Corporate growth is difficult to effectively manage, but Covance was able to grow a high quality business with committed volume
and acquire new facilities in a single deal structure. Forming this strategic partnership with Lilly has enhanced Covance's
discovery and pre-clinical capabilities to engage a broader set of clients. In the course of executing this strategy, it was
apparent that Covance also needed to change its business processes to understand and adapt to the speed and efficiency of
newer, less linear study designs, such as in vivo pharmacology.
Very quickly, Covance recognized the value of integrating the scientific disciplines at the site by utilizing a full service
model for the discovery work instead of adapting the functional approach used in the past. Prior to the partnership, Lilly
research, including pharmacokinetics, toxicology, and ADME, was often performed in a "siloed" structure with each scientific
group conducting studies within their area of expertise, without a view of the overall study plan for the project or compound.
It was common that once a study was completed and reported back to the requestor, it was up to the project team to aggregate
the data sets. Once the transition was complete, the site staff soon realized that integrating these independent functions
provided an opportunity that had not existed inside Lilly. As a result, value was also created through the integration of
pharmacology and non-GLP toxicolgy. Additionally, Covance learned that applying their standard study systems that were run
effectively at their other sites required an adjustment to the non-linear nature of early discovery work conducted at Greenfield.
There was also a need to immediately build fire walls against other companies conducting work at the facility.
One transition element for former Lilly employees was their need to recognize a shift in relationships and perspective as
previous colleagues became sponsors rather than co-workers. Four years since the deal was completed, communication and flexibility
are crucial as Lilly's proportion of the site's capacity decreased while the site built a new client base that supports more
than 100 unique sponsors. Another key benefit of the strategic partnership is access to unique external viewpoints which allow
for the sharing of non-proprietary information. This information can benefit approaches to protocol development, study design,
insights on how to improve standard cycle times for routine studies, and even data analysis.
In retrospect, the decision to opt for further expansion of the Lilly Covance strategic partnership, reaffirmed the significant
positive economic impact the decision has had on the local community and the state of Indiana. If Lilly had decided to close
the site and outsource the work to other entities globally, the loss of jobs in an industry that is essential to the economic
strategy of Indiana may have put into question the long-term viability of the strategy.
To determine the economic impact of Lilly's decision to maintain a critical R&D capability in Indiana through a third party,
a study was designed with Crowe Horwath, LLP to quantify and measure the direct, indirect, and induced effects at the Greenfield
research site from October 1, 2008 to December 31, 2011 on the local and state economy (see table above). The study focused
on key areas such as: employment levels, payroll (wages), and annual output from operational and capital expenditures from
the date Covance acquired the site. The initial purchase of the site provided both local and statewide benefits since a majority
of the approximate 250 Lilly employees who accepted positions with Covance in 2008 are still with the company today. In addition,
from October 2008 to December 2011, Covance has hired more than 270 new employees at the site. At the time of the formation
of this aspect of the partnership, Covance had been in Indiana for more than 20 years with a global facility in Indianapolis
and a Phase I clinic in Evansville, with approximately 1,000 employees. Covance's own operations at the Greenfield site combined
with the multiplied effects of those operations experienced by others are estimated to have added 564 jobs, $35.7 million
in wages annually, and $102.4 million in annual output. As a result, Covance recently announced another expansion at the Greenfield
site that includes new North American centers of excellence in genetic toxicology, sample storage and developmental and reproductive
The bottom line
The pharmaceutical industry needs fresh ideas for reducing recurring expense, expanding learning and increasing the cost effectiveness
of discovery and development. This article elaborated upon tactics employed to foster success for both companies, thus allowing
for the application of similar tactics for other organizations wishing to effectively decrease fixed costs while increasing
flexible capacity. From this partnership, Lilly gained more flexible capacity, access to new, non-proprietary processes and
systems that have decreased fixed costs. Covance gained added capabilities in new business lines, an assortment of highly
trained scientists, and increased integration across business lines, thus sparking further innovation. It is evident that
the economic impact retained and scientific productivity gained demonstrates that divestiture of core R&D capabilities is
feasible in today's tough business environment.
Kathryn Torrey was a graduate student at the University of Illinois-Urbana Champaign. James Grace, PhD, is a Senior Director and Andrew M. Dahlem, PhD, is Vice President both at Eli Lilly and Company. Dahlem can be reached at
Author's Note: The authors would like thank Stephanie Gleissner, Adrienne Takacs, Vince Romano, Mike Masnyk from Lilly and Andrew Eibling,
Brad Wynja, and Chris Melling from Covance for their assistance in preparing this article. The authors would also like to
thank Crowe Horwath LLP for analyzing the economic impact of the partnership.