On June 10, shares of Pennsylvania-based biopharma Ocugen (OCGN) fell by an astonishing 26%. The decline came as the U.S. Food and Drug Administration (FDA) recommended the company file a Biologic License Application (BLA) for its coronavirus vaccine candidate, Covaxin (developed in partnership with India's Bharat Biotech), instead of an Emergency Use Authorization (EUA). The agency also requested additional data supporting Covaxin's efficacy and safety.
Ocugen is still a top-performing coronavirus stock despite the sell-off, with a return of 2,200% since last June. Aside from Covaxin, all of its product candidates are in the preclinical stage. Is now the time for investors to buy the dip?
The odds don't look good
In clinical studies, Bharat Biotech's Covaxin demonstrated 78% overall efficacy against COVID-19 and 100% efficacy against severe cases. The study mainly took place in India, where the highly contagious, highly resistant Delta variant of the disease is rampaging across the country. Therefore, its value proposition is evident. Covaxin has received regulatory clearance in over 13 countries.
Unfortunately, Covaxin does not belong to Ocugen. The company merely licensed the distribution rights in the U.S. and Canada from Bharat Biotech. The agreement is for Ocugen to receive 45% of the profits for the vaccine's commercialization. It also paid Bharat Biotech $15 million upfront for Canadian licensing rights.
Last month, the company told investors that it was "on track" to submit a EUA with the FDA for Covaxin by the end of June. But the regulatory agency has not just given that application a thumbs-down, it has also tasked Ocugen with conducting another clinical trial validating Covaxin's efficacy.
There are three problems with this from an investment standpoint. First of all, the coronavirus pandemic is largely subsiding in the U.S. due to mass vaccination campaigns. Therefore, it would be very difficult for Ocugen to find people living in areas of high exposure to the virus. That's not to mention the ethical issues around enrolling participants in the placebo cohort when safe and effective coronavirus vaccines are widely available.
Secondly, Ocugen planned to sell only 100 million doses of Covaxin in the U.S. Based on pricing assumptions, industry margins, and its deal with Bharat Biotech, that translates to an estimate of $135 million in pre-tax profits. However, it could cost up to $1 billion to conduct phase 3 clinical trials necessary for the vaccine's full approval. Without government funding or cost-sharing programs, Ocugen will be hitting a dead end.
Lastly, the U.S. and Canada have ordered a combined 1.2 billion doses of coronavirus vaccines, enough to vaccinate everyone in those nations multiple times over. So even if Ocugen conducts the study and succeeds, I don't see how the company could start its BLA filings before next year, when demand for vaccines is likely to have evaporated.
It's looking more and more certain that Ocugen will not be able to commercialize Bharat Biotech's coronavirus vaccine in a timely manner. For these reasons, it's best to stay away from the biotech. One year from now, I expect Ocugen to still be seeking funding for another phase 3 trial or scrambling to file its BLA.