Although appearing dead for now, the $106 billion associated with Pfizer’s proposed buyout of AstraZeneca makes it hard to ignore the recent ramp up of M&A activity in the pharmaceutical industry. These deals generally seek to augment pipelines, and to provide large life science players with intelligence, products, and talent that will bolster their core business objectives. Bayer’s acquisition of Merck’s Consumer Care business has given the company the number two position globally in over-the-counter products; Shire’s acquisition of Lumena provides a path for growth in the gastrointestinal business; and GlaxoSmithKline’s purchase of Novartis’ vaccines division benefits both companies and decreases the number of large competitors in the vaccine segment.

While these deals are closely monitored by analysts, less covered are the players in the periphery – contract research and manufacturing organizations (CROs and CMOs). What does M&A activity mean for these vital pharmaceutical industry services providers?

For CMOs and CROs, mergers and acquisitions among their clients can mean big changes. In the case of Pfizer and AstraZeneca, each party has its own unique strategy on how and why they contract with CROs, not to mention that the two giants contract different research organizations. Is the CRO focused on early stage work? What contract model are they currently using?  What are the service providers’ expectations of pharmaceutical companies?  And, the biggest question, how will the business dynamics, contract terms, and CRO and CMO selection be affected?

The pharmaceutical industry is constantly evolving, and with the recent flutter of M&A activity, it is important for CROs and CMOs to anticipate the impact to their operations and adjust their strategies accordingly. Although M&A can ultimately lead to the consolidation of contract work to a few providers, some industry experts believe that it also spurs opportunity.

In the current environment, CRO and CMOs must reconsider their business processes, strategies, and the breadth of services that they offer. Those that provide end to end service offerings are more likely to take advantage of the industry’s growth potential. CMOs and CROs may see an increase in M&A activity in their own market to provide more extensive service offerings. The contracting environment will likely mirror the activity in the pharmaceutical industry, particularly as these organizations aim to meet the needs of their evolving customer base.