After languishing for most of 2020 as a penny stock, Ocugen (NASDAQ:OCGN) popped to a 52-week high in February. However, OCGN stock was not a participant in meme stock mania. Investors were bidding up the stock because of its potential role in bringing an end to the novel coronavirus pandemic.
Ocugen entered a partnership with the Indian biotech, Bharat Biotech. The company’s Covid-19 vaccine, Covaxin, received an emergency use authorization (EUA) in India. Bharat Biotech is no stranger to the vaccine arena. It has more than 16 vaccines in its product portfolio.
It also seems that Covaxin may provide some unique benefits particularly as it relates to mutations (i.e. variants) of Covid-19. And like the Johnson & Johnson (NYSE:JNJ) vaccine, it can be kept at refrigerator temperatures. And, although Covaxin is still in late-stage Phase 3 trials, the company released interim results that showed a clinical efficacy rate of 80.6%.
So why am I not more enthusiastic about OCGN stock? Simply put, I think the opportunity for Covaxin globally may be significant. But in the United States, not so much.
The Problem Is Demand, Not Supply
Under terms of the agreement, Ocugen will receive 45% of the profits from the sale of Covaxin in the United States (emphasis mine). Bharat Biotech will provide initial doses of the vaccine. At that point, Ocugen will be responsible for the vaccine’s clinical development, regulatory approval (which includes its EUA) and commercialization in the U.S.
Bharat Chairman and Managing Director Krishna Ella said, “I am confident we will be able to work with Ocugen to develop a plan to bring Covaxin to the U.S market.”
Covaxin and the recently approved Sputnik vaccine (marketed as Covishield) are the two major vaccines being used in India. The two companies are combining to export 64 million doses of the two vaccines to 86 countries.
However, that list doesn’t include the United States, yet. At that’s why the math is looking fuzzy to me.
Call me crazy, but the issue in the United States is one of demand, not supply. On Aug. 19, the Biden administration announced that all American adults are now eligible to receive the vaccine. And according to the Centers for Disease Control (CDC), approximately one half of American adults have received at least one shot of either the vaccine from Pfizer (NYSE:PFE) and BioNTech (NASDAQ:BNTX) or the Moderna (NASDAQ:MRNA) vaccine.
The administration wouldn’t make such a claim if they weren’t fully confident that they had enough supply on hand. Instead the larger issue remains vaccine hesitancy. With that said, it’s fair to question if there is much of a U.S. market for Covaxin. And if not, then the bullish case for OCGN stock is much less compelling.
Ocugen Has No Product of Its Own Until 2025
If you temper your expectations for Covaxin revenue, you’re left with Ocugen’s existing pipeline. And that’s not insignificant. It simply doesn’t have any drug candidate in the clinical trial phase. Which means it’s unlikely that the company will have a product on the market until 2025 at the earliest.
This isn’t meant to disparage the company’s lead candidate, OCU400, which is being developed for treatment of retinitis pigmentosa. The prevalence of that condition, just in Europe, is approximately 165,000 patients.
As I wrote in March, this is not an abnormal situation for a biotech company. It also explains why Ocugen was a penny stock prior to the announcement of its partnership.
Should You Buy OCGN Stock?
I suppose the company is already making the best of this situation. In February, Ocugen conducted a share offering that was expected to raise about $23 million. If the money can be put to effective use, it may justify keeping OCGN stock above the $5 mark.
But if you’re expecting Ocugen to garner significant revenue from Covaxin sales in the United States, you should think again. With every arm that gets one of the existing vaccines, the opportunity for OCGN stock becomes less enthralling.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.