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)
COMICS for English students ... Grammarman Comic