Our thanks to Théophile and Ruolin for submitting their FACC 400 assignment to post on The Turret. This student guest post looks at the acquisition of small startups by large pharmaceutical companies and how it might impact consumers.

Big Pharma’s Shopping Spree: Who Wins When Drugmakers Buy Startups?

by Théophile Soulié and Ruolin Hue

Known for its blockbuster GLP-1 drugs Mounjaro and Zepbound, Eli Lilly has been putting those profits toward an acquisition spree. On August 31, it agreed to buy Merida Biosciences, which develops precision therapies for autoimmune and allergic diseases, for up to $2.875 billion—its 13th biotech acquisition this year [1].

Lilly’s buying spree reflects a broader shift in how big pharma develops new drugs. Large drugmakers once handled most stages of R&D themselves, from identifying drug targets to developing and marketing treatments, while occasionally acquiring or licensing drugs from smaller companies. In the late 1970s, for example, Lilly licensed lab-made human insulin from Genentech, widely considered the world’s first biotech company [2]. Today, those exceptions have become the norm.

Of the 138 new drugs approved by the FDA for the 20 largest biopharma companies between 2015 and 2021, only 28% were invented in-house [3]. Most (65%) came from outside companies, and 41% came through acquisitions alone [3]. For Johnson & Johnson, Sanofi, Takeda and Biogen, every drug approved during that period was invented elsewhere.

When Big Pharma Buys, Who Wins and Who Pays?

For patients, the strongest argument for acquisitions is reach. Small companies now develop most new drugs, but big pharma often gets them to more patients: drugs invented by small biotechs but launched by larger companies had median second-year sales seven times higher than other launches [4]. This could be partly attributed to big pharma’s global sales and manufacturing networks, but it could also reflect its ability to acquire drugs with larger potential markets, and charge more for them.

Once a startup is acquired, the buyer controls the price. Pharmasset, the startup behind a breakthrough hepatitis C treatment, expected to charge $36,000 per course of treatment. After Gilead acquired the company, the drug launched at $84,000 [5]. At least 27 state Medicaid programs, unable to afford the treatment for everyone who needed it, restricted access to their sickest patients.

For investors, the question is whether acquisitions make risky research easier or harder to fund, which matters for patients too. Only 7.9% of drugs that enter human trials are ever approved [6], so venture investors depend on a small number of successful exits to offset frequent losses. Biotech investor Bruce Booth argues that acquisitions reward investors for taking those risks, especially because few startups can afford to develop a drug all the way to market [7]. Even during the 2025 funding slump, startups continued to be acquired. HSBC Innovation Banking’s Jonathan Norris said this showed companies could still reach an exit with early clinical data [8].

Critics argue that these deals are lopsided. Most startups cannot afford late-stage trials on their own, and there are only a handful of potential buyers, limiting their bargaining power. Big pharma can therefore capture much of a drug’s future value while startups and their investors bear much of the early risk [9]. If that dynamic persists, venture capitalists may earn less from early-stage biotech and become less willing to fund the riskiest projects, which are often the ones leading to major breakthroughs. For patients with hard-to-treat diseases, that could mean fewer new treatments and longer waits for them.

Buying to Bury: Killer Acquisitions

Not every acquisition is about bringing a drug to patients. Sometimes the goal is to make sure a drug never competes. Economists call this a “killer acquisition”: a company buys a startup whose drug threatens one of its own products, then quietly shuts the project down.

This is not just a theory. A 2021 study in the Journal of Political Economy by Cunningham, Ederer and Ma tracked thousands of drug projects [10]. It found that projects overlapping with the buyer’s existing products were 23.4% less likely to keep being developed after the acquisition. The authors estimate that 5 to 7% of pharmaceutical acquisitions are killer acquisitions, and that these deals cluster just below the size at which U.S. regulators must be notified.

The best-known case is Acthar, a drug for infantile spasms whose price went from $40 a vial in 2001 to more than $34,000 [11]. In 2013, its maker Questcor bought the U.S. rights to Synacthen, a cheaper competing drug, and never brought it to market. The U.S. Federal Trade Commission sued, and in 2017 Questcor’s new owner, Mallinckrodt, paid $100 million and had to license Synacthen to a competitor [11].

Conclusion

Acquisitions are now how most new drugs reach patients, and they give investors a reason to fund risky science. But the same deals let buyers set higher prices, squeeze startups and, sometimes, bury drugs that threaten their own sales. Closer review of pharma deals, including smaller ones, would keep the benefits without the killing.

References

[1] A. Philippidis, “Lilly Looks Beyond Obesity with Up-to-$2.9B Acquisition of Merida Biosciences,” GEN – Genetic Engineering and Biotechnology News, Sept. 2026. https://www.genengnews.com/topics/translational-medicine/lilly-looks-beyond-obesity-with-up-to-2-9b-acquisition-of-merida-biosciences/ (accessed Oct. 02, 2026).

[2] RethinkX, “The disruption of insulin–the first product from Precision Fermentation,” Rethinkx.com, Sept. 03, 2020. https://www.rethinkx.com/blog/the-disruption-of-insulin (accessed Oct. 02, 2026).

[3] A. Schuhmacher, M. Hinder, A. Dodel, O. Gassmann, and D. Hartl, “Investigating the origins of recent pharmaceutical innovation,” Nature Reviews Drug Discovery, July 2023, doi: 10.1038/d41573-023-00102-z.

[4] “Emerging Biopharma’s Contribution to Innovation,” www.iqvia.com. https://www.iqvia.com/insights/the-iqvia-institute/reports-and-publications/reports/emerging-biopharma-contribution-to-innovation (accessed Oct. 02, 2026).

[5] Z. E. Research, “Hefty Price Tag of Gilead’s Sovaldi Questioned Again,” Yahoo Finance, July 14, 2014. https://finance.yahoo.com/news/hefty-price-tag-gileads-sovaldi-143014451.html (accessed Oct. 02, 2026).

[6] E. Kim, J. Yang, S. Park, and K. Shin, “Factors Affecting Success of New Drug Clinical Trials,” Therapeutic Innovation & Regulatory Science, vol. 57, no. 4, pp. 737–750, May 2023, doi: 10.1007/s43441-023-00509-1.

[7] Bruce, “Twenty Years In Early Stage Biotech VC (Part 3): Business,” LifeSciVC, Oct. 16, 2025. https://lifescivc.com/2025/10/twenty-years-in-early-stage-biotech-vc-part-3-business/ (accessedOct. 02, 2026).

[8] G. Wu, “Biotech startup funding dried up in second quarter, HSBC finds,” BioPharma Dive, July 17, 2025. https://www.biopharmadive.com/news/biotech-venture-capital-funding-h1-2025-hsbc/753283/ (accessed Oct. 02, 2026).

[9] E. Billette de Villemeur, J. W. Scannell, and B. Versaevel, “Biopharmaceutical R&D outsourcing: Short-term gain for long-term pain?,” Drug Discovery Today, vol. 27, no. 11, p. 103333, Nov. 2022, doi: 10.1016/j.drudis.2022.08.001.

[10] Cunningham, C., Ederer, F., & Ma, S. (2021). Killer acquisitions. Journal of Political Economy, 129(3), 649–702. doi: 10.1086/712506.

[11] U.S. Federal Trade Commission. (2017, January 18). Mallinckrodt will pay $100 million to settle FTC, state charges it illegally maintained its monopoly of specialty drug used to treat infants. https://www.ftc.gov/news-events/news/press-releases/2017/01/mallinckrodt-will-pay-100-million-settle-ftc-state-charges-it-illegally-maintained-its-monopoly.