The past year has been a wild ride for biotech company Ocugen (OCGN +2.00%) as the drugmaker has tried and failed (so far) to enter the coronavirus vaccine market in North America.
Despite Ocugen's misfortunes, Wall Street thinks its current share price of $2.45 is much too low. The biotech's average price target stands at $8.38, according to Yahoo! Finance. That implies a potential upside of 242%.
Though the Street remains bullish on this stock, I think investors had better stay away, and here is why.
OCGN data by YCharts.
Ocugen's hopes in the COVID-19 vaccine market
Ocugen's coronavirus vaccine candidate, Covaxin, was developed by Bharat Biotech in India. In a phase 3 study, Covaxin demonstrated 77.8% overall efficacy; the vaccine was 93.4% effective against severe cases of COVID. Although that's not awful, many approved vaccines were even more effective in clinical trials.
Furthermore, Ocugen can profit from Covaxin only if it is marketed in North America. Even then, the biotech would only keep 45% of the profits generated by the vaccine. However, the U.S. Food and Drug Administration declined to grant Emergency Use Authorization (EUA) to Covaxin, telling Ocugen's management to pursue full approval for the candidate instead.
The company tried to get around this problem. In November, Ocugen requested EUA for Covaxin for children between the ages of 2 and 18. But the agency recently declined to grant the vaccine authorization for pediatric use.
Image source: Getty Images.
With this latest setback in the U.S., it looks as if Ocugen will have to pursue full approval for Covaxin in the U.S. after all. And that's after it runs a late-stage clinical trial. This process can take well over a year, and it isn't guaranteed to yield positive results. This uncertainty will weigh on Ocugen's stock.
NASDAQ: OCGN
Key Data Points
The biotech's application for EUA for Covaxin in Canada looks perhaps more promising. The company received a Notice of Deficiency from regulators regarding its application in December. Ocugen responded to these concerns, and it is awaiting a decision from health agencies in Canada.
Even if Covaxin is approved in Canada, though, due to its lower efficacy, not to mention the current state of the pandemic (several variants have become more prevalent since Covaxin's phase 3 study was conducted), it's unclear whether the vaccine can generate significant sales in that country. In other words, Ocugen's prospects in the coronavirus vaccine market don't look great.
Can the biotech look elsewhere for a bright future?
Not worth the trouble
Ocugen focuses on developing therapies for eye-related diseases. The company does have several other pipeline candidates, but all of them are still very early in their development. It is looking to advance these programs, and perhaps management was counting on revenue from Covaxin to help fund the research and development.
Last month, the company announced it was resorting to a secondary stock offering to raise additional capital. Ocugen expects gross proceeds of $53.5 million from this round of fundraising. Resorting to dilutive means of financing is often a necessary evil for clinical-stage biotechs. But given Ocugen's current position -- slim hopes in the coronavirus market in North America and pipeline candidates that will take several years before they can hope to hit the market -- things don't look great.
That's before we add the usual obstacles which all biotech companies face. Negative results from clinical trials and unforeseen regulatory headwinds (something Ocugen knows a thing or two about) make the biotech even less attractive. The company currently generates no revenue and is unprofitable. While Wall Street thinks the biotech's stock could skyrocket in the next year, I remain skeptical.
Even if the company does manage to launch Covaxin in Canada in the coming weeks, Ocugen's overall prospects look far too risky for most long-term investors. There are much better biotech stocks out there.
