One of the most shorted stocks on the market just rose 99%

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Novavax Inc.’s record single-day profit forcing some short sellers who bet on the stock to exit their positions at a loss.

Shares of the vaccine maker soared 99% on Friday, following the company signed a $1.2 billion licensing deal with Sanofi, which includes the commercialization of a combined Covid-19 and flu shot. The move gives a boost to a stock that – prior to the deal – was down about 99% from its 2021 peak in the middle of the crisis. declining demand for its Covid vaccine.

However, Friday’s surge resulted in paper losses of about $255 million for short sellers, according to data from S3 Partners LLC. According to S3, biotech stocks are a crowded position for short sellers, with fewer than 1 million shares available to borrow to support new sales.

The rapid gains in Novavax shares put traders at risk of being squeezed, a phenomenon in which short sellers are forced to buy back the shares to get rid of their losing positions. The shorting drives the company’s stock price higher, further increasing the pressure on the contrarian traders.

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

Novavax is one of the most shorted stocks in the US, with short interest exceeding $50 million.

“Many short sellers may hold out for a while and look for better exit prices in the coming days,” Dusaniwsky added.

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

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Joseph, who moved from an underweight position to a neutral rating, expects many of Novavax’s commercial growing pains in 2023 and 2024 to become much less of a factor now that Sanofi will lead commercialization from 2025.

Still, Wall Street analysts remain divided on the stock — with three buy ratings, three saying hold and none advising investors to sell — according to data compiled by Bloomberg. The average price target of $17 implies an upside of approximately 91% over the next twelve months from the stock’s current price.

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