It would be fresh in investors memory that Lucid (NASDAQ:LCID) stock surged from below $10 to highs of $64.86. This happened even before the special purpose acquisition company (SPACs) became announced publicly. After the announcement, LCID stock slumped to lows of $20. It’s a perfect example of investors selling on news and I believe that Ocugen (NASDAQ:OCGN) stock is likely to see a similar trend.

Let’s start from the day OCGN started surging higher from sub-one dollar level. In December 2020, Ocugen announced that it has partnered with Bharat Biotech to co-develop Covaxin for the U.S. markets. This was indeed good news at a time when the world was looking for more vaccines that can provide high levels of efficacy against Covid-19.

Almost one year down the line, Ocugen has yet to receive U.S. Food and Drug Administration approval for Covaxin. However, in the last month, OCGN stock has skyrocketed. What’s the reason for this rally?

First, investors anticipated the World Health Organization (WHO) deciding on the emergency use listing of the Covid-19 vaccine. As I write, Bharat Biotech has been granted emergency use listing by the WHO.

Another reason for the rally is that Ocugen has submitted an investigational new drug (IND) application with the U.S. Food and Drug Administration (FDA). If there is green-light from the U.S. FDA, the company expects to complete studies by the first half of 2022.

It’s important to mention that the FDA rejected its emergency use authorization filing earlier. It advises Ocugen to pursue IND application.

Why I am Bearish on OCGN Stock?

It seems likely that there is good news lined up for Ocugen from an approval perspective. However, I believe that the best part of the rally might be done for the stock. The first point to note is that Bharat Biotech was seeking approval from the WHO for emergency use listing of Covaxin.

Specific to Ocugen, that is unlikely to be a positive impact. Even with WHO approval, Ocugen would need to wait for an approval from the U.S. FDA before it can market its vaccine in the United States. As a matter of fact, Ocugen can only market and sell Covaxin in the United States and Canada. Even in that, the company has an equal profit-sharing agreement with Bharat Biotech.

Let’s assume a scenario where Ocugen gets an approval from the United States and Canada to market Covaxin.

I would still be bearish. Let me elaborate on the reason.

According to latest data, 66.9% of the U.S. population has received at least one dose of the vaccine. Further, 58.1% are fully vaccinated. Infectious disease experts believe that vaccinating 70% to 85% of the U.S. population would enable return to normalcy. Ocugen expects to complete its study by the first half of 2022. It’s very likely that in the next two quarters, more than 70% of the U.S. population would be fully vaccinated.

This would imply a small market for revenue upside. Importantly, Ocugen has to compete against the likes of Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA). I have serious doubts if people would prefer Covaxin over the others.

Even for Canada, 78% of the population have received at least one dose. Further, 74% of the population is fully vaccinated. This leaves a limited addressable market for Ocugen.

Concluding Views

It’s worth noting that OCGN stock already trades at a market capitalization of $1.9 billion. With a limited market opportunity, valuations look stretched.

Ocugen is focused on deepening the product pipeline in the coming years. However, for now, the stock trend will likely be dictated by revenue inflow from vaccine sales. I am pessimistic on that front considering the level of vaccination in the United States and the competition that Ocugen faces.

I would therefore stay away from any fresh exposure to the stock. For investors who have benefited from the recent rally, it might be a good time to book profits.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.