It was 2010 and Newport Medical Instruments, a small medical device company in Costa Mesa, California, was excited. They had just signed a federal contract to design and build up to 40,000 mobile ventilators, which would be placed into the national stockpile in the interest of pandemic preparedness. After SARS and bird flu and swine flu, the government needed to steel itself should a deadly infectious disease go viral.
Newport agreed to deliver the devices at a low-cost, not only to maximize federal purchases but also to build a reputation that could increase sales to other countries and the private sector. The company sent prototypes within a year, and was on track for market approval by 2013.
But before that could happen, Covidien, a larger firm, announced a bid to purchase Newport for $108 million in March 2012. The Federal Trade Commission didn’t even give it a second look; the deal closed in May. And Covidien sold its own ventilators. They weren’t interested in developing a new model that could cut into its existing profits. Covidien immediately asked for more money from the government, and by 2014 they called off the deal because “it was not sufficiently profitable for the company.” The government started over, found another little company to make the ventilators, and they were just about to start delivering them—in mid-2020, too late to assist the immediate COVID-19 crisis.
Amazingly, this maneuver, where a large company buys out an upstart making an innovative product that could outcompete their tried-and-true model, is relatively common. In a 2018 paper called Killer Acquisitions, researchers at Yale and the London Business School found an average of 45 instances per year of pharmaceutical firms buying out competitors developing rival drugs that could cut into their profits, and subsequently putting the new therapeutic on ice. Last October, Roche purchased a small firm called Spark Therapeutics, which was successfully testing a one-time hemophilia A treatment. Roche’s hemophilia drug Hemlibra requires a dosage every four weeks, so they had plenty of incentive to put the one-time drug, or in other words the cure, on the shelf.
