Novavax Inc.’s record-breaking every day gain is forcing some short sellers betting against the stock to exit their losing positions.
Shares of the vaccine maker rose 99% on Friday, in accordance with the corporate signed a $1.2 billion licensing agreement with Sanofi that features the commercialization of a combined Covid-19 and flu vaccination. The move provides a lift to a stock that had plunged about 99% from its 2021 peak before the deal declining demand for its Covid vaccine.
However, in accordance with data from S3 Partners LLC, Friday’s surge left short sellers with paper losses of around $255 million. According to S3, the biotech stock is a crowded position for brief sellers, with fewer than 1 million shares available to borrow to support latest sales.
The rapid rise in Novavax shares puts traders vulnerable to being squeezed, a phenomenon during which short sellers are forced to purchase back the stock to scale back their losing positions. Short covering drives up the corporate’s stock price and increases pressure on contrarian traders.
“We expect a crushing short squeeze in Novavax, with short sellers suffering huge losses opening and closing positions in the market throughout the day,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.
Novavax is one of the heavily shorted stocks within the US, with over $50 million briefly interest.
“Many short sellers may hold out for a while and look for better exit prices in the next few days,” Dusaniwsky added.
Novavax, for its part, will receive $500 million in upfront payments, plus as much as $700 million if development, regulatory and go-to-market milestones under the Sanofi licensing agreement are met. The latest money infusion led to an upgrade from JPMorgan’s Eric Joseph, who sees the deal as “transformative for Novavax’s overall business.”
Joseph, who moved from an underweight to a neutral rating, expects a lot of Novavax’s industrial growth pains to play a much smaller role in 2023 and 2024 as Sanofi moves toward commercialization starting in 2025.
However, in accordance with data compiled by Bloomberg, Wall Street analysts remain divided on the stock: three recommend buying, three recommend holding and none recommend investors sell. The average price goal of $17 implies an upside potential of roughly 91% over the following 12 months from the present share price.
