Novavax Inc.’s record one-day gain is forcing some short sellers betting against the stock to exit their positions at a loss.
Shares of the vaccine maker soared 99% on Friday, after the company sign a $1.2 billion licensing deal with Sanofi this includes the commercialization of a combined vaccine against Covid-19 and influenza. The move boosts a stock that had plunged about 99% – before the deal – from its 2021 peak in the middle decreasing demand for its Covid vaccine.
Friday’s surge, however, generated paper losses of about $255 million for 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 for borrowing to support further selling, according to S3.
The rapid gain in Novavax shares puts traders at risk of getting stuck, a phenomenon in which short sellers are forced to buy back the shares to get rid of their losing positions. Short covering drives up the company’s stock price, adding additional pressure on contrarian traders.
“We expect a tightening of the odds on Novavax, with short sellers suffering huge losses at the market open and closing positions throughout the day,” said Ihor Dusaniwsky, managing director of the predictive analysis at S3.
Novavax is among the most shorted stocks in the United States, with more than $50 million in short interest.
“Many short sellers may wait a while and look for better exit prices over the next few days,” Dusaniwsky added.
For its part, Novavax will earn $500 million in upfront payments as well as up to $700 million if development, regulatory and launch milestones are met under Sanofi’s licensing agreement. The new cash infusion has spurred JPMorgan’s Eric Joseph to upgrade, who calls the deal “transformative for Novavax’s overall business.”
Joseph, who moved from an underweight to a neutral rating, expects many of the commercial growth issues Novavax suffered in 2023 and 2024 to be a much less significant factor, with Sanofi leading commercialization from 2025.
Still, Wall Street analysts remain divided on the stock — with three buying ratings, three saying hold and none recommending investors sell — according to data compiled by Bloomberg. The $17 average price target implies ~91% upside over the next 12 months from the stock’s current price.
