Last year, Ocugen (OCGN -0.15%) shares soared more than 700% over just a few days. Why? The company signed an agreement to co-commercialize Bharat Biotech's coronavirus vaccine in the U.S. The companies later added rights in Canada to the agreement too. Bharat's product -- Covaxin -- already had gained emergency authorization in its home country of India.
The road hasn't been smooth for Ocugen though. U.S. regulators requested more data from the company -- requiring a new trial. And they advised Ocugen to aim for traditional approval rather than an emergency authorization. This adds to the timeline to market. Canada still hasn't authorized Covaxin either. But there may be a bright spot ahead. Ocugen and Bharat amended their agreement to expand Ocugen's co-commercialization rights to Mexico -- a place where Covaxin already has won authorization. After a year of uncertainty, is Ocugen finally on its way to vaccine revenue?
45% of profits
First a look at Ocugen's agreement with Bharat. Ocugen initially entered into an agreement that covered only the U.S. As part of the deal, Ocugen is responsible for clinical development, regulatory submissions, and commercialization. Bharat agreed to supply initial doses of vaccine following regulatory authorization. But Ocugen would establish its own manufacturing infrastructure to ensure future production and deliveries. Ocugen retains 45% of the profits from vaccine sales. Bharat keeps the rest. The same terms apply to the agreement covering Canada and Mexico.
As I mentioned above, Mexico already has authorized Covaxin for adults. And now the country's regulators are reviewing Covaxin for use in children ages two through 18. Last month, El Pais reported Mexico wasn't on the list to receive Pfizer vaccine doses from Covax for children. Covax is an international effort supporting equitable access to vaccines. All of this represents an opportunity for Ocugen to sell Covaxin doses to Mexico for adults and children. And soon.
But it's important to remember Ocugen isn't the only player in that market. Mexico has authorized 10 vaccines so far -- including those of leaders Pfizer and Moderna. And the country has given the nod to Pfizer's vaccine for children ages 12 and above. Also, today 61% of Mexico's population are fully vaccinated, according to Our World in Data. All of this means Ocugen's revenue opportunity in Mexico may be limited.
At the same time, Ocugen's costs are increasing. The company's research and development expenses and its general expenses each more than doubled in the first quarter year-over-year. They increased to $7.9 million and $10 million, respectively. And Ocugen's program to bring Covaxin to the U.S. market has reached another roadblock. The U.S. Food and Drug Administration (FDA) placed its trial on clinical hold. Ocugen now is answering the FDA's questions and aims to resume the trial as soon as possible. But any delay can add to costs -- and push possible revenue farther into the future.
What does all of this mean for investors?
Ocugen's venture into the U.S. and Canadian coronavirus vaccine markets was risky from the start. For many reasons. The countries already have vaccinated much of their populations. They've authorized other vaccines and placed orders for those products. And they still haven't entered into advance purchase agreements with Ocugen. More recent delays such as the clinical hold in the U.S. add to the uncertainty surrounding Covaxin.
The Mexico agreement is positive. As I mention above, it should lead to some revenue. And some is better than none at all. But is it worth it, considering the costs involved in this entire program? Here, I'm referring to the investments Ocugen must make to study Covaxin in the U.S. clinical trial. And the investments to manufacture and deliver the product to where it can be sold -- today, this means Mexico only. I'm not so sure. Especially considering the strength of competitors like Pfizer and Moderna.
That's why even commercialization in Mexico doesn't remove much of the risk from Ocugen. Of course, it's important to keep an eye on Ocugen's progress in Mexico. But even the most aggressive investors may want to watch this vaccine stock from the sidelines for now.