Ocugen (NASDAQ:OCGN) is a biotech firm that is trying to stay relevant with its latest partnership with an Indian Covid-19 vaccine developer, Bharat Biotech. OCGN stock has risen from well below $1.00 per share at the end of last year to $2.23, as of Jan. 20.
The problem is this is a very risky partnership deal. This may have a depressing effect on OCGN stock in the near future.
Issues With The Vaccine
For one, even though Bharat Biotech has a proposed vaccine for Covid-19, there is no data on its effectiveness. But that hasn’t stopped the Indian government from distributing it throughout the country.
Moreover, on Jan. 19, Bharat Biotech issued a warning about its Covid-19 vaccine. According to Seeking Alpha, the company said that people with weaker immunity and other medical conditions should consult a doctor before getting the shot. In addition, they said if possible avoid the vaccine.
That’s not a good sign to start out a partnership in biotech vaccines. In fact, the same article said that some doctors in New Delhi have been hesitating to take the shot. They must have seen some results that have not yet been widely known or published about the vaccine.
The problem is that the collaboration announcement on Dec. 22 with Bharat Biotech does not indicate that there has been any Phase 3 clinical trial results. Ocugen will have US rights to the vaccine candidate and, in collaboration with Bharat Biotech, will be responsible for clinical development, registration, and commercialization for the US market.
But the only information about the vaccine’s effectiveness is that there was a Phase 3 clinical trial in India involving 26,000 volunteers. That was as of Dec. 22. Since then the company has not stated how effective the vaccine has been.
Nevertheless, the Indian government is distributing it to 10 million healthcare workers, along with a vaccine developed by AstraZeneca (NASDAQ:AZN).
What To Do With OCGN Stock
This is a highly speculative stock and a highly risky situation. No one in their right mind would put any serious money behind OCGN stock as an investment.
Maybe some people have a small portion of their portfolio for speculative plays like this. But frankly, if it was more than 1% of your overall portfolio it would not really be worth it.
I would argue that there is at least a 70% chance of a 50% or greater, let’s say, 70% drop in the stock at today’s price.
There is also a 30% chance that the stock could double. Therefore, if we add up these odds, it looks like this.
First, 70% times negative 70% equals a negative 49% expected return. But we have to add in the odds of a positive return. There is only a 30% chance of a 100% return. That works out to +30%.
But the problem is if we add negative 49% to positive 30%, the expected return is still negative 19%. In other words, the most likely outcome here, without further positive data, is that you will lose money buying OCGN stock.
Obviously, you can play with these odds a bit, but the sad fact is this is not a good situation to put your money in right now. For one, we need more information about the effectiveness of the Phase 3 trial results.
In addition, we need to know whether Ocugen really has any solid prospects. Can they actually commercialize the distribution of the Bharat vaccine in the U.S? Have they signed any contracts whatsoever for doses in the U.S? I highly doubt it.
Therefore, without further info such as this where we can estimate the company’s potential profitability will we be able to value it properly. Most investors will stay away from OCGN stock for the time being, despite its recent rise.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.