Ocugen Inc (NASDAQ:OCGN) is working through phase 3 clinical trials for its coronavirus vaccine candidate.
The company’s Covaxin (created in partnership with Bharat Biotech) so far shows 78 percent efficacy against COVID-19 with 100 percent protection against it escalating into a severe illness. The agreement gives the company 45 percent of any Covaxin profits.
Its vaccine is one of the most anticipated among all manufacturers, begging the question is Ocugen stock a buy?
The company submitted its Emergency Use Authorization (EUA) to the Food and Drug Administration (FDA) earlier than expected. It has investors getting excited. So much so that Ocugen sold 10 million shares through a direct offering to raise $100 million in liquidity to prepare for the year.
Biopharmaceutical companies live and die by clinical approval. Ocugen’s modifier gene therapy platform has the potential of treating a variety of diseases. This includes therapies to treat blindness diseases like wet age-related macular degeneration, diabetic macular edema, and diabetic retinopathy.
Ocugen Market Share Can Only Go Up
Ocugen is a pre-revenue company that’s still in the research phases. It’s undergoing clinical trials to prove the efficacy of its products. That means it currently has a zero percent market share of the $1.3 trillion biopharmaceutical industry.
However, the company’s coronavirus vaccine could sell very well. This Indian state-backed vaccine has as many as 40 countries interested, and sought emergency approvals in Brazil, the Philippines, and more.
In fact, Ocugen hopes to sell another 100 million doses by the end of 2021. That is only if it receives the emergency authorization, and the FDA is so far not commenting.
Of course, success in this industry requires more than clinical approval. The company also needs a defense to protect it from the competition.
How Ocugen Works Vs Pfizer & Moderna
Ocugen’s market value nearly tripled to around $2 billion on the news that it could be approved by regulatory agencies. It has been given to over two million Indian adults since January, and Bharat Biotech hopes to produce 700 million doses a year.
The reason their vaccine is so coveted is because it uses the entire virus body, rather than the spike proteins used in the other competing vaccines. This makes it more akin to a flu shot, where an inactivated virus is injected to train your body’s immune system to react.
Should this method prove effective, the company’s moat will end up being its regulatory approval. Each government that approves the vaccine for emergency use will give it a moat within that country, even if only temporarily.
Beyond that, it’s competing with large pharmaceutical companies that have deeper pockets. It could find itself bought out by a rival to overcome the expenses it needs to spend to continue growth. The more diseases it proves itself against, the more valuable its treatment pipeline becomes.
What will ultimately determine the company’s success is its top line growth.
How Fast Can Ocugen Revenues Rise?
Ocugen can’t grow revenues until it receives FDA approval (along with other respective regulatory agencies in each country it hopes to sell in). The Company had cash, cash equivalents, and restricted cash totaling $24.2 million at the start of 2021, and it raised $100 million more through its stock offerings.
The company continues to spend heavily on research and development. It costs a lot of money to undergo any clinical trials, and the vaccine is being actively pushed through clinical trials in 40 countries. That’s a heavy load that gives it a high spend rate and means it needs these approvals.
Once the vaccine is approved, revenues will obviously grow alongside that. The United States is not the only government itching to buy more vaccines; India is one of the most populous countries in the world and demand will be strong.
The company will grow revenues by getting vaccine approval for the coronavirus while also seeking approval for its other treatments. Each approval adds more revenue and diversification of top line sales – that’s how the industry works. However, that also means that failure to gain approval will delay returns for years and could leave investors empty handed.
Ocugen Earnings Growth Should Match Sales
Ocugen doesn’t have any earnings but its future earnings estimates are impressive.
Currently, the company’s only income of note is earned through fundraising opportunities it takes advantage of. The company cut operating costs from $8.1 million to $6.4 million in 2020, which shows it took steps to reduce expenses through the pandemic.
The firm’s spending is almost entirely on research and development costs, and it’s working to create a sustainable business off its treatments. For this to work out, it needs the clinical trial approvals. These clinical trials will make or break the company.
Growing earnings moving forward means the company needs to be awarded these clinical trial approvals. It’s getting a fast-tracked emergency usage authorization for its coronavirus vaccine, but that’s not going to happen for other trials. It’s a pandemic exception that also means these vaccines could become less effective over time.
The company needs a great management team to steer it through this challenging time.
Ocugen Management Team Is Impressive
Ocugen is led by Chairman, CEO, and Co-founder Shankar Musunuri. He holds both an MBA and PHD and held various leadership roles within big pharma. Dr. Musunuri also founded Nuron Biotech prior to Ocugen, and he grew it into a commercial biopharmaceutical company within three years.
Co-Founder and Director Uday Komella is also a Professor of Pharmaceutical Sciences and more. He’s a Fellow of the American Association of Pharmaceutical Sciences and more.
Between the two of them, these gentlemen bring a high level of expertise and experience to the company. They excel in both business and medical knowledge, and their vaccine candidate is one of the most solid. The positive results were due to a partnership forged with another business in India.
This cross-border collaboration is the key ingredient to making a splash in an already-crowded coronavirus vaccine race. However, the company still has obstacles in its path.
Ocugen Path To Success Is No Slam Dunk
It’s been said before but it bears repeating – Ocugen’s success or failure as a company depends entirely on it receiving approval from the FDA and other regulatory agencies to sell its products. It’s still a pre-revenue company and needs these approvals to even begin making money.
Without those approvals to sell, the company can’t grow. It will continue spending money on research with no end in sight, and the clinical trial process is a long, expensive one.
Beyond that, there’s a chance the pandemic will blow over and fewer vaccines are needed. That would prove detrimental as the company struggles in a slow market.
Is Ocugen Stock A Buy? Conclusion
Ocugen has a major vaccine coming that could prove more effective than existing options. It’s also not a one-trick pony, with plenty of treatments for eye-related diseases in its pipeline. While impressive, the company is still pre-revenue and spending money on research and clinical trials.
If it gains FDA approval, it has a bright future ahead. But that’s not guaranteed, and there are 40 other countries to worry about.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.