November 26, 2025

How Should Public Biotechs Deal with Activist Investors?

Biotechs are uniquely susceptible to activist investors by virtue of the large amounts of cash they typically have on hand to fund their drug development. During market slumps, or after disappointing data, this can lead to a biotech’s market capitalization falling below the amount of cash they have on their balance sheet, making them an obvious target for activists.

The existence of a supportive cap table (friendly long-term investors, some of whom might have been with the company since its founding) can put off activism, but it’s worth noting that those long-term investors don’t exactly like their investments trading at depressed values and will often tolerate activist investors, allowing them to do the “dirty work” for them.

Certainly, activism in biotechnology is becoming a more regular occurrence.

What then can be done to avoid being caught off-guard by the (sudden and often quickly escalating) appearance of an activist investor on their shareholder roster?

Prepare in advance.

Being ready is probably the best defense for a biotech. Here are some pointers:

1. Be sure to always articulate a clear, credible strategy for value creation, and periodically test that narrative ahead of and around important milestones. This narrative will be your key defense against an activist – namely that you can provide shareholders with more value than any proposed alternative.

2. Ensure your board has the relevant expertise (both biotechnology and capital markets experience) to provide suitable oversight of the company, including the appointment of independent directors and a non-executive Chair. 

3. Carefully analyze your quarterly 13F reports (possibly supplemented by  stock surveillance services, such as the one offered by Nasdaq) to monitor changes in your shareholder base, looking for the appearance of any known activists, and regularly seek feedback from existing investors to gauge sentiment.

4. Regularly evaluate strategic alternatives and remain committed to maximizing shareholder value. Over the years, I’ve seen company CEOs lose points with investors by ruling out a sale or out-licensing of a biotech’s assets. While the old adage that “good companies are bought, not sold” remains true, management should publicly remain open to any event that would increase shareholder value and should privately be seeking the best possible outcome anyway.

5. Communicate well and often. Make yourself available through healthcare investor conferences, non-deal roadshows and IR events, and deliver the clear messaging advocated for under point 1. Moreover, maintain a proactive IR program even when things don’t go according to plan.

What to do if an activist emerges.

If an activist acquires a meaningful stake – even if they have not yet become vocal – a biotech should act immediately by:

a) Assessing the activist’s motivation and any claims. Not every position taken by an activist fund (note the difference between 13G and 13D filings) is unfriendly. Understanding what an activist’s demands are (board representation, the return of cash, the investigation of strategic alternatives, etc.) is key to formulating a response. As such, a biotech should always engage the activist (take a meeting or meetings) rather than not. It could be that the activist’s demands align with the company’s long-term strategy, or at least long-term value creation for all shareholders, and not just their own. Additionally, by studying an activist’s track record you will likely also get an idea of the playbook and tactics they use.

b) Engaging other shareholders quickly and constructively. If you followed point 3, you should know how each of your large investors view your prospects and where they see value. Revisit each of these relationships, reiterating your long-term plan for value creation, and informing them of your activist’s views to see if they are sympathetic to the activist’s plight (this will often depend on the average cost of the stake they hold, and sometimes their fund’s performance). Subject to their answers, you may choose to begin a “strategic review” (with or without the participation of the activist), which if you followed point 4 would simply mean making public an existing private process.

c) Evaluating strategic alternatives seriously. If an activist is pushing for a sale, spin-off, liquidation, or other alternative, a biotech’s board should evaluate each and any of those alternatives in parallel with the company’s existing long-term plan. A transparent process with independent advisors – an investment bank, for example – gives credibility to the process and arguably achieves a better outcome.  

d) Protecting value. While mounting a defense, or working collaboratively with an activist, it’s important that a biotech not destroy residual value by losing key staff or delaying clinical or preclinical progress. Often, CEOs have said to me that they are worried about the message “reviewing strategic alternatives” sends to their team or partners. In truth, however, activism usually takes place after a biotech has just done considerable damage to itself anyway (through a failed trial, perhaps), or when its stock is down, so any key hire is likely already looking at their below-water stock options and contemplating their future. Regardless, exiting a company following the conclusion of a strategic review is a much better narrative than the alternative, so this shouldn’t be a concern. And if the best outcome for all shareholders is the return of capital, it may be right to pause or slow spending to a minimum on programs that might ultimately be abandoned. That being said, management should avoid making drastic moves that could imperil long-term shareholder value.

e) Following a crisis communications plan you already have in place. (See our blog: “Do Public Biotechs Need a Crisis Communications Team and Plan?”). If engagement with an activist investor breaks down, that investor may decide to make their demands public – either directly or via a leak to a media outlet – so a biotech should prepare for heightened scrutiny and follow the crisis communications plan it has already put in place (which will not only include a crisis team, but also a plan for public responses).

Conclusion

It’s important to remember that activist investors are not evil. In many ways, they bring efficiencies to the capital market (and to illiquid biotech stocks). It could be that they have something constructive to offer your company (skills, ideas, or even just in highlighting that your stock price is undervalued). As such, it’s important that C-suite members keep their egos in check, as doing the right thing during a moment of activism (and operating in the interests of all shareholders, not themselves or their “vision” for the company) is how they will be judged after the event.   

Remember to engage, engage, engage. Often you will not want to – after all, activists will likely appear just after a pipeline failure or when your stock is in the dumps. Activists nevertheless have the potential to help you and hearing them out and working together (if it’s in every shareholder’s interest) is often cheaper and less messy than an extended proxy fight (or worse, litigation).

Biotech checklist for potential activism:

□              Regularly review your cash runway and capital allocation plan.

□              Clearly map out your plan for value creation including upsides, risks and contingencies.

□              Regularly review your shareholder base to determine your activism risk.  

□              Maintain the independence and expertise of your board (and keep them informed of all other items on this checklist).

□              Develop a “strategic alternatives” process to show  that you are up to date on other value avenues your company could pursue, and to expand upon as part of any formal process, if needed.

□              Prepare a crisis communications plan (see our additional blog on this issue).

□              Regularly engage your institutional shareholders to understand their level of support for your existing strategy and their outlook for the company.

□              Have your legal team review your corporate charter and/or any bylaws to understand any takeover or proxy fight risks.

□              Regularly simulate activist scenarios and potential responses ahead of major milestones and/or during times of share price weakness.