If you invested $10,000 in Ocugen (OCGN 2.25%) shares last year, that principal would be worth well over $275,000 today. That's an astonishing rate of return, but many new investors are hoping that Ocugen stock could fly even higher. Ocugen is in a partnership with India's Bharat Biotech to develop its coronavirus vaccine, COVAXIN. Recently, COVAXIN demonstrated the ability to provide protection against all three Brazil, U.K., and Indian coronavirus variants.
In an interim phase 3 clinical trial, the vaccine demonstrated 100% efficacy against severe cases of COVID-19. The vaccine is already authorized for use in India. Ocugen plans to commercialize its vaccines in the U.S., but is facing extreme headwinds. Will Ocugen succeed and take investors on an awesome ride?
What's the problem?
A big issue for Ocugen is that it has all of its eggs in one basket. The company does not own COVAXIN -- it merely owns its U.S. (and only U.S.) licensing rights. Therefore, the firm's success depends entirely on whether or not it can commercialize the vaccine in time. It has no product revenue, and its gene therapy research candidates are only in the preclinical phase.
President Biden has announced that the nation is on track to vaccinate 70% of adults by July 4. However, vaccination rates in some states have fallen (or are staying low) due to a combination of scientific skepticism, vaccine hesitancy, and concerns about the jabs' potential long-term side effects. Over 46% of Americans have already received one dose, and 32% are fully vaccinated.
As a result, there is now an oversupply of coronavirus vaccines in the U.S. It is highly improbable that Ocugen could sell 100 million doses of its vaccine in the country as anticipated. What's more, COVAXIN has not even received Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA).
As of May 7, Ocugen was still "preparing" its EUA application. It also does not have any contract manufacturers as of yet to produce the vaccine. On a side note, all of the coronavirus vaccines on the market in the country were either developed by big pharma or via joint partnerships with them (as the case with BioNTech). Ocugen's prior lack of experience in filing EUAs may be playing a big role in the delay.
Not all is lost
Believe it or not, there is one scenario that could play out well for Ocugen. The company is currently in supply discussions with the Biomedical Advanced Research and Development Authority (BARDA). A coronavirus vaccine that demonstrated efficacy against all mutant strains would definitely be beneficial for national defense purposes. If the company does earn EUA, it plans to immediately begin studying the vaccine in children six months and older.
But then again, Ocugen is only entitled to 45% of profits from selling COVAXIN, with the rest going to Bharat Biotech. Coronavirus vaccines typically have a pre-tax profit margin of 30%. If we do the math, we can see that Ocugen would earn only about $0.11 for each $10 dose it sells (or $71 million for every 100 million doses). We also do not know if its contracts will be a one-time supply or recurring, given what we have yet to learn about the already-vaccinated and future spread of the virus.
What's the verdict?
For what it has to offer today, Ocugen is simply way too expensive at a market cap of $1.73 billion. Suppose the company does manage to sell hundreds of millions of doses of COVAXIN or validate its therapeutic candidates in phase 1/2 clinical trials: In that case, it could be a solid buy. Investors are betting too much on a vaccine commercialization goal that may not even happen or ultimately disappoints.