Ocugen (NASDAQ:OCGN) has been on something of a roller-coaster lately as its Covid-19 vaccine has yet to be approved by either the U.S., Canada or even the World Health Organization (WHO). News reports on the latter say that it may take several weeks. In addition, OCGN stock has taken a hit since the FDA rejected Ocugen’s vaccine, Covaxin, for getting Emergency Use Authorization (EUA).
As a result, the stock has dropped from a recent peak on Sept. 13 of $8.28 to $7.69 as of Monday, Oct. 11. However, it is still up from a recent trough of $6.74 on Oct. 4. Assuming its Indian partner, Bharat Biotech, which makes the vaccine, receives WHO approval, OCGN stock could continue to move higher.
Nevertheless, assuming the company can begin producing revenue next year with some countries outside India approving the vaccine, Ocugen stock could still be worth more. This is what I wrote last month with my $9.05 target price. However, since then, the risks appear elevated.
Where Things Stand With Ocugen
Ocugen has exclusive rights to sell Covaxin in the U.S. and Canada and gets a 45% split of the revenue. It recently signed a long-term distribution and manufacturing supply agreement with Bharat. This will enable Ocugen to receive enough Covaxin supplies. That is in case the U.S. and Canada approve the drug in their normal drug approval processes. There had been some concern among analysts that given the flare-up of Covid-19 in India, Ocugen would not be able to receive enough supplies.
One of the issues, though, is that so far Covaxin has only been 78% effective overall against the Covid-19 virus in studies that Bharat has completed. However, it is 93.4% efficacy against severe COVID-19 disease, 63.6% efficacy against asymptomatic COVID-19 disease, and 65.2% efficacy against the Delta variant, B.1.617.2.
In effect, the company is in wait mode. It has to go through the long-drawn-out process of full drug approval with the FDA. That elevates its risk of not receiving final FDA approval and it could also take a good while. This is why some analysts have written negative reports about OCGN stock.
Nevertheless, based on the company’s Aug. 5 release of its Q2 quarter results, Ocugen still had $115.8 million as of June 30, compared to $24.2 million as of Dec. 31, 2020. However, page 8 of its latest 10-Q filing with the SEC shows that its cash burn for the first six months of 2021 was only $27.1 million.
This implies that the company has plenty of capital to get through next year even if sales get delayed. However, as it stands, four analysts still forecast that Ocugen will generate $135.5 million in sales next year. Analysts surveyed by Refinitiv, as seen in Yahoo! Finance’s Analysis page on OCGN stock, show the same estimate. In fact, by Dec. 2023, those analysts estimate that revenue could reach $418 million.
This is the basis for my estimate last month that OCGN stock could be worth more than Oct. 8’s price. For example, five years of this revenue amounts to over $2 billion ($418m x 5 = $2.09 b).
However, let’s do a simple calculation. Using a 15% discount rate means that the total value of that revenue is worth 62% in present value terms. That brings its value down to $1.296 billion (i.e., $2.09b x 62%). After adding back in the $115.9 million in cash it has right now, that adds up to $1.411 billion in market value.
And that is roughly market value today ($1.41 b) at $7.69 per share. In other words, OCGN is roughly at a fair value. Although today’s price action skews this more towards overvalued at this point.
Where Things Stand With OCGN Stock
Keep in mind that there is nothing to prevent the stock from rising well over its fair value today. For example, my calculation last month that the stock is worth $9.05 was based on a projection of its potential profits using the 45% revenue split with Bharat.
Moreover, analysts are still positive about the stock. For example, Refinitiv’s analyst survey data, presented by Yahoo! Finance, indicates an average price target of $7.90. That represents a potential gain of 2.7% over the price of $7.69. However, 2 of the 5 analysts covering the stock have recently issued downgrades.
It all boils down to whether the company and Bharat will gain approval from some governing authority outside of India for the Covaxin vaccine. If this doesn’t happen, the stock is essentially worthless. If it does, and depending on how long it takes, OCGN could be worth more than today.
On the date of publication, Mark R. Hake did not hold a position in any security mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.