Activist Battles in Biotech: Mergers, Liquidations, and the $30B Catalyst

The biotech sector is experiencing a wave of activist pressure, creating a clear tactical setup. This isn't a single story but a cluster of distinct catalysts, each a direct response to a perceived mispricing. The common thread is a belief that companies are holding onto capital that could be returned to shareholders, either through mergers, acquisitions, or liquidations.

The most immediate catalyst is the fallout from Staar Surgical's failed takeover. After shareholders rejected a proposal to sell to Alcon for about $1.6 billion, the company's board has been reshuffled. CEO Stephen Farrell and Chair Elizabeth Yu have stepped down, replaced by Broadwood Partners, the company's biggest shareholder with nearly 30.2% stake. This is a classic activist victory, forcing a change in management after a deal was blocked. The stock's premarket pop shows the market is pricing in a new, activist-driven direction for the standalone company.

On the flip side, another activist campaign has failed. In the case of Acelyrin, shareholders have decided to power ahead with a planned merger with immune-mediated disease specialist Alumis, despite pressure from U.K.-based investor Trium Capital. Trium argued that liquidation would return more cash than the merger, but its efforts were unsuccessful. This highlights the mixed results of activist tactics; while some campaigns succeed in derailing deals, others are overruled by the broader shareholder base.

The scale of this pressure is underscored by a Bloomberg report identifying a massive pool of capital at stake. The report notes there is roughly $30 billion tied up on biotech balance sheets, fueling a surge in activist campaigns. This isn't just about individual companies; it's a sector-wide catalyst. With about one in six Nasdaq Biotechnology Index companies trading below their cash holdings, activists are targeting firms that are essentially "zombies," arguing their capital should be returned rather than spent on high-risk R&D. The result is a tactical landscape where multiple short-term catalysts-board changes, merger votes, liquidation proposals-are converging, creating volatility and potential mispricings for event-driven investors.

Strategy Analysis: Blocking vs. Pushing vs. Demanding

The recent cases reveal three distinct activist strategies, each with a clear mechanism and immediate implication for the targeted company's path forward.

The first is blocking deals. This was the playbook used by Broadwood Partners at Staar Surgical. When Alcon made a $1.6 billion offer, Broadwood argued it undervalued the company and reflected a flawed process. Their strategy was to use their nearly 30.2% stake to rally shareholder opposition, which succeeded in rejecting the merger. The immediate implication is a forced board reset. The activist didn't just lose a vote; they won a seat at the table, replacing the CEO and chair with their own nominees. The company's settlement agreement with Broadwood now sets a timeline for a new leadership team, effectively putting the activist in a position to dictate the next strategic review. The stock's premarket pop signals the market sees this as a shift toward a potentially more aggressive stance.

The second strategy is pushing mergers. This is the approach Trium Capital took at Acelyrin, though it ultimately failed. Trium built a 5.4% stake and publicly argued that a merger with Alumis was inferior to liquidation, claiming it would return less value to shareholders. Their campaign aimed to derail a deal that was already in motion. The immediate implication of a successful push would be to force a company to pursue a different, more capital-return-oriented path. In this case, the broader shareholder base overruled Trium, voting to power ahead with the merger. This outcome shows that even when activists have a compelling argument, they can be outvoted if the majority sees a merger as a better path than a shutdown.

The third and most direct approach is demanding liquidations. This is the core strategy of firms like Tang Capital Management, which is targeting companies like Allakos and Cargo Therapeutics. The premise is that for certain "zombie" biotechs, the value of their cash and assets exceeds any strategic value from continuing drug development. The activist's mechanism is to campaign for a complete shutdown and return of capital. The immediate implication is a stark choice for the board: pursue a risky turnaround or capitulate to a capital return. This strategy is most potent when a company's stock price trades below its cash holdings, a condition noted for about one in six companies in the Nasdaq Biotechnology Index. It represents the ultimate pressure for capital efficiency.

The key takeaway is that these strategies are not interchangeable. Blocking a deal forces a change in management and a strategic pause. Pushing a merger seeks to alter the transaction terms or path. Demanding liquidation calls for a complete business reset. The recent outcomes show that while activists can win board seats, they cannot always dictate the final deal. The market's immediate reaction to these catalysts-whether a stock pops on a board change or remains flat after a merger vote-depends entirely on which strategy is being executed and whether it succeeds.

The Biotech Sector Setup: Catalysts and Risks

The activist wave is creating a clear tactical setup, but it also introduces significant operational risks. The sector's financial pressure is the fuel for these campaigns. The Nasdaq Biotech Index is down 8% over the past year, a backdrop that makes underperforming, cash-rich companies prime targets. With about one in six index members trading below their cash holdings, the argument for capital return is compelling. Activists are zeroing in on this mismatch, targeting roughly $30 billion in underutilised capital tied up in early-stage developers.

The primary catalyst for investors is the potential for a "cash-rich zombie" to be forced into a liquidation or acquisition. This isn't theoretical. Funds like Tang Capital Management have already pressured companies like Allakos and Cargo Therapeutics toward shutdowns. The mechanism is straightforward: when a stock trades below cash, liquidation can return more value than continuing high-risk R&D. This creates a direct path for capital return, which is the core demand driving the surge in healthcare-focused activist campaigns, which jumped 61% year-on-year in the first half of 2025.

Yet the path to this catalyst is fraught with operational disruption. The Staar Surgical case is a textbook example. The proxy battle with Broadwood Partners forced a CEO transition and a board reshuffle, a process that can distract management from core business execution. The prolonged fight itself is a cost, consuming time and resources that could be spent on drug development or strategic planning. This risk is inherent in the activist playbook; the pressure to change strategy often comes with the immediate cost of internal upheaval.

The bottom line is a sector in a state of flux. The financial pressure is real, creating fertile ground for capital-return catalysts. But the activist tactics themselves introduce volatility and operational risk. For event-driven investors, the setup hinges on navigating this tension: the potential for a clean capital return versus the messy, disruptive process of getting there.