Ocugen (OCGN 8.14%) has given vaccine investors a roller0coaster ride over the past year or so. It started out by soaring more than 700% in a few days after saying it would co-commercialize Bharat Biotech’s coronavirus vaccine candidate — Covaxin — in the U.S. But as the project met bumps along the road, so did the share price. Today, Ocugen still hasn’t commercialized Covaxin in the U.S. And the stock has lost more than 50% year to date.

This may look grim. But the U.S. Food and Drug Administration (FDA) recently delivered Ocugen some good news. The regulatory agency lifted its clinical hold on Ocugen’s vaccine trial. Is this enough to push the stock higher? Before you snap up Ocugen shares, here are three things to know.

Image source: Getty Images.

1. Potential U.S. approval still is far off

The FDA originally placed the clinical hold on Ocugen’s phase 2/3 study of Covaxin last month. This followed Ocugen’s move to pause its own trial. The World Health Organization had found a lapse in good manufacturing practices at Bharat’s facility. And Bharat suspended all exports of Covaxin.

Since then, the news is brighter on this side of the Atlantic. The FDA now is allowing Ocugen’s trial to continue. Ocugen says it will continue dosing “immediately.”

This is positive because, clearly, Ocugen can’t afford to lose more time. Rivals Pfizer and Moderna entered the market about a year-and-a-half ago. And latecomer Novavax is waiting on an answer from the FDA regarding its vaccine candidate next month.

But it’s important to keep in mind that commercialization remains far off. The FDA isn’t even considering Covaxin for Emergency Use Authorization (EUA). It recommended Ocugen take the traditional route and seek full approval. Review for approval takes six to 10 months instead of just a few weeks for an EUA. So, in the very best scenario, the FDA could issue a decision on Covaxin next year.

2. Future vaccine sales may not make up for costs

As we might expect, Ocugen’s research and development costs are on the rise. In the first quarter, the company’s R&D spending more than doubled year over year to $7.9 million. General and administrative expenses also more than doubled, to more than $10 million. At the same time, the good news is that the company reported an increase in its cash position — to $129 million from $95 million three months earlier.

It’s likely R&D spending will continue to rise throughout the rest of Covaxin’s clinical development. We don’t know exactly how much Covaxin’s clinical trial will cost. But a study of more than 200 pivotal trials by the Institute for Safe Medication Practices showed the median cost of a phase 3 trial totaled $19 million. Costs also will climb as Ocugen invests in manufacturing capacity and sales efforts.

Of course, when we see a vaccine leader like Moderna predicting at least $21 billion in vaccine revenue this year, R&D costs in the millions may not seem very significant. But Ocugen isn’t likely to become Moderna No. 2. First of all, Moderna established its position in the market when demand was at its highest — so it has first-mover advantage. And second, by the time Ocugen enters the market, demand may be weaker than it is today. Add to that the fact that Ocugen doesn’t keep all profits. It takes 45%, while the rest goes to Bharat. And that means future vaccine sales might not compensate for Ocugen’s investment in the program.

3. Ocugen may be spreading itself too thin

Ocugen’s main business is gene therapy for eye diseases. It recently launched a phase 1/2 trial for one of those candidates. A safety monitoring board reviewed safety data from the first patient and gave the OK for the trial to proceed with additional patients. Ocugen dosed the second patient this month. Ocugen also recently said it’s preparing to start a phase 3 study of a cell therapy technology for the repair of lesions in knee cartilage. Ocugen gained this asset when it acquired Histogenics in 2019.

It’s great to diversify and to have more than one iron in the fire. But for a company at this stage in its development, I would prefer to see a focus on one particular business or technology. Right now, my concern is Ocugen is spreading itself too thin.

What does this mean for investors?

Of course, there’s always the possibility Covaxin will eventually carve out vaccine market share — and sales from the product will help pay for the development of Ocugen’s gene therapy candidates. That would be the ideal situation. But, considering competition and the idea that vaccine demand may decline, I’m not going to bet on that scenario. There still is plenty of uncertainty surrounding Ocugen right now, and I don’t see an element that could drive lasting share-price gains. And that’s why it’s best to watch this high-risk stock from the sidelines.