Thermo Fisher to acquire PPD for $17 billion

Thermo Fisher Scientific has agreed to purchase PPD, which manages clinical testing of drugs in development, for $17.4 billion. The acquisition adds a wholly new facet to the pharmaceutical services offered by Thermo Fisher, which, since its acquisition of Patheon in 2017,has aggressively amassed a “one-stop shop” for drug industry customers.

PPD, majority-owned by the private equity firms Hellman & Friedman and the Carlyle Group, reported $4.7 billion in sales last year. The firm operates 650 facilities around the world with a workforce of 26,000. It says it has worked with the top 50 pharmaceutical companies, notably managing trials for Moderna’s COVID-19 vaccine last year.

Thermo Fisher, which doesn’t break out figures for pharmaceutical services, reported $32.2 billion in sales last year.

A leader in scientific instrumentation, Thermo Fisher dove into pharmaceutical services when it paid $7.2 billion for Patheon, a producer of active pharmaceutical ingredients and finished-dose medicines for drug industry customers.

Thermo Fisher added new service areas with a series of acquisitions, notably the 2019 purchase of Brammer Bio, a specialist in viral vectors for cell and gene therapy, for $1.7 billion.

Other big drug service firms have branched beyond active ingredients in recent years by adding formulation and finished drug production. But Thermo is the first to step into clinical trial management, a field that is significantly different from developing and manufacturing drugs.

“It’s almost a logical follow-up on what had been happening in terms of integration so far, but it’s remarkable to say the least,” says industry consultant Jan Ramakers. He says it’s likely that other drug service firms will follow Thermo Fisher’s lead, especially as clinical trials ramp up after last year’s pandemic-related drop-off.

But trial management is a fundamentally new business for these firms, Ramakers says. He says it reminds him of the unsuccessful attempts on the part of diversified chemical companies to move into the pharmaceutical chemical business 20 years ago.

Ramakers suggests that Thermo Fisher may opt to run PPD as a separate business, given the complications of combining drug manufacturing with clinical trial management. “It’s a risk,” he says, “but you can manage that risk by keeping it separate.”

James Bruno, head of the consulting firm Chemical and Pharmaceutical Solutions, agrees, noting that Thermo Fisher already keeps its pharma services business largely separate from its instrumentation operations. But there is a direct connection between manufacturing drugs and testing them in the clinic. “The pieces are related,” he says. “They are going to have to cooperate with each other.”

Bruno, a critic of the one-stop shop approach to pharmaceutical services, views the deal as the ultimate move toward services hegemony. “They want to be able to say to you, ‘Call me up, and not only will I make your drug and test your drug, I will do all your clinical trials, I’ll do your packing, I will do your labeling, I will do you distribution,’” Bruno says. “I am waiting for them to buy a hospital next.”

But Bruno says he doubts that other services firms will add clinical trials in a similar acquisition, noting that few have all the other pieces in place to merit the move into trial management. “Few have $17 billion laying around,” he says.