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 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 team.