Is Ocugen’s stock heading for a crash?


Ocugen (NASDAQ: OCGN) stocks took center stage earlier this year when biotechnology joined the coronavirus vaccine race. The company has partnered with India’s Bharat Biotech to co-develop and co-market Bharat’s vaccine candidate – Covaxin – in the United States. As a result, Ocugen shares have climbed 763% in about six weeks.

Since the high point reached in February, the title has fallen by 45%. Investors have been concerned – and rightly so – about Covaxin’s prospects in the US market. But in recent days, Ocugen’s shares have started to pick up speed. They gained over 22% last week. Now, some investors might wonder if Ocugen will hang on to this positive momentum – or if the stock is heading for a crash. Let’s take a closer look.

Image source: Getty Images.

Ocugen’s agreement with Bharat

First, a little background on the Ocugen agreement with Bharat. Ocugen’s main activity is not in fact the development of vaccines against infectious diseases. The company is developing gene therapy for eye diseases. Its most advanced candidate is expected to enter a phase 1/2 trial this year. This means that the income is far away.

Enter the Covaxin of Bharat Biotech. Bharat has completed phase 3 trials and has generated positive data. The next step is the regulatory review. Ocugen’s agreements with Bharat only cover marketing in the United States and Canada. And of these two markets, the United States is the largest and could represent the most revenue.

Now here are the problems. First, the United States already has a lot of vaccine doses right now. The country has bought enough Pfizer and Moderna shots to cover almost all Americans. To make matters worse, the United States Food and Drug Administration advised Ocugen to go the traditional route and seek approval instead of Emergency Use Authorization (EUA). The regulator granted EUAs a few weeks after the requests. Traditional approval could take six to ten months.

And, finally, Ocugen says he may need to conduct a new clinical trial rather than just using data from Bharat’s trials in India. This will slow things down even more.

The road from Ocugen to Canada may be easier. But Canada has ordered vaccines from at least eight different companies. It is therefore difficult to imagine Ocugen earning significant income in a market shared with so many other players.

A possible authorization from the WHO

In recent days, some have applauded the possibility of the World Health Organization granting clearance for Covaxin. Reports, like the one on NDTV, suggest that such authorization may arrive soon.

But a helping hand from the WHO won’t put any revenue in Ocugen’s coffers. This is because such authorization does not mean that Ocugen can sell Covaxin in the United States and Canada. The regulators of these specific markets make this decision. And they are unlikely to come under pressure from a WHO decision to speed up their own processes.

Now let’s move on to what’s going on with Ocugen stocks. The stock initially rose more than 40% in the first four trading sessions of the week. Then he slashed his earnings on Friday – but increased in after-hours trading.

It is possible that a short squeeze is at work. When investors sell a stock short, they are betting that the stock will fall. They borrow stocks at a certain price and hope to buy them back at a lower price to get back to the lender. Short squeeze occurs when the stock starts to rise – then these investors rush to buy back stocks before the stocks go too high.

Short interest in Ocugen stocks fell in August. But it is once again on the rise.

OCGN Short Interest Chart

OCGN short interest given by YCharts

So a bit of positive news and a rise in the share price could have caused short sellers to run to cover their positions.

Can Ocugen maintain his earnings?

Either way, you might still be wondering if Ocugen can sustain these gains – or if the stock price is going to crash like a stone in the next few days. It is possible that some investors will invest in Ocugen shares if the WHO allows Covaxin. So, more earnings can be on the horizon. But at some point, the stock could collapse on Earth.

It is not known if and when Ocugen will generate revenue from Covaxin. And the coronavirus vaccine playground is increasingly crowded. As mentioned above, the company’s main candidates in gene therapy are far from being at the commercialization stage. I don’t see a real catalyst to support sustained increases in equities over time. And that’s why long-term investors are best avoiding these biotech stocks right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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