The opportunity for innovation in drug discovery has never been brighter. The understanding of relationships between genetic
makeup and disease is expanding. Our population is aging and in need of new treatments to prolong and improve the quality
of life. Expectations for access to medicine on a global basis are increasing.
In spite of all of the opportunities, there are many factors acting in opposition to pharmaceutical innovation including:
rising costs of R&D, longer development timelines, shorter periods of exclusivity for innovators to recover investment, pricing
pressures, increasing regulatory expectations and expectations for demonstrating benefit over existing standards of care.
The juxtaposition of opportunity with the need to improve productivity calls for innovators to consider new options for increasing
value and reducing costs.
Eli Lilly is a global pharmaceutical company with approximately 46,000 employees operating in more than 146 countries and
$22 billion in sales. Lilly invests more than $5 billion a year in R&D, but, like most pharmaceutical companies, must manage
patent losses and an evolving R&D business model. In 2008, Lilly sought to reduce fixed overhead to focus on internal investments
by selling or closing facilities and creating strategic partnerships with third parties. The Greenfield Laboratories in Greenfield,
Indiana, were part of Lilly's history for nearly 90 years but had become underutilized due to an increase in global capability
and affordability of third party contract providers. The Lilly Clinic for Pharmaceutical Research located at the Indiana School
of Medicine was also underutilized for similar reasons. Lilly had dramatically increased the quality and volume of molecules
in development, but needed access to broader and more flexible capacity than its own facilities could provide. Lilly also
sought to create value from a highly capable but underutilized plant site for its employees, and for Indiana, which has been
Lilly's corporate home for more than 136 years.
In 2008, Lilly was preparing for the pending patent loss of several of its successful innovative medicines while managing
a full and flowing pipeline of molecules in development. In this evolving landscape, all portions of the R&D enterprise were
evaluated and placed in a capabilities matrix in order to assess how the generous, but limited, R&D investments could be used
to produce value (Figure 1). This evaluation was conducted against the anticipated patent expiry time period, where revenue
growth would be negatively impacted, but where significant resources would also be required to advance the portfolio.
One fixed asset was Lilly's 600,000 square feet Greenfield Laboratory. This laboratory had become the home of Lilly's toxicology
facility and was a strong contributor to Lilly's pipeline of innovation with years of demonstrated excellence in the design,
conduct, and interpretation of safety studies for exciting investigational medicines in development. As Lilly's pipeline grew,
more flexible and cost effective alternatives were required to advance the pipeline and reduce costs.
The goal: a new strategic partnership model
Lilly's initial outsourcing efforts date back to the late 1990s and were focused in toxicology. The long live-phase studies
(oncogenicity and chronic toxicology) were the first to be fully outsourced starting between 1998 and 1999 with the redirection
of internal Lilly resources for shorter term studies. By 2004, approximately 80 percent of all Lilly GLP toxicology study
support was being provided by contract research organizations (CROs). Lilly challenged itself at that time to understand the
efficiency of its operating model which maintained full GLP certification for the Greenfield facility despite outsourcing
the majority of the GLP study work. The subsequent business analysis revealed that cost savings could be captured by either
running all GLP work internally, utilizing the resources needed to maintain GLP certification to their fullest, or moving
all GLP work to CROs. The business analysis also revealed that, based on portfolio growth projections, bringing all GLP toxicology
work back "in house" would require major capital investments in expanding the Greenfield vivarium space and additional human
resources to support that work. In mid-2005, Lilly took the calculated risk of moving all GLP study activities to an external
network of qualified CRO providers to reduce fixed expenses and increase flexible capacity to deliver the portfolio.
Lilly wanted a strategic and reliable partner to maintain the quality of research and products while expanding the volume
of capabilities available. Lilly developed the concept of becoming a Fully Integrated Pharmaceutical Network (FIPNet) and
was evolving its thinking of CRO relationships to more strategic commitments across a smaller base. The three most important
criteria Lilly selected to conduct this assessment were quality, capability, and reliable delivery.
Four options were evaluated for the Lilly Greenfield site prior to the ultimate decision to sell the facility and enter into
a strategic partnership with Covance. The first option considered was to continue operation at the site by spinning off the
location as a standalone contract service provider to compete with other CROs. This option was not selected due to the size,
cost, lack of experience of Lilly's employee base in managing a CRO, and the need to leverage the available CRO capacity across
the industry. Additionally, there was a low probability that competitors would place studies in a previously owned Lilly facility
without significant time for transition. The second option was to vacate the site and outsource work to existing contract
laboratories. A third option explored was to sell the site to the state of Indiana and designate it as a technology park and
lease back only one or two buildings at the site for Lilly's use. This option proved to be minimally cost effective, not strategic,
and difficult to manage. The fourth option was to sell the site to a strategic partner under terms and conditions equally
beneficial to both parties. Lilly wanted a capable partner that would maintain the quality of research and fully utilize the
capability of the site and staff. After careful consideration, Covance became the preferred partner with which to negotiate
this historic transition. Additionally, Lilly's history and experience working with Covance was a determining factor because
of their documented performance, trust in the dependable delivery of quality work and the strategic engagement of their leadership