Shares of Ocugen (OCGN +1.96%) skyrocketed last year as the company planned to enter the lucrative coronavirus vaccine market. Unfortunately, the company's candidate, Covaxin, has yet to earn emergency use authorization (EUA) where it matters for Ocugen's purposes.
As a result, shares of the eye disease-focused biotech have crashed, losing 72% of their value in the past three months. While Ocugen looks risky, there are reasons why it has a chance to bounce back.
Let's discuss two green flags for Ocugen's future and decide whether they make shares of this clinical-stage biotech a buy.
1. There is still a need for COVID-19 vaccines
Many of us had hoped that the pandemic would subside once vaccines became widely available. But that hasn't happened -- even in many countries with relatively high vaccination rates. Still, vaccines have helped mitigate spread of the disease and, importantly, they have saved the lives of some vulnerable people since those vaccinated tend to have less severe cases of the disease.
We can never have enough effective, potent vaccines against any illness. As the pandemic (unfortunately) continues to drag on, it could open the door for smaller companies like Ocugen to eventually enter the coronavirus vaccine market.
2. The market has little faith in Ocugen
Ocugen currently sports a market cap of $709 million. That's after it rose above the $3 billion mark last year. It isn't surprising that investors have sold off shares of the biotech. After all, it can only generate money from Covaxin if approved in North America -- and even then, it would only keep 45% of the profits the vaccine makes. That's the deal the company signed with the company that originally developed Covaxin, India-based Bharat Biotech.
Image source: Getty Images.
Further, following the advice of authorities in the U.S., Ocugen will have to pursue full approval for its candidate instead of obtaining EUA -- and that's after it runs a phase 3 clinical trial for it in the country. So the process of earning full authorization for Covaxin will take significantly longer.
The company could earn EUA for Covaxin in Canada based on results of a phase 3 study conducted in India where the vaccine proved 77.8% overall effective and 93.4% effective against severe cases of COVID-19. But authorities in the country have been holding onto the company's application since August.
Given all these headwinds, Ocugen's recent woes in the stock market aren't surprising. But here's the thing. Considering the company's current small-cap status, it wouldn't take a whole lot for its shares to soar.
At current levels, Ocugen does not need to generate tens of billions in sales of Covaxin in, say, Canada for it to be a success. If Covaxin earns approval in Canada, and if the company can generate even half a billion in profit from it, that will likely send its stock price soaring.
And if that happens, Ocugen would be able to use this windfall to advance its other pipeline programs.
Beware of these risks
On the other hand, notice how many "ifs" it would take Ocugen to turn things around. Sure, the company could earn EUA for Covaxin in Canada, and it could generate half a billion in profit from the vaccine.
There also seems to be evidence that a booster dose of Covaxin six months after the initial two-dose regimen confers protection against COVID-19. Plus, Ocugen released evidence of a study purporting to show that Covaxin could be effective against both the omicron and delta variants of the coronavirus.
But even with all that said, just how likely Covaxin is to carve out a tiny niche for itself in Canada -- enough to benefit Ocugen -- is anyone's guess. At this point, there is little reason to think things will go exactly how Ocugen needs them to go, at least as far as its coronavirus program is concerned. Further, the company's other programs are far too early in their developmental stages to meaningfully move the financial needle for the company right now.
Lastly, like most clinical-stage biotechs, Ocugen is not profitable. In the third quarter of 2021, it did not deliver a single dollar in revenue, and it reported a net loss of $10.8 million dollars. For all these reasons, Ocugen remains far too risky for most investors to consider. It's probably best to stay a safe distance away from this biotech stock.
