Novan (NOVN) Stock Heads Up As Traders Start To Play

Novan NOVN Stock News

Novan Inc (NASDAQ: NOVN) is making a run for the top in the market this morning. However, with no press releases or SEC filings, many are wondering what triggered the run. After digging through message boards, I believe that traders are coming out to play, looking to push for a short squeeze and quick triple digit gains. Here’s what’s happening.

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After Recent Declines, Trders Are Seeing Green

In January, Novan took a big hit. The company’s trial surrounding its lead drug candidate, SB206, ended in missed expectations and failure to show statistical significance with regard to the primary endpoin.

With the failed clinical trial in mind, investors hit the stock hard, leading to it falling from around $3 per share to well under $1. However, many are arguing that this is creating an opportunity.

While statistical significance was not met, NOVN did point to the fact that it did achieve near statistical significance. Moreover, in a meeting with the FDA, the company learned that a new pivotal trial may yield strong results, and that the FDA would accept data from the failed trial as part of an NDA submission.

So, there’s still a chance that the company will be able to bring the treatment to market at some point. If all goes well, investors will know pretty soon. In fact, if the timetable stays where it is, we’re expecting that the company will release data from the new pivotal trial in the second quarter of next year.

Nonetheless, this is where the opportunity sets in.

The Big Idea

The big idea here is that due to the failed clinical trial in January, and resulting painful activity in the stock, Novan is severely undervalued. At the same time, the stock has been dragged further down by short sellers who are profiting in a big way from the declines

Nonetheless, there’s a strong argument that shorts will run for cover soon, and if they do, the resulting short squeeze will lead to resistance at $1 per share being broken. If this resistance is broken, there’s really no limit. This stock could gain in triple digits very quickly.

Nonetheless, keep in mind that this is all short term. NOVN comes with its share of risk, especially if the next clinical trial fails to meet its primary endpoint. Nonetheless, there’s plenty of time between now and the data readout for excitement to build, and considering the short percentage of the float, recent declines, and social activity surrounding the ticker, a big opportunity is likely just around the corner.

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