Novavax Surges 146%, Short Sellers Lose $255M After Sanofi Deal

Key Takeaway

• Novavax Inc. shares surged 146% after a $1.2 billion deal with Sanofi, causing a significant squeeze on short sellers with $255 million in losses.
• The deal includes $500 million upfront and up to $700 million in milestones, leading JPMorgan to upgrade Novavax's stock rating.
• Amidst broader market optimism, the S&P 500, Nasdaq 100, and Dow Jones showed gains, reflecting varied investor sentiment across sectors.

Novavax's Historic Surge

Novavax Inc. experienced its most significant one-day gain in over 15 years, with shares soaring up to 146% following a $1.2 billion licensing agreement with Sanofi. This agreement, aimed at commercializing a combined Covid-19 and flu vaccine, marks a pivotal moment for Novavax, revitalizing a stock that had previously seen a dramatic 99% drop from its 2021 peak. The surge resulted in substantial paper losses for short sellers, estimated at around $255 million by S3 Partners LLC. Novavax, a heavily shorted stock in the U.S., saw a tightening in shares available for borrowing, indicating a potential short squeeze scenario. Ihor Dusaniwsky of S3 Partners LLC highlighted the significant impact on short sellers, with many expected to close out positions to mitigate losses.

Financial Windfall and Analysts' Perspectives

The licensing deal with Sanofi not only promises Novavax $500 million upfront but also up to $700 million in potential milestones. This influx of funds is seen as transformative for Novavax's business, prompting JPMorgan’s Eric Joseph to upgrade the stock to a neutral rating from underweight. Joseph anticipates that Novavax's commercial challenges in 2023 and 2024 will be alleviated with Sanofi's involvement from 2025. Despite this optimistic outlook, Wall Street remains divided on Novavax's future, with a mix of buy, hold, and sell ratings. The average price target suggests an 84% upside in the next 12 months, reflecting a cautiously optimistic view of the company's prospects.

Market Movements Amidst Broader Optimism

The broader market showed signs of optimism, with the S&P 500 eyeing a third consecutive week of gains, buoyed by speculation of a potential rate cut by the central bank. This positive sentiment was mirrored in the Nasdaq 100 and the Dow Jones Industrial Average, both of which also experienced gains. However, the market's response was not uniformly positive, as evidenced by significant downturns in shares of Akamai and AMN Healthcare. Conversely, companies like Cantaloupe, Onto Innovation, and Organogenesis saw impressive gains, highlighting the diverse outcomes within the market.

Street Views

• Ihor Dusaniwsky, S3 Partners LLC (Neutral on Novavax):

  "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... Many short sellers may hold on for a while and look for better exit prices over the next few days."

• Eric Joseph, JPMorgan (Bullish to Neutral on Novavax):

  "The deal is transformative to Novavax’s overall business... 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."