Egalet's FDA Approval May Have Triggered Major Short Squeeze

Egalet Corp EGLT shares jumped as much as 17 percent on Monday before being halted following news that the FDA has approved ARYMO ER. In its JPMorgan Healthcare Conference presentation, the company said it plans to launch ARYMO ER starting in Q1 2017.

The positive news and subsequent halt is a nightmare scenario for the many Egalet short sellers in the market who are now powerless to cover their positions as word of the approval spreads.

For Egalet bulls, the FDA approval is a double-bullish catalyst for the stock. In addition to the potential for ARYMO ER to hit the market within months, the stock’s 17 percent spike may the beginning of a massive short squeeze.

While Egalet shares have drifted lower by 7.6 percent in the past year, short sellers have piled on. In fact, Egalet’s short interest is up 226.0 percent from a year ago.

According to shortsqueeze.com, Egalet currently has a staggering short percent o float of 60.8 percent. The stock has more than 7.4 million shares held short with 11.5 days to cover.

When the stock resumes trading, short sellers must hope their fellow shorts will not panic and rush to cover all at once. If they do, the resulting short squeeze could dwarf the 17 percent move the stock made prior to the halt.