Early investors in Ocugen (NASDAQ:OCGN) stock have plenty to celebrate. Over the past year, OCGN stock is up over 2,600%. Put another way, the proverbial $1,000 invested in OCGN in May last year would now be worth around $27,000. It is hard to argue with that kind of success.
Ocugen was formerly known as Histogenics Corporation, a cell therapy company focusing on orthopedics. The two firms had a reverse merger in September 2019.
Now, the Pennsylvania-based Ocugen is a biopharmaceutical group mainly working on therapies to treat rare eye diseases.
The up move in the price of OCGN shares began in December 2020, when Ocugen partnered with India-based Bharat Biotech to commercialize Covaxin, Bharat’s vaccine against Covid-19, in the U.S. Bharat is a privately-owned business.
Ocugen is now hoping to get the FDA’s approval for emergency use. If things go as planned, Ocugen will get 45% of the U.S. commercialization profits. Following the news headlines, OCGN stock hit a multi-year high of $18.77. It is currently around $8.60.
Now, a large number of market participants have OCGN stock on their radar. However, I believe it remains a risky investment as most of the potentially good news is already priced into the shares. Therefore, long-term investors should proceed with caution. Here’s why.
Ocugen Currently Has No Revenue
On May 7, Ocugen released Q1 metrics. Net loss was $7.1 million, compared to $3.9 million in the prior-year quarter. It reported 4 cents of net loss per share. Ocugen’s cash and equivalents totaled $44.9 million as of March 31.
In April, management raised $100 million in gross proceeds through a direct stock offering.
CEO Dr. Shankar Musunuri was upbeat regarding the “interim analysis results of Bharat Biotech’s Phase 3 clinical trial in India as well as positive data from in-vitro studies regarding COVAXIN’s ability to neutralize emerging variants.”
However, so far, there have been no developments regarding FDA approval. For instance, the vaccine developed by the pharma giant AstraZeneca (NASDAQ:AZN) has not yet been approved in the U.S. even though it has been administered in many European nations since the early part of January.
In India, Covaxine is in the Phase 3 stage. It has been granted emergency authorization under the country’s regulations. Since we already have three vaccines being used in the U.S., the FDA is not likely to rush to give its seal approval to a new one.
Investors in biopharma stocks should understand that getting approval from the FDA would only be the first step in the two companies’ ambitious efforts stateside. Potential investors should also factor in production, logistics, pricing and distribution as rather risky steps.
According to the agreement in place, Ocugen will bear all the costs and risks regarding commercialization in the States. In return, it will get 45% of the profits. Understandably, Ocugen does not get any of the ex-U.S. revenues for the vaccine.
Ocugen’s market capitalization (cap) stands at $1.8 billion. In India, Bharat sells the vaccine at about $4 per dose. If the same pricing structure were to apply to the U.S., selling 10 million doses would mean revenues of $40 million. So far, around 280 million doses have been administered in the U.S.
For Ocugen getting the vaccine approved, manufactured, accepted and distributed would cost significant money, time, and other resources. Potential investors need to be realistic about the actual revenue and profits, if any, that can be made from this agreement.
The Bottom Line on OCGN Stock
Before the partnership with Bharat, Ocugen’s main business had nothing to do with the pandemic. In other words, the group was able to capitalize on the vaccine euphoria of the past several months.
After the company licensed Covaxin from Bharat Biotech in India, OCGN stock has been on a tear. However, the party could be over for the shares.
Therefore, if you are holding paper profits in the stock, you might consider taking some money off the table. If you’re interested in the potential for the partnership, then you should remember that OCGN stock is a high-risk/high-return proposition.
Those investors who do not want to commit full capital to OCGN stock might consider buying a healthcare exchange-traded fund (ETF) that provides investors an alternative way to gain exposure to a diversified basket of healthcare equities and profit from the industry.
Examples include the ALPS Medical Breakthroughs ETF (NYSEARCA:SBIO), the ARK Genomic Revolution ETF (BATS:ARKG), the ETFMG Treatments, Testing and Advancements ETF (NYSEARCA:GERM), the Health Care Select Sector SPDR Fund (NYSEARCA:XLV), or the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.