When a contraction such as this is made the first syllable is attached proclitically and was felt to be part of the following word, for pronunciation and spelling purposes. The vowel or diphtong is no longer considered initial, and therefore loses the breathing mark (the preferred term in English). Another example would be the contraction for τα αυτα, τ'αυτα (which looks just like the neuter nom/acc plural for ουτος, except for accent and unless the editor shows an apostrophe or some such to indicate the contraction -- I'm using my iPad which does not have a true polytonic font, so I'm doing my best here
). Most editors will not show a breathing mark. They may or may not use an apostrophe for the contraction. I've seen one or two texts which preserve the original breathing, probably to help the reader realize that it's a contraction. I think the current consensus is not to do so.
N.E. Barry Hofstetter
The Jack M. Barrack Hebrew Academy
Semper melius Latine sonat...