On a 12-month basis, Ocugen (NASDAQ:OCGN) stock is still higher by over 1,500%. However, in the last six-months, the stock has remained sideways. Ocugen partnering with Bharat Biotech to bring Covaxin in the United States was the catalyst for an initial surge in the stock.
From highs of $18.8, OCGN stock has declined to current levels of $7.8. The stock remains sideways with the markets still waiting for another positive catalyst.
On the contrary, there has been a negative development. In June 2021, the U.S. Food and Drug Administration rejected the company’s emergency use authorization application for the Covid-19 vaccine. The FDA now requires the company to file for a file for a Biologics Licence Application. This is unlikely to come anytime soon and the market for Covid-19 vaccine is intensely competitive.
Limited Opportunity for Ocugen
I believe that even if Ocugen gets an FDA approval in the coming quarters, the revenue upside potential is limited.
In the beginning of August, nearly 70% of the U.S. adult population was vaccinated. The country requires at least 80% of the adult population to be vaccinated to have some form of herd immunity. The key point here is that even if Ocugen gets an approval in the next three to six months, there will be limited opportunity.
It’s worth noting that Novavax (NASDAQ:NVAX) and Serum Institute of India announced submission to regulatory agencies in India, Indonesia and Philippines for EAU of the company’s Covid-19 vaccine. The point here is that Novavax is yet to submit for FDA approval.
It seems clear that the company is focused on low-income countries where the vaccination percentage is still low. There might be limited opportunities for Novavax in U.S. even if the vaccine is approved. The same holds true for Ocugen.
Additionally, Ocugen has a revenue sharing agreement with Bharat Biotech. This will further limit the revenue and cash flow potential. Even if the vaccine receives an FDA approval.
Ocugen has also completed a rolling submission with Canada. As of August 14, Canada reported vaccination of 71.95% of the population with at least one dose. Therefore, the story is the same in terms of limited market opportunity.
It’s therefore not surprising that OCGN stock has remained sideways. I further believe that the stock is headed lower in the foreseeable future.
Broadening the Product Pipeline
In terms of positives, Ocugen reported cash and equivalents of $115.8 million as of June 2021. The company has strong financial flexibility to invest in research and development.
Besides the Covid-19 vaccine, the company is targeting “retinal diseases based on its breakthrough modifier gene therapy platform.” For OCU400, the company expects to launch Phase 1/2a clinical trials in the United States towards the end of 2021. Clinical trials in Europe are also expected in 2022. Ocugen has already partnered with CanSino Biologics (OTCMKTS:CASBF) for manufacturing.
However, this is still an early-stage development and is unlikely to impact the stock. In the next few quarters, OCGN stock will move based on the approvals and the cash flow potential. I am bearish on that front.
Bharat Biotech’s Covaxin has demonstrated good efficacy against Covid-19. Efficacy has been robust even with the variants. As an example, the vaccine has demonstrated 65.2% efficacy against the Delta variant. The company also effectively neutralizes the Kappa, Zeta, and Alpha variants.
However, the same holds true for Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA). For the population of U.S. and Canada, these might be the preferred vaccines than Covaxin. I believe that OCGN stock might be positioned to trend higher if the regulatory submission target is low-income countries.
Overall, I remain neutral to bearish on OCGN stock. Considering the vaccination rate in U.S. and Canada, I believe that Ocugen might disappoint investors even if the company receives FDA approval. The stock has struggled to trend higher. A downside from current levels seems likely.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.