Ocugen (OCGN -1.24%) got some positive news last week as the Food and Drug Administration (FDA) lifted the clinical hold on its investigational new drug application (IND) for Covaxin, also known as BBV152. The stock jumped in after-hours trading on the news, though it has since dropped.
The FDA's action clears a roadblock for Ocugen that could help lead to its COVID-19 vaccine obtaining FDA approval. Is this a reason to invest in the stock, or is it still too risky a buy?
A 3-month hold
On Nov. 26, Ocugen released a statement saying that the FDA had issued a clinical hold on its IND for Covaxin, a COVID-19 vaccine it is co-developing with India-based Bharat Biotech. It said the agency was going to "identify the specific deficiencies that are the basis for clinical hold and information on how to address those deficiencies."
There wasn't any indication then, nor is there now, as to how serious the deficiencies were. Nonetheless, they were sufficient to stall the IND. In its latest press release, the company did not offer investors any timeline as to how long it might take for the FDA to resume and complete its review, only noting that it would be moving the clinical program for Covaxin forward.
The path is clear, but is approval imminent?
The World Health Organization (WHO) has issued an emergency use listing for Covaxin, and the vaccine is approved for use in 13 countries. In early November 2021, WHO noted that an advisory group it convened "determined that the vaccine meets WHO standards for protection against COVID-19, that the benefit of the vaccine far outweighs risks and the vaccine can be used globally."
Last year, Bharat Biotech found that, in phase 3 studies of the vaccine, it was 77.8% effective against mild to severe COVID-19 cases and 93.4% effective against severe COVID-19 disease.
However, for Ocugen investors, it's the North American approval that matters. The healthcare company only has rights to commercialize Covaxin in Canada and the U.S. According to agreements it has with Bharat, it will have a 45% share of the profits from any sales of Covaxin in either of the two countries.
But neither has formally given the approval for the vaccine to be used. Earlier this month, Canada authorized Novavax's COVID-19 vaccine for use in those 18 years of age or older. And yesterday it approved a plant-based vaccine from Medicago (for people between the ages of 18 and 64), which is the sixth vaccine to receive the authorization, joining vaccines from Pfizer, Moderna, Johnson & Johnson, and AstraZeneca. It's been more than six months since Health Canada began reviewing Covaxin, and that process remains ongoing.
The stock remains ultra-risky
Ocugen doesn't generate any revenue today, and investors are clearly hopeful and optimistic that approval of Covaxin in Canada or the U.S. will be a game changer. And while it is positive that the FDA lifted the hold on its review of the vaccine, that doesn't mean that approval is imminent. And while Canada has six approved vaccines for use, in the U.S., there are still only three that are either fully approved or have an Emergency Use Authorization -- Pfizer, Moderna, and Johnson & Johnson. The agency has been tighter with respect to approvals, and if Covaxin hasn't received the green light in Canada, it may be a tad too optimistic to assume that the FDA will approve it in the U.S.
Although last week's news excited investors, it's important not to read too much into it. The FDA is still reviewing the vaccine, and even if Covaxin obtains approval, it may still not obtain enough market share to justify the stock's valuation, which today is north of $800 million. It would likely skyrocket much higher in value on such news.
Ocugen is a dangerous investment, especially given it is unprofitable, it's burning through money, and investors have been wary of growth stocks of late. Unless you're prepared for the risk, you're better off avoiding Ocugen.