"There are none so blind as those who will not see"
Adrian Heilbut @adrian_h
adrian@logphase.com
March 23 2021
OCGN Short Summary
Nasdaq: OCGN
03/19/2021: $8.92
52w low: $0.17 / 52w hi: $18.77
Target: <$2.00 by Q4 2021
Ocugen (Nasdaq:OCGN) is a failing penny-stock biotech whose market cap has increased from under $60M to nearly $2B on hype and promotion after announcing a deal to develop COVAXIN, an Indian-made inactivated vaccine for COVID-19, for the US market
It is extraordinarily unlikely that COVAXIN will ever be authorized or approved in the US due to many layers of scientific, practical, manufacturing, regulatory, and political complications.
Even if COVAXIN could be made available under EUA or approved, there will be no US market or demand. There will soon be 5 excellent vaccines available in the US (Moderna, Pfizer, J&J, AZ, and Novovax), many of which are amenable to updates and boosters to adapt to variants, the pandemic is ending, and few US consumers will accept an Indian-made vaccine.
Ocugen lacks sufficient resources to conduct US clinical trials of COVAXIN, for either adult or pediatric popuations, and such trials would be difficult or impossible to recruit.
Ocugen needs much more cash to execute on any of its plans. Further dilution is inevitable and imminent.
Ocugen management have made unrealistic promises and are evasive when asked any tough questions. Ocugen works with fourth-rate banks and analysts who facilitate the communication of their misleading narrative.
With moderately successful COVAXIN interim trial results already reported by Bharat Biotech, the good news is out. There are now many opportunities for Ocugen to stumble while their imaginary market completely evaporates over the next 3-4 months.
Ocugen's share price will soon again reflect the value of their speculative pre-clinical pipeline for eye disease, plus any cash raised by dumping overpriced stock.
Ocugen has a large float (188M shares) and relatively low short interest (as of 02/26, 12.43M shares or ~6.5% of float, and less than a day of recent daily volume), making the risk-reward of a short position at a $1.5B to $2B+ market cap tolerable despite potential volatility.
Ocugen is a small biotech company based outside Philadelphia with 15 employees. The company was founded in 2013 by the current CEO, Dr. Shankar Musunuri, whose experience is primarily in vaccine development, and Dr. Uday Kompella, a Pharmacy professor at the University of Colorado, to develop therapies for eye disesases. Ocugen became a public company in April 2019 through a reverse-merger with Histogenics [HSGX], an ill-fated regenerative medicine company. (recall Buyersstrike's Maxim #1).
Ocugen has struggled to raise capital, attract experienced biotech investors, or make any clinical progress since its founding. The 2016 Series A was conducted through an EB-5 immigration scheme, and the company raised $7.5M in 2017 in a Series B led by a Turkish drug company and a conglomerate from Kazakhstan. Very Nice! In 2020, Ocugen's most advanced program, a novel "nanoemulsion" formulation of brimonidine, failed in Phase 3. Nevertheless, the company persisted, continuing work on three programs: gene therapies for retinal degeneration and Dry AMD, and a biologic, a tumstatin-tranferrin fusion intended to have an anti-angiogenic function for diabetic macular edema, diabetic retinopathy, and Wet AMD. None of these programs have reached the clinic, although Ocugen has announced that it plans to file INDs this year. Through most of 2020, the stock traded under fifty cents, with a market cap of under $60M, and was at risk of being delisted from NASDAQ.
Saved by COVAXIN
On December 22, 2020, Ocugen announced a letter of intent to work with Bharat Biotech, an Indian vaccine maker, to co-develop COVAXIN for the US market [COVAXIN LOI press release]. COVAXIN is an inactivated, whole-virion vaccine that uses an alum-imidazole adjuvant (from ViroVax). The inactivated vaccine strategy involves growing live virus in Vero (monkey) cells, and then treating the virus with beta-propriolactone, which reacts with the nucleic acids, rendering the virus inactive and unable to replicate. This is well-established technology used for many decades to produce polio and rabies vaccines, as well as newer vaccines such as one for Japanese Encephalitis.
Following the announcement, Ocugen shares ran from $0.29 to around $2.00 by Christmas. After finalizing the deal (which has terrible economics, giving Ocugen only 45% of profits and all of the development risk) in February, the stock popped briefly to over $18.00, before settling around $8 to $10, giving Ocugen a market cap of nearly two billion dollars.
An inactivated vaccine does have some interesting characteristics and hypothetical advantages. The approach is established and easy to understand, and many inactivated vaccines on the market are considered to be very safe. A number of observers (including me!) were surprised that the US did not pursue this 'old-school' inactivated approach last year, at least as a backup plan, and many were also initially skeptical of mRNA vaccines, which had never before been deployed.
In their most recent corporate presentation, Ocugen claims that COVAXIN is "Designed to fill a significant unmet need in our national arsenal of vaccines against COVID-19." Specifically, they point to the first set of interim Phase 3 results from India, which demonstrated "81% efficacy". This appears to be on par with the adenovirus-based vaccines from J&J and AZ, but less effective than the mRNA vaccines. The vaccine requires only normal refrigeration (similar to the adenovirus vaccines) and is distributed in multi-dose vials with 2-phenoxyethanol as a preservative, enabling a 28-day shelf life even once opened. This may be an especially useful property in India, but less relevant in the US. Ocugen mentions that Covaxin elicits a Th1 cell-mediated response in addition to antibodies -- but so do all of the other COVID vaccines already available.
Ocugen has outlined an ambitious set of planned milesones for their US development of Covaxin.
"We are planning to file the EUA application in April"
"Use our existing data to potentially cover this [age 12 to 16] age group in our EUA"
"We’re also in discussions with BARDA" for the Strategic National Stockpile
"With regard to manufacturing, under our agreement with Bharat Biotech, they will supply the initial doses in the United States upon EUA approval"
"We’re in discussions with potential U.S. manufacturers and planning to work with Bharat Biotech on technology transfer, once the initial doses are supplied."
Closer examination of this plan reveals obvious risks and roadblocks that will make US authorization and marketing nearly impossible. Ocugen will not be in any position to submit a realistic EUA application by April. The available data will never be sufficient for a pediatric approval. BARDA is not going to buy vaccine from India. The FDA will not allow importation of Bharat's vaccine. And no US manufacturer will ever manufacture COVAXIN. Ocugen's transformation into a COVID vaccine stock isn't fraud; it's absurdist theatre.
COVAXIN safety, efficacy, and controversies
This style won't play well at the AdCom meeting. (Dr. Ella is still an impressive scientist and entrepreneur, and gives a very thorough and interesting interview.)
Trust Us, it's Fine
The Covaxin vaccine itself is probably safe and quite effective, and is a boon to public health in India and globally. However, Covaxin development has already been controversial. The vaccine was rushed into emergency use in India prior to the completion of Phase 3 trials. Luckily, Covaxin seems to be safe, and interim results from a large Phase 3 trial show that it is indeed effective, according to Bharat's press release.
Bharat and Ocugen have touted preclinical studies showing that the vaccine results in neutralizing antibodies against the UK variant (as do most of the other vaccines), although data for some of the more concerning variants (eg. B.1.351) has not yet been disclosed. The Phase 3 results have not yet been published, so the study is impossible to evaluate in detail, but so far, based on the studies and concurrent widespread emergency use in India, COVAXIN appears to be a safe vaccine with adequate efficacy. Covaxin is a two-dose vaccine, which puts it at a disadvantage to the one-shot J&J adenovirus based vaccine, which has comparable efficacy and relaxed storage requirements.
An American Pipe Dream
There is essentially no chance that COVAXIN will ever be authorized in the United States. Ocugen's agreement to sell COVAXIN is worth nothing.
COVAXIN will never be authorized in the US because it is not needed, provides no advantages, and because the inactivated strategy has been rejected by the experts and manufacturers who decided which approaches to bet on when decisions were being made in the Spring of 2020.
Dr. Slaoui has some thoughts
US Vaccine Strategy Was Determined Long Ago
Operation Warp Speed (now the Covid Task Force) have absolutely no reason or incentive to backtrack and change their approach, especially since the vaccines they did pursue have worked out so well. The technologies selected allowed for more precise control over the antigens (eg. engineering the S protein to maintain the pre-fusion conformation and improve antigenicity), avoid exposure to additional antigens believed to be less essential for protective immunity, and take advantage of simpler, safer and more scalable manufacturing options. Antibody-dependent enhancement was also viewed as potential risk for inactivated vaccines, based on history and experiences with the SARS-1 virus. So far, concerns about ADE appear to have been unfounded for SARS-CoV-2 vaccines, and the inactivated vaccines seem safe. Some skepticism remains, and the more antigens present, the more potential exists for unexpected cross-reactivity. With available Western vaccines working extremely well, there is little interest in revisiting the issue -- the current focus is on scaling up manufacturing and distribution of the vaccines we have.
Indeed, the 2021 National Strategy forthe COVID-19 Response and Pandemic Preparedness specifically enumerates vaccine priorities. To ensure the manufacture and purchase of sufficent supply of vaccines authorized by FDA, these priorities are:
"Fill urgent gaps to spur production. [...] The Administration will also leverage all available authorities to support the expansion of lipid nanoparticle formulation capacity in order to scale mRNA vaccine production. This has implications for this pandemic as well as for the future, given the expected central role of mRNA vaccines in responding to future epidemics."
"Deploy onsite support to monitor manufacturing operations"
"Secure additional FDA-authorized vaccines to deliver as quickly as possible. [...] Timely negotiations of amendments and/or exercising supply options to existing agreements will be critical for an uninterrupted and adequate vaccine supply. The approach will center on maximizing available supply of vaccines shown to be safe and effective, while maintaining a focus on candidates that are readily manufactured, distributed and administered in support of the ultimate goal of expanding access to the entire U.S. population."
"Continue research and development to ensure the availability of safe and effective vaccines."
From a regulatory perspective, the authorization of a vaccine manufactured in India is impractical to the point of being nearly impossible. To set up manufacturing in the US will take months or years, and nobody wants to do it. BSL-3 manufacturing capacity is extremely limited, a key reason the strategy was originally not pursued by Operation Warp Speed, and US firms prefer not to deal with the risks involved in growing up massive quantities of live SARS-COV-2 virus in the United States.
Manufacturing Inspections
Importation and distribution of Covaxin manufactured in India would require FDA inspection of manufacturing facilities.
The initial Ocugen plan requires importing COVAXIN manufactured by Bharat in India. However, the FDA is not going to take any chances or short-cuts, especially now that three safe, effective vaccines are available under EUA, with two more likely to be authorized soon. The mere idea of permitting US distribution of a controversial vaccine from India would be deeply counterproductive towards efforts to assure the public of vaccine safety and reduce vaccine hesitancy. Whether or not it is fair to Bharat, the potential risk to US public health messaging would be unacceptable.
Indian drug manufacturing in general has a very spotty track record of quality and safety, as recently documented in Bottle of Lies, the excellent book by Katharine Eban.
Bharat Biotech specifically has had serious QA and regulatory issues in the past when subjected to international scrutiny. In 2011, the WHO suspended use of Bharat Vaccines and terminated their prequalifiaction for all Bharat vaccines after finding deficiencies in implementation of good manufacturing practices. While Bharat eventually resolved these issues and continues to sell millions of doses of important vaccines to the developing world, this incident highlights the importance of inspections and will contribute to setting the priors of the FDA when considering manufacturing risks. I believe that the FDA will absolutely be unwilling to authorize or approve any vaccine without significant on-site inspections and validation.
There are currently zero vaccines approved in the United States that are manufactured in India [https://www.fda.gov/vaccines-blood-biologics/vaccines/vaccines-licensed-use-united-states]. Moreover, CBER, the division of the FDA that regulates vaccines, has never inspected any vaccine manufacturing sites in India (at least as far back as records are available). The handful of CBER inspections in India appear to have been of individual physician clinical sites. Sending a team to inspect Bharat manufacturing is unlikely to be feasible in the near term, and is not going to be a priority for the FDA, who remain extremely busy.
COVAXIN clinical trials are not conducted under US FDA IND
Covaxin trials have not been conducted under an FDA IND, which will cause complication, delay, and increased scrutiny. The FDA has even been reluctant to even consider an EUA application from AstraZeneca until their US trials were completed. With plenty of vaccine soon available, the US is no longer in an emergency, and the FDA will never authorize a vaccine based solely on non-IND trials in India (let alone for the 12-and-up pediatric indication that Ocugen touts).
Not only are the Indian trials going to be unacceptable to the FDA, but doing US trials will be nearly impossible. Other vaccine manufacturers are already running pediatric trials in the US. Ocugen may have difficulty even filing an IND to run trials for vaccine manufactured by Bharat in India, and might have to first set up US manufacturing, at risk. Even worse, by the time that Ocugen might be ready to do any US trial, it will be unethical to conduct a trial comparing against a placebo control. Ocugen would have to demonstrate equivalence or superiority to mRNA vaccines which we already know are likely to have superior efficacy.
There is No US Market for COVAXIN
Even if COVAXIN was to be miraculously authorized by the FDA, nobody would buy it. The only buyer of COVID vaccines is currently the US Government, which has already ordered more than enough vaccine to meet US needs. In the longer term, to deal with variants, other platforms are superior: mRNA-based vaccines can be very rapidly updated without changes to manufacturing processes, and recombinant protein platforms (Novavax) are well suited to polyvalent vaccines. There is no current evidence that immunity resulting from inactivated vaccines is clinically superior to the results already being achieved with these more flexible strategies.
The US Vaccine Market will be saturated (with better vaccines)
By the time that COVAXIN could even potentially be available in the US, which, according to Ocugen might be May (following an April EUA submission), nearly every willing adult in the US will have already been vaccinated. Boosters or updates for variants may be necessary in the future, but these are already under development and will be expedited as updates to existing authorizations, as the FDA has discussed in their guidance.
Soccer Mom Deciding On Vaccine
American Consumers will not want or trust an Indian-made vaccine
Regardless of COVAXIN safety and efficacy, US consumers will be skeptical. In an environment where government and public health agencies are already dealing with troubling levels of vaccine hesitancy, authorities at every level will be reluctant to introduce yet another controversy and risk. Moreover, any concerns (real or imaginary) about safety will be amplified when considering vaccination of children, the market for which Ocugen makes the absurd claim that COVAXIN would have a safety advantage.
The only buyer of COVID-19 vaccines in the US is currently the US Government
As discussed above, the Federal government will be relucant to alter their approach to vaccines without reason. It would optically and politically unattractive to purchase vaccine from India or even to imply that such a vaccine is needed. It would also be ridiculous for India to export vaccines to the US when these doses are still desperately needed within India and elsewhere in the world.
Even if the US ever did change their minds, they would likely work with Valneva, the only Western company that has been developing an inactivated COVID vaccine, VLA2001. Valneva is using a proprietary adjuvant, CpG 1018, licensed from Dynavax, and is manufactured on an established plaform that Valneva uses for manufacturing their FDA-approved Japanese Encephalitis vaccine, which is sold to the US Military. The CpG 1018 adjuvant is also already used in an FDA-approved vaccine sold by Dynavax, HEPLISAV-B. Valneva has a contract to sell 100M doses of VLA2001 to the UK, pending their regulatory approval, with an option for an additional 90M doses. Valneva already has a close working relationship with the US governent and BARDA, and their BSL-3 factories in Scotland are already inspected by FDA. Still, significant US acquisition of an inactivated vaccine remains unlikely, given what is now known. Stockpiling an inactivated vaccine of a particular strain is no longer an optimal strategy; rather, investments are being made in scaling up capacities for rapid development and manufacturing of mRNA and recombinant vaccines for the next threat
Ocugen Management is Not Credible
One of the greatest CEO interviews on CNBC since Longfin.
CEO Can't/Won't Answer Questions
The Ocugen CEO has been making the rounds to promote the company at conferences run by Oppenheimer, Roth, HC Wainright, Noble Capital, and Cantor Fitzgerald. He also recently appeared on CNBC, where Sara Eisen gave him the opportunity to answer the key question underpinning the Ocugen charade: "I guess I'm wondering why the US Government would purchase your vaccine when it's already doing so from Pfizer, Moderna, J&J, and maybe soon Novovax". Instead of answering, Dr. Musunuri repeated his usual biology lesson about inactivated vaccines and the hypothetical advantages of multiple antigens. There is not yet any evidence that Covaxin has any unique ability or protects against variants other than B.1.1.7 UK variant, which is already handled by other vaccines.
Oops.
Extensive Vaccine (Recall) Experience
Ocugen's CEO also often touts his extensive vaccine development experience. However, the fate of his prior company, Nuron Biotech, offers a cautionary tale relevant to Ocugen. Nuron was originally focused on development of a NU100, a recombinant interferon-beta for treating Relapsing Remitting Multiple Sclerosis. Just like the Ocugen pipeline, NU100 didn't seem to be going anywhere, and Nuron pivoted to try to become a vaccine company by acquiring Meningtec, an old N. meningitidis vaccine from Pfizer. Sadly, a few years later, Nuron Biotech was forced to recall all Meningtec globally after a manufacturing defect was discovered causing the vaccine vials to contain rust. The company soon disappeared, and it's hard to tell exactly what happened, but this unfortunate episode does not inspire confidence in Dr. Musunuri's strategic or manufacturing acumen.
Short Ocugen Trade
Target and Timeframe
I believe Ocugen is headed 75% to 90% lower. This may happen fairly quickly as the US vaccine campaign continues and market saturation becomes obvious, and as Ocugen continues to issue more stock.
Potential Catalysts
Further Dilution and Additional Share Authorization
Management can be expected to do everything possible to maintain appearances while they continue to sell stock and raise more cash. The company has already issued almost all of the 200M authorized shares, although on March 22 the company filed a shelf registration for 1,417,467 shares and registered an additional 7,360,475 shares for management. The company is desparate to authorize another 95M shares, which they have been unable to do because of a lack of sufficient shareholder turnout, and are making another attempt on April 14, 2021. It is likely that many more shares will eventually be authorized and shareholders will be further diluted.
Missed EUA Submission Deadlines
Ocugen has said that they will submit an EUA by April. This is unlikely, because it will take a significant amount of time to prepare a submission even once additional interim data is available or (more likely) the Phase 3 trial is complete.
COVAXIN 2nd Interim and Final Results
Further interim results are expected within a few weeks from the trial in India after more cases are observed. This data is likely to be consistent with the first interim result disclosure, but will surely be used to attract news coverage and hype.
EUA Rejection
If Ocugen does ever even submit an EUA, it is likely to be rejected.
Risks
Volatility and Pumps
It is possible that OCGN could triple on its way back to a dollar or two. The most likely time that this could happen is on the announcement of further interim and then final results from the India trial, which will spark a fresh round of press releases and interviews. I would relish the opportunity to short more OCGN stock at $15, $20, or higher. However, with the good news about COVAXIN efficacy already out, and the demonstrable poor communication and messaging abilities of management, the cracks in the facade are already starting to appear.
Success of the actual Ocugen eye-disease pipeline
Could Ocugen get lucky? It is conceivable that one of their preclinical assets does turn out to work. However, these programs are still at such an early stage that it will be several years before there is any clinical data to evaluate. We wish Ocugen well in burning the cash that they raise towards furthering their pipeline for eye diseases. In the meantime, the COVAXIN bubble will pop, and Ocugen's market cap will return to a level reflecting an appropriate valuation for those programs.
Disclosure & Disclaimer
The author is short Ocugen stock. Positions may change at any time. The author is not compensated by any third-party for writing or publishing this report. This analysis is solely the opinion of the author, and is not investment advice. Nothing in this document should be relied upon to make any investing decisions; please do your own research and exercise due diligence.
