Short sellers have gained a lot of attention in the past few days as they rushed to cover positions in rapidly rising stocks, such as GameStop (NYSE: GME). In that case, they lost their bets on the falling stock – and their money. But in some cases, the short action does autumn. And short sellers come out on top. This happened last week with a stockpile of high-level coronavirus vaccine.
Vaxart (NASDAQ: VXRT) it sank 58% in a trading session after data from its phase 1 clinical trial disappointed. Short positions represent more than 39% of the biotechnology company’s float – or the shares available to the public for trading. Many short sellers probably closed their positions with a win. As long-term investors, we can ask ourselves whether short sellers are right about Vaxart – or was it just an isolated victory?
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First, a quick update on short sales: investors borrow a stock to sell at the current market price. They end up having to repurchase shares to return them to the creditor. His hope is that the stock price has dropped. That way, they profit from the operation. If stocks start to rise instead, short sellers buy stocks quickly to contain losses. Because the higher the stock goes, the more money they lose.
Phase 1 test results
Now, back to Vaxart. The company rated the results of the phase 1 trial as “positive” because the candidate vaccine against coronavirus produced responses from CD8 + T cells. Also known as “killer T cells”, they kill cells infected with viruses. T cells recognized the spike protein – the protein responsible for infecting cells – as well as a viral protein involved in replication. That sounds encouraging.
But what disappointed investors is that the experimental vaccine did not stimulate the production of neutralizing antibodies. These antibodies are known to block infection. Therefore, they are seen as the key to the development of an effective vaccine against coronavirus.
Today’s commercialized vaccines – developed by Pfizer (NYSE: PFE) and Modern (NASDAQ: MRNA) – produce neutralizing antibodies. And the same is true of candidate vaccines in phase 3 of development, such as the one created by Novavax (NASDAQ: NVAX). Therefore, it is difficult to imagine a candidate vaccine being successful without this important element. Vaxart can still proceed to a phase 2 study in people who have not received COVID-19.
The scenario looks pretty bleak, right? Well, maybe not quite. Here’s why: Vaxart can also study his experimental candidate as a booster in individuals who have already been exposed to COVID-19 or been vaccinated. The Vaxart candidate would be used to strengthen the immune response.
This can be particularly interesting because Vaxart’s experimental vaccine is supplied in pill form. This, together with the fact that it has a stable ambient temperature, makes it easy and inexpensive to transport, store and manage. It can become an integral part of a vaccination program – especially in areas where it is not easy to transport and store vaccines that require low temperatures. And T cell responses, targeting more than just the spike protein, mean it can be useful against new viral strains.
What does this mean for investors?
The short sellers were right – this time. But next time it may be a different story. Although Vaxart remains risky, there may still be opportunities for victory on the horizon. Vaxart is not completely out of the game. A coronavirus pill booster could be a great product – and represent billions of dollars in revenue if put into widespread use. Vaxart also has five other programs underway – and they may bear fruit in the future.
That said, the shares of this biotechnology company remain very risky. Will the idea of strengthening the coronavirus work? Would regulators authorize their use with vaccines from another company? Or could the experimental vaccine find its place on the market even if neutralizing antibodies were not part of the picture?
We will need some clues to resolve these issues at least partially before we consider buying Vaxart shares. Therefore, we will keep you on the watch list and stay tuned for data from any future tests.