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Novavax’s 99% Surge Gives ‘Rib-Crunching’ Squeeze to Shorts

In Business
May 11, 2024

(Bloomberg) — Novavax Inc.’s record one-day gain is forcing some short sellers betting against the stock to exit their positions at a loss.

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Shares of the vaccine maker soared 99% Friday, after the company signed a $1.2 billion licensing agreement with Sanofi that includes commercializing a combined Covid-19 and flu shot. The move boosts a stock that had plunged about 99% — prior to the deal — from its 2021 peak amid waning demand for its Covid vaccine.

Friday’s surge, however, delivered paper losses of about $255 million to short sellers, according to data from S3 Partners LLC. The biotech stock is a crowded position for short sellers, with less than 1 million shares available to borrow to support new sales, according to S3.

Read more: Novavax Soars on $1.2 Billion Sanofi Vaccine Licensing Deal

The rapid gain in Novavax shares puts traders at risk of getting squeezed, a phenomenon where short sellers are forced to buy back the stock to unload their losing positions. The short covering drives the company’s share price higher, adding further pressure to the contrarian traders.

“We expect a rib-crunching short squeeze in Novavax with short sellers taking huge losses on the market open and closing out positions throughout the day,” said Ihor Dusaniwsky, managing director of predictive analytics at S3.

Novavax is among the most heavily shorted stocks in the US with over $50 million of short interest.

“Many short sellers may hold on for a while and look for better exit prices over the next few days,” Dusaniwsky added.

For its part, Novavax will gain $500 million in upfront payments as well as up to $700 million if development, regulatory and launch milestones are met from the Sanofi licensing agreement. The new cash infusion spurred an upgrade by JPMorgan’s Eric Joseph, who views the deal as “transformative to Novavax’s overall business.”

Joseph, who moved to a neutral rating from an underweight, expects many of Novavax’s commercial growing pains suffered in 2023 and 2024 to be much less of a factor with Sanofi running the commercialization from 2025 onwards.

Still, Wall Street analysts remain divided on the stock — with three buy ratings, three saying to hold and none recommending investors to sell — according to data compiled by Bloomberg. The average price target of $17 implies about 91% upside in the next 12 months from where shares are currently trading.

(Updates with closing prices throughout.)

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