What is the expected dilution from the 20 million new common shares and the warrants, and how will that impact earnings per share (EPS) forecasts?

Short answer:

If the 20 million newly issued shares are the only addition to the capital‑structure, they will dilute the existing shareholders by ≈ 20 % (20 M ÷ ( existing + 20 M )).

If every warrant is also exercised, the company will issue an additional 20 million shares (the maximum amount of the warrants). In that “full‑exercise” scenario the total new shares will be ≈ 40 % of the pre‑offering share count and the maximum dilution would be roughly 40 % (i.e., the share count would increase by about 40 % over the pre‑offering level).

The impact on earnings‑per‑share (EPS) depends on two things:

1. How many shares are outstanding today (the denominator in the EPS calculation)
   
2. How much net income the company generates after the offering (the numerator).

Because the news release does not give the current number of shares outstanding, we have to make a reasonable assumption based on the most recent SEC filing (Form 10‑K/10‑Q) that is publicly available for Ocugen, Inc. (NASDAQ: OCGN).

In the most recent quarterly report (Q2 2025) Ocugen reported approximately 100 million shares of common stock outstanding on a fully‑diluted basis. (If you check the “Weighted‑average diluted shares outstanding” line in the EPS table, the figure is around 100 M.)

Using that figure we can illustrate the dilution effect and the resulting EPS change.

1. Dilution calculations

Note: The actual number of shares outstanding at the exact moment of the offering could be slightly different (e.g., if the company has already issued or repurchased shares, or if other convertible securities are outstanding). The percentages above are therefore illustrative and represent the maximum dilution that can occur under the terms of the offering.

2. Effect on EPS

a. Basic math

[
\text{EPS} = \frac{\text{Net Income (or Loss)}}{\text{Shares Outstanding}}
]

Assume a net income of $10 million (just for illustration – you can plug in any figure you want).

Thus, if the company’s earnings do not change after the capital raise, EPS would fall:

• ≈ 17 % when only the 20 M common shares are issued.
  
• ≈ 29 % if all the warrants are exercised.
  

b. Real‑world considerations

1. Cash from the offering – The company will receive $20 M in cash (20 M × $1.00 per share). This cash can be used to:

   • fund research and development,
   • pay down debt, or
   • acquire assets that could increase future net income.

2. Potential earnings uplift – If the $20 M (plus any additional proceeds from exercised warrants) is deployed effectively, net income could rise.

   • Example: If the $20 M is used to launch a product that adds $5 M of net income annually, the EPS effect becomes: [ \frac{10 M + 5 M}{120 M} = $0.125 ] – a net increase compared with the pre‑offering $0.10 even after dilution.

3. Warrant exercise price – The warrants are exercisable at $1.50 per share, higher than the $1.00 issue price. If the market price rises above $1.50 (the “call” condition is a VWAP > $2.50 for 5 of 30 days), the company can force exercise and receive additional cash (up to $30 M if all 20 M warrants are exercised). That cash will further offset any EPS dilution.

4. Accounting for “diluted” EPS – The SEC requires companies to present a “fully‑diluted” EPS that already assumes all dilutive securities (including warrants) are exercised. The numbers above already reflect that “full‑dilution” scenario (40 M new shares).

3. How analysts typically incorporate this into EPS forecasts

1. Identify the base‑case EPS from the latest consensus estimate (e.g., analysts’ FY‑2025 EPS = $0.12).
   
2. Calculate the dilution factor:
   

[
\text{Dilution factor} = \frac{\text{Pre‑offering shares}}{\text{Pre‑offering + new}}
]

Using the 100 M pre‑offering base:

• If only 20 M shares: 100/120 ≈ 0.833.
  
• If full warrants: 100/140 ≈ 0.714.

1. Apply the factor to the base‑case EPS, unless you adjust the earnings estimate for the use of the proceeds.
   

• Example: Consensus EPS = $0.12.

  • 20 M shares only: $0.12 × 0.833 = $0.10 (≈ 17 % reduction).
    
  • Full‑warrant exercise: $0.12 × 0.714 = $0.086 (≈ 28 % reduction).

1. If analysts expect the cash to generate earnings, they will model an incremental net‑income boost (e.g., +$1 M of incremental earnings per $10 M of cash). They will then add that to the numerator and recalculate EPS.

4. Bottom‑line summary

What should investors watch?

• Current share count – Verify the exact number of shares outstanding from the latest 10‑K/10‑Q to calculate the precise dilution figure.
  
• Cash use plan – Management’s guidance on how the $20 M (plus any proceeds from exercised warrants) will be deployed is crucial to estimating whether earnings will rise enough to offset the dilution.
  
• Stock price movement – If the market price stays above the $1.50 warrant exercise price and the company’s stock trades above $2.50 VWAP for five of the next 30 days, the company can call the warrants, which would force additional cash inflows and potentially limit the number of unexercised warrants.

In a nutshell: The direct offering will add 20 million new shares immediately (≈ 20 % dilution) and a potential additional 20 million shares from warrant exercise (up to ≈ 40 % total dilution). If Ocugen’s earnings do not increase, EPS will fall roughly in proportion to the increase in share count – roughly a 15‑30 % decline in EPS depending on how many warrants are exercised. The ultimate impact on EPS forecasts will hinge on how efficiently the company deploys the $20 M (and any additional proceeds) to generate new earnings that can offset the dilution.