By Sneha S K and Sriparna Roy

(Reuters) -Shah Capital, Novavax's ( NVAX ) second-largest shareholder, is pressing the biotech's board to pursue strategic changes, including a potential sale, and warned it could launch a proxy fight if no progress is made in the next four months.

In a second letter to Novavax's ( NVAX ) board in less than a month, shared exclusively with Reuters on Wednesday, Shah Capital said it has become "increasingly disenchanted" with the company's weak COVID-19 vaccine sales.

"If I don't see changes happening, and if the company doesn't follow through in the next four months, then I think that is definitely a potential for a proxy fight," the hedge fund's founder Himanshu Shah said in an interview.

Shah Capital said it still believes in Novavax's ( NVAX ) science and has increased its stake to about 8.3%, up from 7.2% in October.

"The Board firmly believes that continuing to execute our corporate strategy is the best path forward, while remaining open to other credible pathways that would maximize shareholder value," Novavax ( NVAX ) said in a statement.

DISCONNECT BETWEEN POTENTIAL AND EXECUTION

The activist investor has pushed for change again after it withdrew a campaign against three board directors last year, following Novavax's ( NVAX ) licensing deal with Sanofi.

Shah Capital said it remains "at a complete loss" over the disappointing sales of Novavax's ( NVAX ) protein-based COVID-19 vaccine and is frustrated by its negligible market share.

"It is reasonable to question whether Novavax ( NVAX ) and its partner are exhibiting a profound lack of competence or intentionally underperforming," the hedge fund said in its letter.

Novavax's ( NVAX ) vaccine sold about 120,000 doses as of October 31, during the 2025-26 season that started in August, versus 14.5 million doses sold in the same period by two competitors, leaving Novavax's ( NVAX ) market share at about 0.8%, the letter said.

"Despite strong underlying science and evident market need, the disconnect between potential and execution is striking," the letter said. 

Earlier this month, Novavax ( NVAX ) pushed back its profitability target by a year to 2028.

Novavax ( NVAX ) has a high cost base, needs to be operationally profitable next year and should run more comprehensive trials, Shah said.

Shah values the company at $5 billion to $10 billion. Novavax's ( NVAX ) market capitalization is about $1.21 billion, according to data compiled by LSEG.

The fund urged the board to immediately form a committee to evaluate a sale and hire a qualified investment bank.

Shah has previously named Sanofi, Merck, GSK and AstraZeneca as potential buyers, but said he has not contacted them.