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Why the Companies That Actually Make Your Drugs Are in a Merger Frenzy

Patheon, the Dutch drug ingredients manufacturer, saw its stock soar more than 33% in early Monday trading after scientific instruments giant Thermo Fisher announced a $5.2 billion deal to buy the firm. The combined company (if the deal closes) would become a one-stop third-party outfit for drug makers that need to outsource clinical research, drug development, and manufacturing. And it’s the latest in a series of big mergers in this critical part of the pharma industry supply chain being driven by wider biopharma consolidation.

“Thermo Fisher already had a developing and strong position in clinical trial manufacturing and now expands that arm into drug manufacturing, which is likely to highlight its growing presence in the market of bioproduction and bioprocessing,” wrote Leerink analysts in a research note.

Drug companies regularly turn to third-party partners to help them run clinical trials and produce medicines on a wide scale. That’s not much of a surprise—drug development is a high-risk industry in which quality control and mass manufacturing is key. Biopharma firms have to focus their resources, and plenty of companies don’t have the capacity to take on all the heavy lifting by themselves.

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But this reality has catalyzed trends that are reshaping the very contours of medicine-making. The lines between big pharmas and small biotechs are blurring, with pharmaceutical titans pursuing mergers with rivals and various partnerships with more bare-bones, nimble upstarts. Many of the largest companies are also grappling with an ongoing plunge in return-on-investment when it comes to drug R&D and are desperate to seed their experimental drug pipelines while simultaneously cutting costs.

This amounts to massive upheaval for the third-party clinical research, development, and manufacturing firms which have relied on the primary drug market. A contract research or manufacturing organization may have a relationship with one company only to see it crumble after a merger.

Their defense mechanism? The same as traditional pharma’s: consolidation. Last year, Quintiles and IMS Health struck a $9 billion mega-merger that birthed one of the largest drug research outsourcing companies. And just last week, inVentiv Health and INC Research announced an unexpected deal themselves.

It goes to show just how big of an effect shifts in one part of an industry can have on its corporate cousins.