Activist Investors Take Aim at Biotech Sector, Reshaping Industry Landscape

In a significant shift within the pharmaceutical and biotech industries, activist investors are increasingly targeting companies in these sectors, leading to heated debates over corporate strategy and shareholder value. This trend has become particularly pronounced in the biotech sub-industry, which emerged as the most active arena for activist investors in the first quarter of 2025.

Rising Tide of Activist Engagement

According to a recent report by corporate advisory firm Sodali, 31 out of 40 top activist investors now hold stakes in biotech companies, surpassing involvement in other sectors such as application software and pharmaceuticals. Jason Black, head of analytics international at Sodali, noted a "general increase" in activist acquisitions of stakes in healthcare-focused companies over the past 12 months.

This surge in activist interest is partly attributed to a perception that the healthcare sector is undervalued. The D. E. Shaw Group, identified as the largest single activist investor in biotech, has amassed stakes in over 140 companies, signaling a strategic focus on the sector.

Tom Quincey, a partner at law firm Baker McKenzie, observed that 2024 saw the highest level of activist engagement since 2018, with the trend continuing into 2025. He suggested that the reduction in M&A activity might be emboldening activists to seek alternative methods of value creation.

Battlegrounds and Tactics

The impact of this trend is evident in several high-profile cases. Elevation Oncology and Essa Pharma have faced pressure from BML Capital Management and Soleus Capital Management, respectively, to wind down operations and return proceeds to shareholders. Other companies, such as Acelyrin and Dynavax, have encountered opposition to their strategic decisions, including merger plans and asset acquisitions.

Even industry giants are not immune. Pfizer CEO Albert Bourla has faced criticism from Starboard Value, while GSK's Emma Walmsley previously contended with challenges from Elliott Management. Johnson & Johnson's consumer health spinoff, Kenvue, has also attracted attention from activist investors seeking to influence the company's direction.

Implications for the Industry

The activist investor trend is reshaping how biotech companies operate. PwC's 2025 midyear outlook highlighted intensified pressure on companies to improve asset portfolios, leading to increased divestiture activities and a focus on strategic growth areas.

In response, biotech firms are adopting defensive strategies. Sodali's Black emphasized the importance of engaging with all shareholders and mobilizing support. Quincey advised companies to develop clear, defensible strategies to counter activist challenges.

However, concessions to activist demands don't always suffice. Keros Therapeutics, despite pledging to return $375 million to stockholders, faced further demands from ADAR1 Capital Management for more aggressive cost reductions and increased shareholder returns.

As the biotech sector grapples with this new reality, the question remains whether activist investor demands will become the new normal. The answer may depend on whether investors continue to perceive opportunities to increase the value of drug developers in an industry landscape that is rapidly evolving under the influence of these energetic stakeholders.