A clinical stage biopharmaceutical company Ocugen, Inc.’s (OCGN) share price went through the roof after the company disclosed its plans to co-develop Bharat Biotech’s coronavirus vaccine candidate, COVAXIN, for the U.S. market. The stock’s price skyrocketed from $0.29 on Dec. 21, 2020, to $10.25 on Feb. 10. Over the past month, the stock gained 281%.
While demand remains high enough to warrant emergency use authorization of several COVID-19 vaccine options, there is uncertainty surrounding the likely timing of COVAXIN’s approval because the vaccine’s clinical trials are still underway in India. And in the event that OCGN doesn’t receive authorization to sell the vaccine, the stock will almost certainly witness a significant pullback.
The company’s stretched valuation even though it generates almost no revenue suggests the stock’s future could be troublesome. Here is what we think could influence the performance of the stock in the coming months:
Unapproved COVID-19 Vaccine Candidate
On February 2, OCGN announced the execution of a definitive agreement for the commercialization of Bharat Biotech’s COVID-19 vaccine candidate COVAXIN in the U.S. market. Under the agreement, the company will share profits from the sale of COVAXIN in the U.S. market with Bharat Biotech, with OCGN retaining 45% of the profits.
However, the vaccine is still in its Phase 3 trials in India. Hence, we believe OCGN’s case for selling a COVID-19 vaccine in the U.S. is weak . It must complete all clinical trials before pitching for emergency use authorization from the U.S. FDA. This means that there is a potential long wait before the vaccine candidate starts generating profits for the company.
Putting the hype aside for a moment, the company’s lofty valuations are sobering. In terms of trailing-twelve-month price/sales ratio, OCGN is currently trading at 19.05Kx, which is significantly higher than the industry average 9.27x. Also, its trailing-12-month price-to-book of 115.16x is much higher than the industry average 5.44x.
OCGN has no products that have been approved for commercial sale, and hence it does not generate any revenue. It reported a net loss of $10.47 million in the third quarter ended September 30, 2020. The company also reported a loss per share of $0.07 compared to $3.55 loss per share a year ago. OCGN’s interest income declined 69.1% year-over-year to $49 million. The company’s loss from operations stood at $10.18 million at the end of the quarter.
Analysts Expect a Pullback
Currently trading at $12.61, analysts expect OCGN to decline 71.9% to t $3.55 in the near term.
POWR Ratings Indicate Bleak Prospects
OCGN has an overall rating of F, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, OCGN has a D grade for Growth, consistent with its poor financial performance.
In addition, OCGN has a C grade for Momentum and Value, which is consistent with the stock’s long-term price performance and sky-high valuation.
OCGN is currently ranked #464 of 482 stocks in the F-rated Biotech industry.
To see additional POWR Ratings for Quality, Stability, and Sentiment for OCGN, Click here.
If you’re looking for better stocks in the Biotech industry with an Overall POWR Rating of A or B, you can access them here.
Despite the hype surrounding OCGN’s COVID-19 vaccine plans and its impressive rally over the past month, the stock is extremely overpriced with little justification on financial grounds. Furthermore, it could be quite some time before its vaccine candidate proves effective, and safe enough to secure FDA approval, which it will need before it can sell the vaccine and generate profits. We think it is unlikely OCGN’s stock will deliver market-beating returns in the near term.
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OCGN shares were trading at $10.97 per share on Thursday afternoon, up $0.72 (+7.02%). Year-to-date, OCGN has gained 499.45%, versus a 4.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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