When Charles River Laboratories Inc. chief executive James C. Foster looks across Massachusetts, he sees a string of major companies supplying drug firms with services and equipment.
Those suppliers include multibillion-dollar companies like Charles River in Wilmington, Waters Corp. in Milford, Millipore Corp. in Billerica, and several Waltham companies, such as Thermo Fisher Scientific Inc. and PerkinElmer Inc.
But in the next few years, Foster believes, the number will shrink. He said major drug companies, in a bid to cut costs, are trying to deal with fewer vendors, putting pressure on suppliers to merge. A senior executive at one major pharmaceutical company told Foster it planned to cut the number of vendors it uses from 250 to 50 by the end of 2007, and then to 10 within the next few years.
"I think it's inevitable the big drug companies are going to want to buy from a smaller number of players," Foster said.
If he is correct, it could be one of the next major trends to sweep the state's life sciences industry, which boasts hundreds of companies and makes up a critical part of the region's economy.
Consolidation has already become a hallmark of other segments of the life sciences industry, including medical devices and biotechnology.
Several Massachusetts medical-device makers, including Hologic Inc. of Bedford, Inverness Medical Innovations Inc. in Waltham, and Boston Scientific Corp. of Natick, have over the past few years beefed up their product lines with major acquisitions. And major drug companies have scooped up a growing number of biotech firms, including some in Massachusetts, as they look for ways to replenish their pipelines with promising new drugs.
Some supply companies have already combined. Waltham-based Thermo Electron made headlines in 2006 when it bought Fisher Scientific International for $10.6 billion, creating one of the world's largest suppliers of laboratory equipment. Now Foster and some other executives and analysts say more deals are inevitable.
"The industry should consolidate," said John L. Sullivan, a financial analyst with Leerink Swann & Co. in Boston.
Sullivan cited a number of reasons: Small companies need to merge with bigger companies to gain access to a worldwide sales force and distribution. Large companies can expand their portfolio of products and services by joining forces. Indeed, Sullivan noted that drug companies would rather buy an "A-" product from a well-known supplier instead of an "A+" product from an upstart they can't count on to survive.
Bay State executives differ on how sweeping the trend will be.
PerkinElmer's CEO, Robert F. Friel, agreed with Foster. "I think that the large drug companies are looking for fewer suppliers," he said. "I think there is a natural evolution where there is consolidation and that will continue."
But PerkinElmer's chairman and former CEO, Gregory L. Summe, noted: "It's not a super rapid trend." He pointed out that many suppliers have starkly different businesses, making it more difficult to consolidate. And some companies prize independence.
Thermo Fisher Scientific, one of the biggest Massachusetts suppliers to the pharmaceuticals industry, has said it is looking for smaller companies to acquire.
But in an interview late last year, its chief executive, Marijn Dekkers, said the company doesn't plan to make another multibillion-dollar acquisition anytime soon. Dekkers said the company still needs another year to digest the combining of Thermo Electron and Fisher Scientific.
And, Dekkers said, it's harder to find big deals that make sense, adding that "If the stars were aligned, we would consider it."
Charles River, which dominates the market for providing lab rodents to drug companies, says it has made 30 acquisitions since 1994. And Foster said it plans to continue making smaller acquisitions to maintain its position, adding new technologies and branching into new markets.
For instance, Charles River has become increasingly reliant on revenue from services, such as testing drugs in rodents for companies - instead of simply selling the animals.
"We are continuously looking" at possible acquisitions, Foster said. And if he and others are right about the trend, Charles River won't be alone.
Todd Wallack can be reached at twallack@globe.com.
