The story at Ocugen (NASDAQ:OCGN) seems enormously attractive. It has been attractive enough to send OCGN stock up an astonishing 3,800% from last year’s lows.
The story is that Ocugen is both a coronavirus vaccine play and a promising biotech. An agreement with India’s Bharat Biotech will see Ocugen bring a vaccine to the U.S. market. And with Ocugen’s gene therapy heading to clinical trials in the second half of the year, there’s presumably value on that side of the business as well.
Here’s the catch: all biotech stocks seem attractive on their face. No company is out there telling investors, “Our candidate probably won’t work.”
But that’s the actual story for essentially every biotech; 90% of drug development candidates fail. Even for public companies, a study (admittedly several years old) found that just 9% of candidates made it all the way to approval.
Biotechs are risky. And when you look closer, you quickly realize that OCGN stock is just as risky — and far riskier than its simple story might make it seem.
The Approval Question
There’s going to be a lot of money made in Covid-19 vaccines.
It’s increasingly and unfortunately clear that vaccines won’t be a one-off effort. Between the need for boosters and the number of new variants, this is a market that will be around for the foreseeable future. Indeed, I’ve recommended some vaccine stocks for precisely that reason.
Now, a big market can make big winners — but it doesn’t make every participant a winner. And if you consider Ocugen’s potential role in the Covid-19 crisis, the odds of winning suddenly look a lot smaller.
First and foremost, Bharat’s candidate, covaxin, needs to get U.S. approval. That’s far from guaranteed.
Bharat has disclosed seemingly positive interim data for its Phase 3 trial. But that data is not yet definitive. And from there Ocugen, a company which never has had a drug approved (or come close), needs to manage the complex approval process with the U.S. Food and Drug Administration.
That’s risk No 1. Bear in mind that Ocugen was worth less than $50 million less than a year ago. Its market capitalization now sits at $1.3 billion.
If the covaxin effort fails, OCGN stock plunges. There’s no two ways about it.
The Profit Question
To be fair, Ocugen believes it’s on a path toward approval. Its chief executive officer, Shankar Musunuri told Reuters last month that the company expects to sell 100 million doses this year after a launch in the second quarter under an Emergency Use Authorization.
The question is, however: how much money will Ocugen actually make? Bear in mind that Ocugen only is getting 45% of the profits from covaxin. And its rights apply only to the U.S. market.
Even to get to that point, Ocugen has to spend quite a bit of cash. The initial batch of vaccines is being made by Bharat in India. After that, Ocugen needs to develop its own manufacturing capability.
It also needs a sales and marketing force. All the while, it will be competing against some of the giants of the worldwide pharmaceutical industry. More competition will follow.
Certainly, this can work. Covaxin has an “open vial” policy, which can reduce waste. It doesn’t have to be frozen (though it does need to be refrigerated).
Still, this is the fourth vaccine to market, backed by a U.S. partner with no sales or distribution experience. There’s a lot that can go wrong here. And given the 45% profit share of a single (if large) market, I’m skeptical the rewards from covaxin are worth the myriad risks to OCGN stock.
OCU400 and OCGN Stock
But covaxin has to be worth it. Because the problem with OCGN stock is that it’s really a vaccine play. There’s not much to the legacy business at this point.
OCU400, the company’s gene therapy candidate for multiple retinal diseases, sounds promising. But the evidence we have suggests an awful lot of skepticism.
After all, OCU300, the company’s former flagship product for oGHVD (ocular graft versus host disease), failed its endpoints last year and was discontinued. OCU310, which aimed to treat dry eye disease, met the same fate the year before.
The failure of past candidates doesn’t mean OCU400 absolutely won’t work. But it hardly suggests there’s some untapped development capability within Ocugen.
Certainly, the market didn’t feel that way. Again, before the Bharat deal, Ocugen had a market capitalization below $50 million.
Yes, the higher stock price helps in that the company already has raised capital, and can raise still more through selling stock. But there’s little reason to believe that this side of the business suddenly is worth hundreds of millions of dollars, particularly with no drugs yet even in Phase 1 trials.
And so we see the core problem with OCGN stock. The hype that sent the stock flying was based on Ocugen having a vaccine business and a gene therapy platform. But the company in fact is just a reseller with a so far dismal record of drug development.
Investors are starting to figure that out: OCGN has pulled back by more than half from its highs. I believe that slide will continue.
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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