Zombie stock is a term used to describe insolvent companies that keep operating. They can repay interest on their debt but not the debt itself, and the only thing saving them from bankruptcy is financial support from the government or a venture investor.
Biotech zombies are heavily indebted biotechnology companies. They exist on paper but have no available cash to be engaging in substantial R&D activities.
Who are the Frankensteins that create such monsters? Often, they are local governments, a foundation or a wealthy venture investor. In the beginning, a biotech company shows no signs of being a zombie. The future walking dead seems quite alive and even claims to be inventing a revolutionary treatment.
As a rule, biotech companies usually focus on common diseases that affect a large proportion of the population. Testing requires huge capital, thus for a startup to survive, the research should cover a wide-spread illness. Examples include cancer, AIDS, Alzheimer's, etc.
A zombie's life expectancy is hard to predict, thus investments in such companies are very risky. An investor backing a biotech startup may be able to expect returns in 5-12 years, if a company is successful. On the other hand, if it fails to develop and market a breakthrough drug, the startup may turn bankrupt in no time at all.
Let’s follow a typical zombie behavioural pattern.