Biotechnology’s Walking Dead

Imagine my face as I read, a few weeks back, about something called “zombie” biotech companies. Surprise, shock, and… curiosity, of course. There I was, writing for my newsletter as I came across data that indicated that a new breed of company exists, lurking in the shadow of innovation, ready to hunt biotechnology's most vulnerable targets.

These specialized firms systematically acquire struggling biotech companies (aka “zombie biotechs”), not to revive their science, but to liquidate them for profit. The phenomenon exploded in 2024, with billions in “trapped capital” becoming the prize in an increasingly aggressive corporate battlefield.

Zombie Companies: When Cash Is Not Enough

So what is really a “zombie biotech”? These are companies that have suffered clinical failures which destroyed investor confidence and crashed stock prices, while maintaining significant cash reserves. They possess enough capital to continue operations but insufficient funds for meaningful pivots or new drug development programs.

A great example is iTeos Therapeutics, which watched its flagship drug fail in Phase 2 trials in May 2024, after GSK had invested $625 million in the program. Despite holding $156 million in cash, iTeos traded below its net cash value, meaning it could be bought for less than those $156 millions, making it attractive for liquidation specialists.

These companies exist in pharmaceutical hell. Because of their failures, they won’t attract traditional investors, but are too cash-rich to simply disappear, and (usually) too underfunded to reinvent themselves. The 2020-2021 biotech boom created many such situations, as companies went public with insufficient cash runways and overly optimistic development timelines.

The New Predators

Of course, with that concentrated investment, there are companies who will just be ready to pounce when catastrophe hits a biotech. Why not buy it, keep its cash, sell the equipment and data, and be done with it?

Three distinct types of firms have emerged as zombie hunters, each with different approaches and motivations.

Concentra Biosciences

Backed by Tang Capital Partners and led by healthcare investor Kevin Tang, Concentra has become a hyper-aggresive player. The company was founded specifically to acquire zombie biotechs, and it has purchased Cargo Therapeutics, Elevation Oncology, IGM Biosciences, Kronos Bio, and Allakos, all within five months.

Concentra's strategy involves rapid stock accumulation just below the 10% threshold that triggers defensive measures, then making liquidation offers that promise quick returns to frustrated shareholders. The approach capitalizes on institutional investor frustration with prolonged uncertainty.

Xoma Royalty

Originally focused on acquiring drug royalty streams, Xoma pivoted to zombie acquisition as a diversification strategy. The company frames its activities as providing a service to the biotech ecosystem by freeing trapped capital and promote healthier innovation.

Xoma's deals typically offer shareholders approximately the value of company cash reserves, then monetize remaining intellectual property or drug assets through sales or licensing. For many, this is a more attractive option than the others, and so struggling companies often choose to collaborate and surrender rather than risk a more hostile takeover by another player.

Alis Biosciences

The newest entrant launched in April 2024 as a capital recycling specialist. Alis offers three distinct liquidation models: returning 97% of cash while selling remaining assets, providing 95% cash returns while acquiring all intellectual property, or continuing limited research with 40% of funds while returning 60% to shareholders.

This menu approach acknowledges that different zombie situations require different solutions while maintaining the core premise that trapped capital should be liberated for more productive uses.

Fighting Back With Poison Pills

But in this economic battlefield, not all go quietly into the night. Several companies have deployed “poison pill” defenses to ward off unwanted advances. These shareholder rights plans automatically trigger when investors acquire predetermined ownership percentages, typically 10-15%.

When activated, all other shareholders receive rights to purchase additional shares at steep discounts, effectively diluting hostile positions (the previous 10% can easily become 5%), which makes takeovers very expensive. Companies are usually allowed to have more shares than they have, making this a common strategy. The defense creates immediate financial consequences for accumulation strategies. In short, the company attempting the aggressive buyout will have wasted money, not achieving control of the company.

Recent Defensive Moves

Pliant Therapeutics implemented a poison pill approach in 2024 after Tang Capital accumulated a 9.6% stake. Under the plan, if any entity acquires 10% or more, other shareholders can purchase shares at 50% discounts. Acelyrin deployed similar measures the same week, explicitly citing Tang Capital's rapid share accumulation.

Other companies including Atea Pharmaceuticals, Rain Oncology, Kezar Life Sciences, and Quince Therapeutics have successfully used poison pills to repel acquisition attempts. The defenses create standoffs where zombie predators must either negotiate with boards or abandon targets.

The Victorious

The inevitable question here is… who benefits from all this? And the answer is, of course, complicated. The zombie crisis reflects broader economic pressures changing the industry. When clinical failures inevitably occurr, rising interest rates, inflation concerns, and market volatility eliminate traditional funding sources.

Some partners backing venture firms have also grown frustrated with lack of returns, pressuring fund managers to find exit strategies for struggling portfolio companies. This environment makes liquidation options attractive to institutional investors preferring guaranteed immediate returns over uncertain long-term prospects.

Cash VS People

Some argue the trend creates necessary market discipline. Investment bank analysis suggests boards and management teams focused on survival often make decisions prioritizing job preservation over optimal capital allocation. Liquidation pressure forces accountability that market mechanisms alone might not provide.

However, some worry the trend eliminates companies with viable technologies that need more time or different approaches. Some zombie biotechs possess valuable intellectual property, promising early-stage programs, or specialized expertise that could contribute to future breakthroughs with proper support.

Lastly, with the sector already in turmoil, the additional job losses, the investor scare, and other factors, all could hurt innovation even more.

Evolution Or Death

The zombie phenomenon shows the fundamental tensions between pharmaceutical innovation requirements and modern financial market demands. Drug development inherently involves long timelines, uncertain outcomes, and substantial capital requirements, and investors’ wishes may not align with what these companies truly need. Some paths, however, do lead nowhere.

Regulatory authorities and industry organizations may have to intervene. They can develop ways for intellectual property preservation and technology transfer, so valuable innovation may be saved from otherwise doomed companies.

Whether this trend ultimately strengthens biotechnology by eliminating weak players and recycling capital, or represents dangerous short-term thinking that could stifle innovation and increase job market volatility remains an open question. The rise of zombie hunters has created new survival rules in a deeply unforgiving environment.

As the industry continues balancing these competing pressures, the fate of struggling companies will let us know how innovation ecosystems evolve when market forces collide with scientific uncertainty.