When Big Pharma execs talk up "synergies" to convince shareholders to buy into mergers, they mean, in part, consolidating contractors. And, with all the megadeals rumored and real surfacing over the past week, CROs could be in for a revenue haircut as the drug business realigns.
The biggest talker is Pfizer's ($PFE) bid to acquire AstraZeneca ($AZN) for about $100 billion, news that went from market chatter to open conversation this week. Those two companies are major CRO clients, and, looking at the landscape, Sterne Agee analyst Greg Bolan sees potential for some serious disruption.
Pfizer uses all of the top-5 preclinical CROs for its early-phase work, Bolan wrote in a note to investors, but mainly leans on Parexel ($PRXL) and Icon ($ICLR) for its mid- and late-stage programs. AstraZeneca, on the other hand, relies on Charles River Labs ($CRL) for preclinical research, Quintiles ($Q) for pharmacology studies and Parexel for later work, according to Bolan.
The so-called incumbent CRO often wins out in Big Pharma M&A, Bolan wrote, but that's not always the case, and, if Pfizer and AstraZeneca do in fact merge, the resulting synergies could find Icon and Parexel scrambling to maintain contracts.
And beyond the multinational contractors, a realignment among big drugmakers will undoubtedly trickle down to smaller providers, as well. GlaxoSmithKline ($GSK), Novartis ($NVS) and Eli Lilly ($LLY) are bound to find some redundancies as they size up their new acquisitions, and the resulting consolidation will make competition for partnerships all the more difficult.