Biotech companies are ripe with innovation. And sometimes that can lead to tremendous share gains. The two stocks I'll talk about here -- Novavax (NVAX -4.82%) and Ocugen (OCGN) -- both have soared in recent years on optimism about potentially game-changing products.
But when their programs failed to meet investors' expectations, Novavax and Ocugen shares came crashing back down to Earth. These companies may be down right now, but they're not out. In fact, from current levels, they have room to run.
Which one is more likely to increase fivefold first? Let's find out.
The case for Novavax
Novavax soared more than 2,700% in 2020 as investors bet on its investigational coronavirus vaccine. The company brought the vaccine to market -- but much later than expected. As a result, it lost out on major market share -- and the stock plummeted. Today, the shares have returned to their pre-pandemic levels.
Here's why Novavax could make a turnaround and climb upward. The company's vaccine may not be a leader -- but it still is generating hundreds of millions of dollars in revenue. This is a big deal for a company's very first product. Yes, demand will decline in a post-pandemic world, but it won't disappear.
In fact, rival Moderna predicts the market will follow that of the flu vaccine. That implies a global market of $12 billion to $24 billion, depending on vaccine pricing. That's positive for all vaccine makers.
But Novavax's big break could come a bit farther down the road. The company is studying a combined coronavirus/flu vaccine in phase 2 trials. If eventually approved, this sort of product could stand out -- and become a market leader. People will like the idea of going out for one shot instead of fitting both flu and coronavirus vaccines into their schedules every year.
Any positive news about vaccine revenue in the near term or progress with the combined vaccine program could lift Novavax's shares.
The case for Ocugen
Ocugen surged about 700% in a matter of days back in 2021. Investors were excited about Ocugen's partnership with India's Bharat Biotech. Ocugen gained co-commercialization rights to Bharat's coronavirus vaccine, Covaxin, in the U.S. The companies later went on to add Canada to that agreement.
The problem is, the U.S. and Canada still haven't authorized Covaxin. So Ocugen hasn't yet benefited from its collaboration with Bharat. And if Ocugen does win authorization, it's hard to imagine how it can gain much market share at this late point in the story.
Still, an authorization probably would send the shares higher. And another catalyst could potentially boost Ocugen shares too. The company has expanded its pipeline to include Neocart, an asset it acquired as part of its reverse merger with Histogenics a few years ago.
Neocart is a cell therapy for the repair of knee cartilage. The candidate didn't meet its primary endpoint in Histogenics' phase 3 trial -- but the trial design set the bar excessively high. And overall, Neocart's data were compelling.
Ocugen recently won the regulatory nod for a new phase 3 trial. There's reason to be optimistic about the candidate's chances in this new study.
Novavax or Ocugen?
Both of these biotech stocks aren't out of the woods yet. They still carry a good deal of risk. I'm more confident about Novavax's chances of advancing over time, since its coronavirus vaccine probably will continue to generate revenue -- and its combined vaccine candidate has produced solid data so far.
Ocugen is on shakier ground. Its specialty of gene therapy candidates for eye diseases still is in early stages. And its venture into the coronavirus vaccine business has been a struggle so far. The brightest spot right now is Neocart.
Now let's consider our original question: Which of these stocks could jump fivefold first? I might surprise you when I say Ocugen. But here's why the stock may be more likely to climb quickly.
OCGN Market Cap data by YCharts
First, Ocugen is starting off with a lower market value. It's generally easier for a company with a smaller market capitalization to soar than a bigger player. Second, any bit of news in the past has prompted Ocugen shares to make big moves. That could happen again if regulators authorize Covaxin or the company reports positive Neocart data, for example.
But I'm not convinced such rapid gains would be lasting. As in the past, the stock might tumble on the next potentially negative bit of news. And that's why long-term investors are better off looking for growth opportunities elsewhere.
