Ocugen (NASDAQ:OCGN) stock finished the last week of April trading with a solid five-day performance, up 14.5%. As a result, OCGN stock gained 87% for the entire month and 313% on the year.
It seems like only yesterday it was trading under $2 and ready for the scrap heap. It’s amazing what a little good news can do for a struggling penny stock.
Unless something happens to derail Ocugen’s plans, It looks as though its stock is ready to hit $18 and then some.
OCGN Stock: $18, Here We Come
April made sure it’s no longer stuck with the “penny stock” tag. It’s hard to imagine what an encore will look like for the clinical-stage biopharmaceutical company that appears to be making a successful pivot from developing ophthalmology-related therapies to Covid-19 vaccine developer.
I wondered if OCGN stock was worth $18 or just a couple of bucks in early March.
At the time, it was trading around $8.63. In humbling fashion, I argued that it was a true penny stock and would bounce between $5 and $10 until it announced clinical trials for Covaxin, the India-developed Covid-19 vaccine from Bharat Biotech that it will manufacture and distribute in the U.S.
Well, it did bounce between $5 and $10 for most of April until Ocugen released more promising results from Bharat Biotech’s Phase 3 trials in India that show it’s got the right stuff to protect Indians from the novel coronavirus.
Ocugen CEO Shankar Musunuri said that the two-dose vaccine would be go-for-launch by the end of June, providing Americans with as many as 100 million doses once approved for distribution by the Food and Drug Administration.
If all goes according to Hoyle, Ocugen insiders are set to become incredibly wealthy. And I’ll have egg on my face for my spectacularly wrong assessment of the situation.
Could Anything Go Wrong?
The biggest risks that could derail Ocugen’s plans for greatness are two-fold.
First, the FDA requires it to conduct clinical trials for Covaxin in the U.S. Even with an accelerated trial period; you’re looking at six to 12 months – my estimate, not something that’s written in stone – before it’s ready for emergency use authorization (EUA). Thus, Covaxin’s distribution in the U.S. would not likely come to pass until the spring of 2022 at the earliest.
The second and more problematic of the two risks is that several companies have already proven they can get the vaccines into the arms of Americans. This means Ocugen would have a better chance of securing contracts outside the U.S., where distribution and availability aren’t nearly as high.
Alas, Ocugen’s agreement with Bharat Biotech, as far as I know, is solely for the U.S. marketplace. Its Indian partner would retain the rights for international markets.
So, if Ocugen can’t secure U.S. orders come 2022, it’s left out of the party with little in the way of a backup plan.
Its Current Valuation
Including the 10 million shares it sold recently, Ocugen has 198.17 million shares outstanding. At $12.67 a share, as I write this, it has a market capitalization of $2.5 billion or 5.5x the 2021 revenue estimate of $452.3 million and 2.9x the 2022 revenue estimate of $858.1 million.
I don’t know about you, but the two analysts who cover its stock seem to be on completely different wavelengths. One has a 2021 estimate of $624.7 million, while the other has Ocugen at $279.9 million ($452.3 million multiplied by 2 minus $624.7 million) in 2021.
In 2022, the optimistic analyst is at $1.16 billion, while the other estimates Ocugen’s revenue in 2022 will be $560 million.
InvestorPlace’s Alex Sirois estimated the cost of a Covaxin dose in the U.S. was between $14.25 and $19.50. If the U.S. government bought 100 million doses from Ocugen and paid $19.50 per dose, the revenue would be $1.95 billion.
Evercore ISI analyst Josh Schwimmer estimates that the average after-tax profit for vaccine makers will be 40%. So, that means the Ocugen-Bharat Biotech partnership would generate $780 million in after-tax profits [$1.95 billion in revenue multiplied by 40%] from Covaxin’s U.S. sales with Ocugen keeping 45% or $351 million.
From that perspective, Ocugen’s $2.5 billion market cap is just 7.1x earnings. Based on an $18 share price, it’s still only trading at 10.2x earnings.
The Bottom Line
You have to ask yourself two questions.
- How likely is it that Ocugen gets an order of 100 million doses from the U.S. government?
- How long will it take to get that order?
I don’t believe the need for vaccines is as great in the U.S. today as it was three months ago. Therefore, the odds are probably no more than 50/50 that it gets 100 million from Uncle Sam.
But even if it does, those won’t come until later in 2021 or even into 2022.
So, from where I sit, the 2021 estimates by both analysts are incredibly aggressive. As 2021 moves along, I could see the 2021 estimates moving much lower and those for 2022 moving significantly higher.
That’s assuming they’re still on the Ocugen bandwagon.
For me, uncertainty still lingers. Thus, if you’re a speculative investor, I would try to see if OCGN stock comes back to single digits before pulling the trigger.
Of course, I thought it was nothing more than a penny stock less than two months ago, so what do I know?
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.