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Ocugen Stock Seems Unattractive with Limited Market Opportunity
Stock Analysis & Ideas

Ocugen Stock Seems Unattractive with Limited Market Opportunity

Ocugen (OCGN) came into limelight after the company signed a deal to market Bharat Biotech’s COVID-19 vaccine (Covaxin) in the United States.

OCGN stock has skyrocketed by 144.6% year-to-date. However, after touching highs of $18.77, the stock has corrected below $10. (See Ocugen stock charts on TipRanks)

I am bearish on Ocugen considering the factors discussed below.

Mixed News for Ocugen

The initial surge in Ocugen stock was backed by the positive news of Bharat Biotech partnering with the company.

However, Ocugen had a setback when the U.S. Food and Drug Administration rejected the company’s filing for emergency use authorization of the COVID-19 vaccine.

The FDA has asked Ocugen to file for a Biologics License Application (BLA), which is a full approval. A key concern here is that there is still no clear timeline for any application, or potential approval.

In July, Ocugen filed a rolling submission with Health Canada for vaccine-use approval. A rolling submission allows companies to submit data as it becomes available.

However, it seems that this news failed to impress the markets, with the stock remaining sideways.

Limited Market Opportunity

If the company’s regulatory filing is approved in the U.S. and Canada, there might be potential for revenue upside.

However, it’s worth noting that 72.5% of adults in Canada have received at least one dose of the vaccine. Similarly, 70% of adults in the United States have received at least one dose of the vaccine as of August 2021.

The key point here is that Ocugen’s market opportunity is limited.

Further, there is likely to be preference for Pfizer (PFE) and Moderna (MRNA) in these countries over the lesser known Covaxin. It’s worth noting that Covaxin is still to receive approval from the World Health Organization.

Additionally, the revenue from vaccine sales will be shared with Bharat Biotech. Therefore, even with a limited revenue visibility, margins might be unattractive.

It’s also worth noting that Novavax (NVAX) is scheduled to apply for its vaccine approval in the U.S., in Q4 2021. The company has however already submitted for emergency use authorization in countries like India, Indonesia, and the Philippines. Low-income countries might provide a bigger scope for growth than developed markets.

Deepening the Pipeline

Amid these concerns, a positive factor is that Ocugen is also focused on deepening the pipeline of clinical trials. As of Q2 2021, Ocugen reported cash and equivalents of $115.8 million. This provides the company with flexibility to invest in clinical trials.

Currently, Ocugen is also targeting retinal diseases, with its breakthrough modifier gene therapy platform. The company expects to initiate Phase 1/2a clinical trials in the United States towards the end of the year. Clinical trials in Europe are also scheduled for 2022.

However, the key stock price driver in the coming quarters is the COVID-19 vaccine. If the company is unable to make any significant inroads, further correction seems likely.

Wall Street’s Take

According to TipRanks’ analyst consensus rating, OCGN stock comes in as a Moderate Buy, with two Buys and two Holds assigned in the past three months.

The average Ocugen price target is $8.88 per share, implying 18.7% upside potential from current levels.

Concluding Views

It’s relatively easy to understand the language of the markets, and OCGN stock action clearly shows that the markets are in doubt.

Even if the regulatory hurdle is cleared, the extent of cash flow visibility might not make the markets happy. Considering these factors, it might be a good idea to remain in the sidelines.

Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article

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