Say startup company develops drug A that will compete with big pharma drug B which is making billions a year, and envisions it to make 7 billion in the next 5 years. An internal analysis from big pharma calculate drug A could wipe out half of that =2.5 billion. Big pharma buys out the startup for a billion, close them down indefinitely. Couldn’t that happen?
Getting a drug to market is horrifically risky all the way up through approval (and still somewhat risky post approval). ~1/1000 compounds get to market and ~1/100 drugs make it from Phase 1 (first in human/safety) to sale. By the time the odds are decent that a drug will get approved, the sponsoring company will have sunk much of the ~$1 billion it takes to get all the way across the line.
At that point the valuation of said startup is going to be approaching the expected life time value of the drug (less a discount for risk of a late failure and the time value of money). Any acquirer might as well finishing getting the drug and its new patent protection the rest of the way to market.
That startup won't have the couple hundred millions needed to get the compound through clinical in the first place. So, what they do is they team up with "Big Pharma" (I hate that dog whistle) and get royalties.
For the pharma corp. it makes sense as the new antibiotic will also take market share from the competition, so they have a net gain. If they project to lose 2.5bn on their existing drug, spend 1bn for purchasing the startup and make 7bn on the new drug, why on earth would they buy the startup to shut it down?
Drugs only get about 10 years of market time on patent, because drug candidates are patented before they go through clinical development. So this hypothetical drug company might patent the acquisition and start putting it through clinical trials to have something on deck when the original one goes generic
