainly good news for Bharat Biotech and Ocugen but there is still a lot of uncertainty surrounding its rollout.

According to a recent report, the supply of vaccines in the U.S. has surpassed demand, which will make it marginally harder for Covaxin to gain any traction in the nation. Adding to this, both Pfizer and Moderna control a majority market share and have higher efficacy rates. The mRNA technology gives it a competitive advantage.

I would hold off on taking the plunge on OCGN stock until there are more developments in Covaxin’s entry into the U.S. market. And looking at Ocugen’s fundamentals, the investment has little to offer apart from its deal with Bharat Biotech.

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

Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.


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