Changing the R&D landscape

Lilly sells Greenfield Labs, signs 10-year, $1.6 billion R&D deal with Covance

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INDIANAPOLIS—In a move that is designed to radically alter the way in which Eli Lilly and Co. brings new drugs to market, the company announced in early August that it was selling its Greenfield Laboratories to CRO Covance Inc. for $50 million. Concurrent with the sale, Lilly made a $1.6-billion commitment to use Covance for a broad range of toxicology and clinical development work over the next 10 years.

According to information released by Lilly announcing the deal, the company has committed to conducting additional Phase I clinical trials with Covance. Since Covance operates a clinic in Evansville, Ind., that essentially mirrors work being conducted at Lilly Center for Medical Science, the volume of work at the Lilly Center will be substantially reduced and the center will most likely be closed.

For Covance, the deal adds critical research capabilities in areas the company doesn't already offer, including in vivo pharmacology, non-GLP tocicology and non-GLP imaging.

The new services couldn't come at a better time.

"We have been rationalizing strategically entering in vivo pharmacology and these imaging services for the past five years," says Joe Herring, Covance chairman and CEO. "This is a very high fixed-cost investment when you think about buying MRIs and CAT scanning equipment … not to mention the very highly specialized talent that is required to do some of these highly specialized procedures."

There were compelling economics to the deal for Covance. Through the acquisition of the Greenfield research campus, the company will add more than 600,000 square feet of laboratory space and will also bring on board roughly 260 former Lilly employees who currently work at the facility. The $50 million price tag appears to be a very small price to pay to get the facility, equipment and expertise to immediately enter new areas of business for the company, especially compared with the anticipated cost to build a new 410,000-square-foot drug development lab it is building in Virginia at a cost of $175 million.

And as if this wasn't reason enough to jump at the offer, the CRO also locked up a solid chunk of business from Lilly across a broad swath of clinical development research that should give it solid footing to expand. At Greenfield there is also has ample room to expand, as the campus--which has served solely as an internal research center for Lilly—is currently operating at about 50 percent capacity.

While Covance anticipates it will need to perform a number of upgrades at the aging facilities spread over 450 acres of Indiana farmland, company officials haven't yet determined what the upgrades would cost.

But this was no fire sale for Lilly, rather a strategic move to provide the company with cost flexibility for its development research, while also locking up a development partner with whom it has a long-standing relationship.

According to Lilly, this deal is just the latest strategic move in a transition designed to take it to a more networked model of doing business by increasing collaborative work with industry and academia across many layers of its organization.

"What we call Years YZ—the period beginning in late 2011 when patents for several medicines begin to expire—requires a thorough transformation of our company that includes reduced cycle times and lower R&D costs," says Dr. John Lechleiter, Lilly's president and CEO.

"Nowhere is Lilly's network strategy more pronounced than in Indiana, where more than 3,000 firms support the company's work in both national and global markets," Lechleiter continues. "Through this collaboration with Covance and others, Lilly will help enhance the region's life sciences sector, expanding Lilly's economic footprint in Indiana as never before." DDN

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