For months, Ocugen (NASDAQ:OCGN) stock has been a hot long-shot Covid-19 vaccine play. Until a few days ago, said hotness was on the decline, with shares of OCGN stock pulling back from double-digit prices, back toward $5 per share.
But, with new positive news regarding an Indian catalyst, shares have more than doubled in the past week.
So, what exactly is getting investors to pile back into shares? Namely, progress in it bringing Covaxin, developed by India-based Bharat Biotech, to the U.S. market. As InvestorPlace’s Brenden Rearick reported April 23, the company is moving along with obtaining emergency-use authorization (EUA) for it from the Food and Drug Administration (FDA).
The stock’s stunning rally on this news was tempered by the subsequent announcement of another dilutive secondary stock offering. However, as of this writing, markets have shrugged off the secondary news, and have pushed the stock above the $12 per share mark.
Yet, even as its vaccine catalyst strengthens, the jury’s still out. That is, it remains questionable whether this vaccine — a bit late to the game with rival vaccines readily available in the U.S. — will generate big profits for the company. With much of the possible upside likely reflected in today’s stock price, what’s the best move for investors?
Tread carefully. Its current rally may not be over yet. But, it won’t take much to knock this back towards prior price levels.
OCGN Stock Investors Bought the Rumor, May Buy More on the News
The OCGN stock price shot up months prior, in anticipation of the company taking action to bring Covaxin to the U.S. market. In other words, investors “bought on the rumor.” As progress stalled, those buyers didn’t wait to “sell on the news,” as the Wall Street adage goes. Instead, they took profits as soon as they could, and moved on.
But, as the vaccine makes progress on its EUA application, investors have again bought the rumor. Except, this time, instead of taking profit ahead of any “news,” they may buy more, once it becomes official Covaxin is up for FDA approval.
This may mean more near-term gains ahead, as the excitement around this stock reignites. Even so, it may not be worth it to chase OCGN stock. Why? At today’s market valuation ($2.38 billion), investors have priced this company as if it’s set to generate billions in revenue. Meanwhile, not only is there little to signal there’s enough demand in the U.S. for it.
Its odds of obtaining approval for emergency use remain a question mark as well. As speculators resume buying this name on the headlines, these concerns may not make a difference in the short term. Yet, if it fails to get approval, or if the demand isn’t there, this stock’s recent gains could evaporate in the blink of an eye.
Handicapping Vaccine’s U.S. Odds
When assessing whether Ocugen will find success with Covaxin, you need to consider two things. One, what are its odds of obtaining emergency-use authorization from the FDA? Two, considering America’s facing a vaccine glut, will the company’s sales numbers (if any) live up to projections?
To start, let’s assess its odds of approval. So, what are the chances the FDA gives this vaccine the green light? Interim data shows the vaccine has high efficacy, and Indian health officials have touted its ability to work against most Covid-19 variants. But, as seen from Brazil’s rejection of it in late March on safety concerns, stateside regulators may be hesitant to allow its use in the United States. In short, it’s tough to predict whether it’ll pass with flying colors.
Now, let’s look at the second factor, demand. As others at InvestorPlace, like Chris Markoch, have noted, this is the larger concern. With vaccine hesitancy running high in the U.S., America has more vaccine doses available than people that are willing to take them. Agencies are sitting on heavy stockpiles of Johnson & Johnson (NYSE:JNJ), Moderna (NASDAQ:MRNA), and Pfizer (NYSE:PFE) doses. Some are calling for America to share their supply with the rest of the world.
Back in March, Ocugen claimed it could sell 100 million Covaxin doses this year in the U.S. With a third of Americans already fully vaccinated, and with so many not interested in taking any vaccine at all, does this sound plausible?
Don’t Get Caught Up in OCGN Stock’s Renewed Excitement
The resurgence in popularity for OCGN stock could continue. If investors “buy the rumor, buy more on the news,” we could see the recent rally carry on. This makes going selling short a risky move.
Yet, there’s little to indicate it will obtain FDA approval. In addition, there’s plenty suggesting that the U.S., already oversupplied when it comes to vaccines, has little need for Covaxin.
In short, with more to make a bear case than a bull case, tread carefully with OCGN stock.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.