Description

OCGN traded for $.30 in December, has raised around $.45/share, so should trade below $1 shortly.

The trip $.30 to $19 and back to $9 is due to OCGN's agreement with Bharat Biotech, an Indian vaccine manufacturer, to import their Covaxin vaccine to the US market.  Uniformed retail traders seem to believe that this will be a profitable business for them.

There are many layers of protection for this short.  Here they are, in order:

1) The FDA will not approve the EUA for Covaxin

Based on recent guidance (which was much more negative for OCGN than prior guidance, https://www.fda.gov/regulatory-information/search-fda-guidance-documents/emergency-use-authorization-vaccines-prevent-covid-19) and consistent with prior guidance, the FDA needs ALL of the following to be true in order to approve EUA for Covaxin:

  a) Trust the data.  The data for Covaxin is from an India-only study.  The PM of India approved Covaxin before the data were collected, so it would have been the end of his political career had the data read out badly.  Magically, the data is just good enough, with a 78% efficacy.  The FDA cannot simply accept this data as legitimate given those dynamics.

  b) Trust the manufacturing.  As the document shows, it is impossible to approve an EUA for a drug without the manufacturing also in place.  The FDA cannot approve Covaxin, the drug, and then say to OCGN, "Go manufacture it however you like."  The FDA must have samples from the manufacturing plant that will be used to make the drugs.  This plant is in India.  And it is currently illegal to export vaccines from India.  So, the FDA would have to approve a manufacturing site that could not be used to supply the US market.  This is obviously problematic.

  c) Determine there is justification for emergency authorization in the first place.  We are drowning in vaccines in the US right now, and exporting them to other countries.  The existing vaccines do a good job with all known variants of the disease.  There is simply no emergency here.

FWIW, I have heard (secondhand) from former FDA employees that this submission has no chance of being approved.  Also, the company started submitting master file data to the FDA in March and hasn't heard anything back from them, evidently.  Not a good sign!

2) If the FDA grants the EUA, then people have to use it.  Is there anyone left to take a vaccine?  Would you take this vaccine over Pfizer's?  Would anyone you know?  Will all the people who have refused to get a vaccine to this date somehow be convinced to take a vaccine made in India with a problematic history?

3) If people want to take it, then Ocugen has to manufacture it in the US.  They will need to run a full trial in the US even after receiving EUA.  They will need to scale up manufacturing.  And, after all this, they will keep 45% of the EBIT.  Let's assume that everyone needs an annual booster (unlikely).  Flu vaccines are 180m/year at $10 each, roughly.  Let's say there are 250m Covid boosters/year at $20 each (super generous).  This is a $5B market, so even if Covaxin captures 20% (no way, given 78% efficacy) at 40% margins, they will take home around $130m of net income.  How long is this Bharat license for?  10 years?  Maybe this is worth $1B.  I can't imagine it's worth more than that.  This is under $5/share.  Discount that however you like...

Let me also say that the company is sleazy, in a standard penny-stock way.  Lots of ATM offerings, bogus press releases (their last one had a blatant lie in it, e.g.), related party transactions (CEO's son especially, doing stuff like this Chester County spent $13 million on coronavirus antibody tests. Then it quietly shelved the program. (inquirer.com)).

This should play out in the next few months, so the timing is relatively favorable here.

Catalyst

FDA rejects EUA