What happened

Shares of biopharmaceutical company Ocugen (NASDAQ:OCGN) dropped by 31.1% in May, according to S&P Global Market Intelligence data. Investors were concerned because the downward trend in COVID-19 cases in the United States could hurt the chances for the company's vaccine, which it is developing with India's Bharat Bioscience. With Ocugen's odds for bringing a profitable vaccine to market declining, investors may be taking a harder look at the company's financials, which showed a $7.1 million loss in the first quarter.

Frustrated man in front of a downward-looking stock chart.

IMAGE SOURCE: GETTY IMAGES

So what

Ocugen's stock is up by more than 3,389% over the past 12 months and more than 376% this year. Those massive gains were predicated on the possibility that its candidate coronavirus vaccine COVAXIN, which the company says is effective against the new COVID-19 variants of concern, would be approved -- and be profitable.

On May 26, Ocugen said it is on track to submit an emergency use authorization (EUA) application for COVAXIN to the FDA in June. The problem is that the agency recently said it may refuse to grant new EUAs to vaccine makers that have not been working closely with the regulator during their candidates' development. The company has said that it believes it will meet the FDA's new EUA guidelines. In the meantime, however, the need for additional new vaccines in the United States is dropping, along with new COVID-19 case rates here. According to the Centers for Disease Control and Prevention, the seven-day average for daily new COVID-19 cases in the United State was 12,780 on June 4. The last time the number was that low was back in March 2020.

Now what

There's a lot of risk involved with this biotech stock. There's a good possibility that COVAXIN may not be granted an EUA, based on the FDA's recent statement. Even if it does get that EUA, Ocugen's vaccine is coming late to the party, putting it at a significant disadvantage to the entrenched COVID-19 vaccines, at least in the U.S. market.

There's plenty to still like about Ocugen, of course. The company has a pipeline of eye therapies through its modifier gene platform that it is developing to treat retinal degeneration. It also has a novel biologic under development as a therapy for diabetic retinopathy and diabetic macular edema, as well as for wet age-related macular degeneration. However, those treatments are all in the early stages of development. None have entered clinical trials yet. Without a blockbuster therapy, any purchase of Ocugen stock must be viewed as speculative. There's a good chance the share price could fall further.

The problem for any investor coming in now is that even after its recent price drop, this stock still carries a higher valuation than it warrants, trading at a high price-to-book ratio of 43.32.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.