Drug Stock Breaks Out After FDA Approval

An exodus of short sellers could push FLXN even higher

The shares of Flexion Therapeutics Inc (NASDAQ:FLXN) are near the top of the Nasdaq this morning, up 10.8% to trade at $21.01, and nabbed a new annual high of $22.98 out of the gate. Powering today's surge is a Food and Drug Administration (FDA) updated label approval of Zilretta, the company's osteoarthritis treatment. At least three brokerages have upped their price targets in response, the highest coming from Craig-Hallum to $29 from $24.

Flexion stock is pacing for its best day since Aug. 7. Prior to today, the shares briefly breached the $21 level in mid-December, with a subsequent pullback captured by support at their 30-day moving average. Year-to-date, the security is up 95%, and hasn't turned in a monthly loss since July.

A short squeeze could power additional gains. Short interest fell by 21.6% in the two most recent reporting periods to 6.97 million shares, the lowest since 2017. However this still accounts for roughly 22% of FLXN's total available float, and almost 11 days' worth of buying power, at the stock's average pace of trading.

Options trading has been quite call-skewed, despite limited absolute volume. For instance, 2,858 long calls crossed the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) during the past 10 days, compared to just 202 puts, pointing to bullish expectations. Shifting gears to today reveals more of the same. Calls are trading at 10 times the average intraday amount, with new positions opening at the January 30 call, but sell-to-open activity detected.