Why Novavax Inc. Is Surging 14.4% Higher Today

What happened

After a Wall Street analyst upgraded Novavax Inc. (NASDAQ: NVAX) from underperform to outperform on Friday, shares in the company are rallying 14.4% at 3:30 p.m. EDT on Monday.

So what

JPMorgan's about-face on Novavax shares is due to increasing confidence that the company's ResVax vaccine for respiratory syncytial virus (RSV) can hit its mark in late-stage studies due to wrap up next year.

The phase 3 trial is enrolling over 3,000 women who are being given ResVax in their third trimester to see if it can prevent RSV disease in their infants. In August, Novavax told investors the FDA has agreed to allow it to file for regulatory approval based on interim trial results that are anticipated early in 2019.

Now what

RSV is the second-leading cause of death in children under 1 year old and occurs in 4 million to 5 million children in the U.S. every year, so there's a big need for a vaccine.

If the data next year is good enough to support an FDA submission for approval and the FDA eventually signs off on ResVax, it would be a needle-moving event for the company. According to JP Morgan's number-crunching, ResVax's market opportunity could exceed $650 million annually.

The upgrade-inspired rally could be due to short-sellers covering their positions ahead of the data. As of the latest short-interest report, sellers were sitting on 55 million shares short, or about 15% of the shares available for trading.

NVAX Short Interest data by YCharts

Although a win would be great news for children's health and shareholders' pockets, investors might want to be a little bit cautious about this trial's prospects given that a phase 3 trial of Novavax's RSV vaccine failed in elderly patients in 2016.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned.The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.