You're right. In this sentence 'too bad' means 'what a pity', 'what a shame' or 'unfortunately'.
It sounds like the speaker was using sarcasm.
I think the speaker expects the person s/he is talking to do to die soon. I also think the speaker is planning to kill the person they are talking to. It sounds like something a villain would say to 007 (or Dr. Evil talking to Austin Powers) ...
"By this time tomorrow I will control the whole world, Mr. Bond. It's too bad you won't be here to see it" (because I'm about to feed you to my pet sharks)
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