Hedge fund urges board shake-up at Novavax over struggling Covid vaccine

A top-five shareholder in struggling Covid-19 vaccine maker Novavax is calling for an “urgent shake-up” of the board and an overhaul of its sales strategy, as the stock is down 99 per cent from its pandemic peak.

US-based hedge fund Shah Capital wrote to the Novavax board on Monday to push for the instalment of two new independent board directors. It also wants a pivot in the biotech’s sales strategy for its Covid-19 shot, which is based on traditional vaccine technology, to target older people unnerved by rare side effects associated with mRNA jabs from Pfizer and Moderna.

Valued at more than $40bn at the height of the pandemic in early 2021, Novavax made a series of mis-steps with the launch of its Covid vaccine. The jab was late to market and suffered from collapsing demand as governments withdrew from procurement deals. The group had a market value of $600mn, as of market close on Friday.

Himanshu Shah, managing partner of Shah Capital, said Novavax’s failure to compete for market share among Covid-19 jabs as the disease has become endemic was “self-inflicted” and resulted from “reactive leadership and outdated and old-fashioned marketing”.

“Therefore, we are calling for an urgent shake up of the board,” added Shah in a letter seen by the Financial Times.

Shah Capital’s decision to launch an activist campaign against Novavax comes as the shares of more successful Covid-19 vaccine makers such as Pfizer, BioNTech and Moderna have fallen as pandemic demand has faded. Shah Capital now owns 6.7 per cent of Novavax, having first bought into the company in the last quarter of 2022.

The leading Covid-19 jabs from BioNTech/Pfizer and Moderna are projected to generate nearly $12bn in revenues between them this year, down from around $22bn from a year earlier, according to Bloomberg data. Shah criticised Novavax in his letter for only generating around $25mn in net commercial US sales from its Covid-19 jab during the winter season, despite spending $300mn on a sales and marketing push.

With the majority of US citizens yet to take a booster and around 30 per cent saying they are averse to mRNA jabs according to survey data, Shah said he could not understand why Novavax has “not capitalised” on seven peer-reviewed studies about mRNA side effects to encourage uptake of its protein-based shot.

Shah also wants Novavax to strike royalties partnerships to access outside funding to restart clinical studies into other vaccines targeting influenza, respiratory syncytial virus and H5N1 bird flu. Novavax is this year rolling out its second product: a malaria vaccine approved by the World Health Organization, which will help to grow its revenues from $531.4mn last year to a projected $854.2mn this year.

Shah called for Suresh Katta and Venkat Peri, both chief executives of other biotechs, to be nominated for the independent board roles. “The two new independent board candidates which Shah Capital has recommended should be nominated immediately for their wealth of relevant knowledge, experience and a proven track record,” the hedge fund said in the letter.

Novavax has undertaken successive lay-off rounds as part of a $1.1bn cost-cutting drive to stave off bankruptcy after it warned investors last year about its future. In January, the company announced it was sacking 12 per cent of its workforce, after cutting a quarter of jobs in an earlier lay-off round.

Novavax refused to comment on whether it would concede to Shah’s push for board seats. But the biotech said it was “confident” in its long-term strategy and that it welcomed “the perspectives of our shareholders and value their input on our strategy”.

Shah Capital does not have an issue with the leadership of Novavax chief executive John Jacobs and was pleased with his negotiation of a $349.6mn settlement with the Canadian government over the forfeiting of certain Covid-19 doses scheduled for delivery, according to two people familiar with the matter.

In the letter, Shah complained about how competitor Moderna’s market value was 10 times 2024 sales, while Novavax’s market capitalisation was below its 2024 sales.

“This low valuation has been mainly due to lack of confidence in future commercial sales success and massive dilutive share issuance at a low price sending a ‘desperation’ message,” said Shah.