Covance buys Eli Lilly facility in 10-year deal

August 12, 2008

By Flinn Foundation

[Source: Associated Press] – Drug-development services company Covance Inc. will buy an Indiana research center from Eli Lilly and Co. and enter a 10-year service deal with the drug maker worth $1.6 billion.

New Jersey-based Covance will pay $50 million for Lilly’s 450-acre drug development campus in Greenfield, Ind., while offering employment to about 260 Lilly employees. Lilly is headquartered in Indianapolis.

Covance will use the site to provide mostly early-stage clinical trial work to Lilly as part of the 10-year contract. Covance also will do mid- and late-stage work and use the site to help other biotech and pharmaceutical companies.

“Covance has had a need for additional capacity,” CEO Joe Herring said. “We have been building as fast we can and have not been able to actually keep up with the demand for these services.”
Covance, which is building a $150 million facility in Chandler, does not expect the deal will immediately create work for its Arizona operations. The company plans to hire between 100 and 200 lab technicians, scientists, information technology workers and other administrative staff for its Chandler facility, expected to open during the first half of 2009, a Covance representative said.

The Chandler facility will primarily be used to perform drug-development services for biotech companies based in West Coast markets such as Southern California, the San Francisco Bay area and the Seattle area.

Herring said his company already does about $70 million in work annually for Lilly. The new contract will lock that in and add $90 million annually.

Drug developers have been outsourcing more of their research and development work to clinical research organizations in an effort to control costs. In turn, clinical research companies, which provide a range of laboratory work and drug testing, have seen demand and profit jump.

The center will be transferred to Covance in October. It currently runs at less than half capacity. But Herring said Covance runs its sites at between 85 and 90 percent capacity because it works with several drug makers. That helps balance the workload when one company’s development pipeline slows.

Shares of Princeton, N.J.-based Covance rose $5.44, or 5.9 percent, to $97.26 Wednesday. Lilly shares rose 21 cents to $48.0.

Republic reporter Ken Alltucker contributed to this story.