Biotechnology firm Novavax (NASDAQ:NVAX)– which specializes in developing and commercializing next-generation vaccines — just announced a fresh round of job cuts. Earlier today, management said that it would reduce its global staff by about 12%. Now, NVAX stock is moving up on news of the Novavax layoffs. Tensions in the market also suggest that shares could jump even higher.
According to Seeking Alpha, Novavax stated that its Board of Directors approved the Novavax layoffs in a meeting on Monday. In terms of the breakdown, the cuts will eliminate 9% of full-time employees, with the rest of the layoffs impacting contractors and consultants. Further, the move represents an effort to reduce annual research and development expenses as well as selling, general and administrative (SG&A) costs.
In connection with the layoffs, the company will take a charge ranging from $4 million to $7 million related to one-off employee severance and benefit costs. Most of these line items will be incurred in the first quarter of this year.
Novavax Layoffs Stem from an Unsurprising Development
Fundamentally, NVAX stock heavily depended on the viability of the company’s Covid-19 vaccine, which was an alternative to the mRNA-based solutions that first reached the clinical finish line. After all, as The New York Times notes, Novavax was “on the verge of collapse” prior to the pandemic. Specifically, one of its leading vaccine candidates had “failed for the second time in three years.”
However, as InvestorPlace contributor Dana Blankenhorn remarked back in January 2022, the narrative for NVAX stock shifted suddenly. What was once a veritable rocket ship soon became a money pit. Unfortunately, this also became only part of a horrid timeline for the company:
- In February 2022, the Associated Press reported that Covid-19 fears had been fading. Subsequently, Covid heavyweights like Pfizer (NYSE:PFE) as well as other Covid-related stocks suffered steep market losses.
- In May 2023, Novavax announced that it would cut 25% of its global workforce to reduce operating costs. This first round of layoffs also aligned with the company’s efforts to “consolidate its facilities and infrastructure.”
- Six months later, the company announced another round of Novavax layoffs, although the details were vague. At the time, the biotech said that it had “not yet finalized decisions about these cost reductions.”
Unsurprisingly, NVAX stock is down more than 60% for the 12 months.
Give Up on NVAX Stock? Speculators Don’t Agree.
Investors may be tempted to either give up on NVAX stock or to short it outright, perhaps in a bid to make up for prior losses. However, the issue with this approach is that many other traders have the same idea. Therefore, the risk-reward proposition has likely pivoted away from the bears.
Notably, with NVAX stock incurring a 17% year-to-date (YTD) loss already in addition to its long-term red ink, shares of course feature a high short interest. Indeed, per Fintel, NVAX’s short interest as a percentage of float currently clocks in at a whopping 48.24%. The short interest ratio is also elevated at 9.23 days to cover.
For clarity, short interest represents an “active” shorting activity of securities in the open market. Adding to the pressure, Fintel’s options flow screener shows major entities placing high-volume sold call options across multiple expiration dates but concentrating on the $5 strike price.
At time of this writing, Novavax stock trades for around $4.20 per share. If for whatever reason NVAX pops higher, it’s possible to see a combination of a short squeeze and a gamma squeeze materializing.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
