Ocugen Just Overcame a Serious Hurdle

Investors will pile into Ocugen (NASDAQ:OCGN) stock based on its recent price movement. The shares have rallied because yesterday Ocugen received very promising news regarding the Phase 3 trial results of Covaxin, a vaccine for the novel coronavirus. But Ocugen still has a significant battle in front of it.

A needle rests on a reflective table next two clear glass vials of a clear liquid.Source: Shutterstock

The company has gone from working to develop gene therapies for eye diseases to becoming involved in a potential coronavirus vaccine. Specifically, Ocugen signed a deal with Indian company Bharat Biotech. The deal gives Ocugen the right to distribute Bharat Biotech’s Covaxin in the U.S. However, Covaxin has not been approved by the FDA for emergency use.

Phase 3 trial results of the shot, though, have gotten it much closer to being approved. As a result, OCGN stock has jumped recently.

The company’s prior business is essentially irrelevant. Investors are buying OCGN stock based on Covaxin’s outlook. The question is, should you do so, too?

Ocugen’s Opportunity

Ocugen has attained the rights to Covaxin within the U.S. market. So if the jab is approved by the FDA,  Ocugen will market it in the U.S. 

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But many roadblocks have to be overcome before the vaccine reaches that point. 

If the FDA does give Covaxin the nod, then Bharat Biotech will supply Ocugen with the first doses of Covaxin. Bharat Biotech will also share information that will allow the shot to be made in the U.S. 

Ocugen will receive 45% of the profits from the sales of Covaxin within America.

Phase 3 Results

OCGN stock has rallied on the results of Phase 3 clinical trials of Covaxin that were conducted in India. On March 3, Ocugen released interim Phase 3 results which showed that the shot was 81% effective in preventing initial cases of Covid-19. As a result of the positive news, OCGN stock is up 0ver 13%. 

This is clearly great news for both Ocugen and Bharat Biotech, as it brings the company one step closer to FDA Emergency Use Approval.

The results suggest that Covaxin is particularly effective against the U.K. variant of the coronavirus which was first detected in the U.S. in December. The CDC has stated that the U.K. variant spreads quicker and more easily than previous strains. Further, it may be associated with a greater risk of death in those who do contract it.

If the U.K. variant does prove to be more dangerous and Covaxin receives FDA approval, Ocugen could potentially benefit from a strong revenue stream. The opportunity is obvious, but frankly it isn’t something the world should be hoping for.

Dr. Bruce Forrest who is a member of Ocugen’s advisory board had this to say regarding Covaxin, FDA approval and the U.K. variant of Covid-19:

“Today’s results from the interim analysis of Bharat Biotech’s Phase 3 trial of Covaxin mark a milestone in the development of another critical vaccine option for the US market. Covaxin has been shown to induce immune responses against multiple protein antigens of the virus potentially reducing the possibility of mutant virus escape. This breadth of immune responses has been demonstrated by ability of antibodies induced by Covaxin to neutralize the UK variant of SARS-Cov-2,”

The results clearly increase Ocugen’s chances of guiding Covaxin to FDA approval. But there is another high barrier to overcome.

Ocugen Has Tough Competition

The U.S. government already has ordered enough vaccines to inoculate most of the U.S. population. The U.S. now has ordered 300 million doses of the Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX). and 300 million doses of Moderna’s (NASDAQ:MRNA) vaccine.

 That means 300 million people can be vaccinated with the 600 million doses from both companies, since both vaccines must be administered twice. So it’s clear that the U.S. probably won’t be purchasing Covaxin unless the U.K. variant becomes a serious enough issue and other vaccines are ineffective against it.

But, assuming that such a scenario plays out, what will Ocugen’s revenue stream look like?

Exploring the Blue-Sky Revenue Scenario

The U.S. government purchased its most recent tranche of 100 million Pfizer/BioNTech vaccine doses for $1.95 billion. That works out to $19.50 per dose. 

Bharat Biotech sold 20,000,000 doses of Covaxin to Brazil recently for 1.6 Brazilian Reais ($285 million). That works out to a cost of $14.25 per dose.

So if the U.S. purchases Covaxin, investors can assume it will pay between $14.25 and perhaps $19.50 for the jab.

If Washington buys 100 million doses, Ocugen would receive between $641.25 million and $877.5 million, based on the terms of its deal with Bharat. 

If Covaxin is approved by the FDA, OCGN stock will skyrocket again. But, due to what such an approval would indicate about the pandemic, I hope that scenario doesn’t play out.

The Verdict on OCGN Stock

Even if Ocugen convinces the FDA to approve Covaxin, its outlook appears to be shaky, unless the current vaccines prove to be ineffective against the U.K. variant of the coronavirus. That would be a nightmare scenario that no one wants to see.

In any event, I wouldn’t purchase OCGN stock now because there is no indication that such a scenario is likely to occur.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

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