Ocugen (NASDAQ:OCGN) shares gapped up 20% on Sept. 13. But after moving past the consensus price target of analysts, OCGN stock is struggling to hold onto those gains.
To understand the volatile price movement, you need to first understand the reason the stock gapped up. Investors were buying the report that the World Health Organization is likely to grant an emergency use authorization for Covaxin. Why is this significant for owners of OCGN stock?
Covaxin, as you may remember, is manufactured by Bharat Biotech. The Indian company signed an agreement with Ocugen in which the latter will oversee the approval process, manufacturing and distribution of Covaxin in the United States and Canada.
However, for two significant reasons, I believe this is a time when investors should sell the news. This may be good news, broadly, in the management of Covid-19. But specific to Ocugen there’s just not much to be excited about.
North American Approval Is Not a Certainty
One major issue that Ocugen faces is getting FDA approval. That is likely not going to come unless Ocugen can show results from a U.S.-based clinical trial.
And, as InvestorPlace’s Larry Ramer points out, when (or if) the company initiates a clinical trial, it could take a year or more to get results. With three vaccine candidates already in market, there is no urgency for the FDA to fast-track a clinical trial as it did with Operation Warp Speed.
What is the Addressable Market?
If Covaxin is approved in late 2022, what will the Covid-19 treatment landscape look like? If, as can be reasonably expected, previously vaccinated individuals receive booster shots of the Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) or Johnson & Johnson (NYSE:JNJ) vaccines.
In July, the Washington Examiner quoted Pfizer as saying that individuals who received a third dose of its vaccine “elicited a stronger immune response to the Delta variant compared to those who only completed the two-dose regimen.” That would mean that the addressable market for Covaxin would already be lessened.
And unlike a vaccine candidate like Novavax (NASDAQ:NVAX), which is a protein sub-unit vaccine, Covaxin is a viral vector-based vaccine similar to that of Johnson & Johnson. These vaccines use an adenovirus to trigger the immune system to create antibodies to fight off an infection. In this case it is fighting off an infection by SARS-CoV-2, the virus that causes Covid-19.
That could make Covaxin more appealing than the mRNA vaccines of Pfizer and Moderna. But will it be different enough from the JNJ shot to remove the current vaccine hesitancy? That’s less clear.
For its part, Ocugen is only intending to sell 100 million doses of Covaxin in the United States. I’ll let you decide if that supports the company’s current $1.5 billion market capitalization.
OCGN Stock Has Hit Its Ceiling
In my opinion, OCGN stock is garnering interest because it’s inexpensive. That doesn’t mean cheap. Remember, for the better part of 2019 and 2020, Ocugen was literally a penny stock. And as I pointed out above, the company has a $1.5 billion market cap.
I would be more intrigued by Ocugen if it was close to delivering a product to market. But there’s nothing that’s happening in the company’s own pipeline to suggest it will bring a product to market anytime soon. If anything, the agreement with Bharat may be a hindrance more than a help.
Which is not to say that buying low and selling high can’t work as a strategy. However, if that’s your plan with OCGN stock, it may be best to take your profits and walk. Ocugen must still clear a major hurdle just to get Covaxin approved in the United States and Canada. And even when they do Ocugen will receive 45% of any profits that Covaxin generates in the United States and Canada.
So, if you bought OCGN stock low, pat yourself on the back and take profits. But if you’re thinking it has a higher ceiling, the math doesn’t appear to be on your side.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.