Eli Lilly has announced that it will hand over a large proportion of its R&D efforts to contract research organization Covance. The deal, which involves Covance acquiring Lilly’s 1,700-acre R&D site at Greenfield, is one of a number of major structural changes engineered by Lilly to improve its fiscal performance in the face of increasing market pressures, particularly the impact of generic drugs.

As generic drugs continue to seize market share from branded drug developers, pharmaceutical companies are increasingly targeting operating cost efficiency in order to secure long-term profitability. Eli Lilly, one of the world’s largest pharmaceutical companies, will face sizeable expiry challenges when key brands such as Evista, Zyprexa and Cymbalta lose market exclusivity over the ‘patent-cliff’ of 2012. Fearing lost revenues, Lilly has outlined a range of cost-saving strategies that it will look to implement in order to sustain an efficient R&D-driven business model and secure earnings in the face of generic erosion.

The company announced one such structural change which will see it hand over a significant proportion of its R&D effort to leading contract research organization (CRO) Covance. As part of the deal, Lilly will sell its Indiana-based Greenfield Laboratories, a 1,700-acre site that houses more than 900 Lilly employees. Lilly’s announcement outlined structural changes that extend beyond this agreement, however, with the company also announcing that it would transfer activities based at the Lilly Center for Medical Science to Covance’s nearby early-stage clinical facilities. Furthermore, it will outsource its clinical trial monitoring operations to Quintiles and shift data management work in the US to i3.

The deal with Covance, which builds on a strong pre-existing partnership between the two firms, involves a 10-year contract for the CRO to supply drug development services, and is valued at $1.6 billion. It will allow Lilly to reduce its long-term R&D expenditure and focus on advancing pipeline programs with much greater efficiency, while Convance will gain an increased functional capacity with which to conduct its global R&D service and grow revenues across its core business function. Lilly’s animal health operation, Elanco, will remain at the Greenfield site prior to the completion of a new headquarters in 2010.

The company expects a number of its staff to be affected by this restructuring effort. Approximately 800 employees will be impacted by the changes, and although Lilly expects to retain many through relocation and the offer of new job opportunities, downsizing of staff numbers will be a key source of savings moving forward.

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