Back in February and March, a number of stocks went crazy as speculators bet they could profit from solving the novel coronavirus pandemic. Most of those stocks – particularly those that were struggling to begin with – have crashed back to Earth. Yet the frenzy has begun again with Ocugen (NASDAQ:OCGN) stock.
On Dec. 21, OCGN stock closed at 29 cents. Over the next two days, it rose almost ninefold. It’s given back a bit of those gains, but still sits up 650% in five weeks.
The catalyst was an agreement with an Indian company, Bharat Biotech, to bring a novel coronavirus vaccine to the United States. The problem is that there’s not much evidence yet that the joint venture will be a success. There’s certainly little evidence that Ocugen can do the heavy lifting required to enter the competitive American market.
Again, we’ve been here before. Most of the “hot” Covid-19 plays that went nuts in February and March eventually disappointed investors. I don’t believe OCGN stock will be any different.
The Case for OCGN Stock
From a high level, the stunning rally in OCGN stock might make a bit of sense. A successful Covid-19 vaccine could be a big moneymaker.
It’s true that there already are two approved vaccines in the U.S. market, with more on the way. But as I’ve written elsewhere, the market will be big enough for multiple products. Each of those products are likely to have specific advantages with individual demographics.
Meanwhile, early data for Bharat’s Covaxin does show promise. Phase 1 data showing tolerability was published in the medical journal The Lancet last week. Early (though not yet peer-reviewed) Phase 2 data on efficacy showed that the vaccine does induce immunity.
So Ocugen’s partnership appears to have a chance to bring an approved product to the U.S. market. And that’s at least part of why investors have bought OCGN stock hand over fist.
A Closer Look at Covaxin
But that broad case has some holes.
As far as Covaxin goes, yes, the early data shows some promise. But it needs to be emphasized: it’s early data.
More importantly, a vaccine that just works isn’t necessarily going to win, particularly in the U.S. market. Again, there are two vaccines already approved, with more on the way.
We have no idea that Covaxin is as good as those products. None. Certainly, it’s possible. Bharat has been around for decades. It’s influential enough in India that it managed to score a controversial emergency use authorization.
But Covaxin also was developed using an Indian strain of the coronavirus. It’s certainly possible that a vaccine targeting that strain won’t successfully fight the variants predominant in the U.S. Concerns about new strains from the United Kingdom and South Africa highlight the risk that a vaccine that works on one strain simply may not work on others.
At a minimum, Bharat and Ocugen have a long way to go to prove that Covaxin is as good as the multiple products being developed by larger, more experienced pharmaceutical and biotech companies.
The Ocugen Problem
The problem is that Covaxin doesn’t win if it’s just as good as the other products targeting the U.S. market. It clearly needs to be much, much better.
Ocugen simply doesn’t have the muscle or the resources to compete with giants otherwise. Those giants already have ramped supply thanks to agreements with worldwide governments for billions of doses. Ocugen and Bharat have no such agreements in the U.S.
Those giants have cash to manage any hiccups in the rollout. Ocugen closed the third quarter with just $19 million in the bank after burning $11 million in the first nine months of 2020.
It’s difficult to see why Bharat even chose Ocugen as a partner if it believes in its vaccine. Ocugen has had essentially no success with its pipeline. Most notably, its OCU300 compound, for ocular graft versus host disease (oGVHD), had its Phase 3 trial discontinued last year. OCGN stock plunged on the news, a key reason why it traded below 30 cents before the Bharat announcement.
Again, this is what we saw in March. Companies with little or no history of success suddenly saw their stock prices soar because they were supposedly part of the solution to the Covid-19 pandemic. The ones that, like OCGN, had been penny stocks before the pandemic usually wound up returning to those levels once the euphoria faded.
Ocugen certainly fits that profile. It would be wonderful if it succeeded; we need all the help we can get. I just don’t believe it’s likely to happen. And with OCGN stock up 650%, I certainly wouldn’t take the bet that it will.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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