Ocugen (OCGN -1.30%) shares took center stage earlier this year when the biotech joined the coronavirus vaccine race. The company partnered with India's Bharat Biotech to co-develop and co-commercialize Bharat's vaccine candidate -- Covaxin -- in the U.S. As a result, Ocugen shares soared as much as 763% in about six weeks.

Since the high point reached in February, the stock has retreated 45%. Investors have worried -- and rightly so -- about Covaxin's prospects in the U.S. market. But in recent days, Ocugen shares have begun to pick up speed. They gained more than 22% this past week. Now, some investors might be wondering if Ocugen will hang onto this positive momentum -- or whether the stock is heading for a crash. Let's take a closer look.

An investor looks with surprise at something on his computer.

Image source: Getty Images.

Ocugen's deal with Bharat

First, a bit of background about Ocugen's deal with Bharat. Ocugen's core business actually isn't vaccine development for infectious diseases. The company develops gene therapy for eye diseases. Its most advanced candidate is set to enter a phase 1/2 trial this year. That means revenue is far off.

Enter Bharat Biotech's Covaxin. Bharat completed phase 3 trials and generated positive data. The next step is regulatory review. Ocugen's agreements with Bharat only cover commercialization in the U.S. and Canada. And of these two markets, the U.S. is the biggest and could represent the most revenue.

Now, here are the problems. First, the U.S. already has plenty of vaccine doses right now. The country bought enough Pfizer and Moderna shots to cover almost all Americans. To make matters worse, the U.S. Food and Drug Administration advised Ocugen to take the traditional route and apply for approval instead of Emergency Use Authorization (EUA). The regulator has granted EUAs in a matter of weeks following applications. Traditional approval could take six to 10 months.

And, finally, Ocugen says it may have to conduct a new clinical trial rather than just use data from Bharat's trials in India. That will slow things down even more.

Ocugen's route in Canada may be easier. But Canada has ordered vaccines from at least eight different companies. So it's difficult to imagine Ocugen gaining significant revenue in a market shared with that many other players.

A possible WHO authorization

In recent days, some have cheered about the possibility the World Health Organization will offer Covaxin authorization. News reports, such as one on NDTV, suggest such authorization may happen soon.

But a thumbs up from the WHO won't put revenue in Ocugen's coffers. That's because such an authorization doesn't mean Ocugen can sell Covaxin in the U.S. and Canada. Regulators in those specific markets make that decision. And it's unlikely they'll feel pressure by a WHO decision to speed up their own processes.

Now let's turn to what's going on with Ocugen shares. The stock initially rose more than 40% in the first four trading sessions of the week. Then it pared gains on Friday -- but rose in after-hours trading.

It's possible a short squeeze is at work. When investors short a stock, they bet on the stock's decline. They borrow shares at a certain price and hope to buy them back at a lower price to return to the lender. A short squeeze happens when the stock starts going up -- and then these investors rush to buy back shares before the shares climb too high.

Short interest in Ocugen stock fell in August. But it's once again on the rise.

OCGN Short Interest Chart

OCGN Short Interest data by YCharts

So, a bit of positive news and a pop in the stock price could have sent short sellers running to cover positions.

Can Ocugen maintain gains?

In any case, you still may be wondering if Ocugen can maintain these gains -- or if the stock price will sink like a stone in the coming days. It's possible some investors may pile into Ocugen stock if the WHO authorizes Covaxin. So, more gains may be on the horizon. But at some point, the stock could come crashing down to Earth.

It's not clear if and when Ocugen will generate revenue from Covaxin. And the coronavirus vaccine playing field is getting more and more crowded. As mentioned above, the company's main gene therapy candidates are far from the commercialization stage. I don't see a true catalyst to support sustained share increases over time. And that's why long-term investors are best avoiding this biotech stock right now.