Jim Miller
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After Moses led the Israelites out of Egypt, he faced a tough challenge: how to transform a people living as slaves among
idol worshippers into a free people believing in one god. His solution to the challenge was pretty extreme: he marched his
followers around the Sinai Desert for 40 years until those who had been slaves in Egypt died off and only people who had known
freedom entered the Promised Land.
Chief executives at global bio/pharmaceutical companies face a challenge similar to that faced by Moses 2500 years ago: how
to transform a deeply engrained corporate culture characterized by high costs and slow decision-making into a culture valuing
speed and flexibility. Of course, CEOs don't have the luxury of waiting 40 years for a turnaround, but the efforts at most
companies seem to be pretty tepid relative to the problem. Acquisitions and reorganizations address part of the global bio/pharmaceutical
companies' problems, but they do little to transform those companies' bloated, slow-moving bureaucracies.
One company that seems to understand that these times call for bold solutions is Eli Lilly (Indianapolis, IN). During the
past two years, Lilly has established a number of strategic sourcing relationships that simultaneously have reduced its fixed
cost structure while giving it access to best-in-class development and manufacturing services.
The largest of those strategic relationships was the long-term deal with Covance (Princeton, NJ) announced in August 2008.
Covance received a 10-year contract worth a minimum of $1.6 billion to provide a package of services, including most of Lilly'
toxicology and central laboratory requirements. As part of the deal, Covance acquired Lilly's 450-acre campus in Greenfield,
Indiana, outside of Indianapolis, with its 600,000-ft2 facility housing toxicology and bioanalytical laboratories. Covance took on most of the 265 Lilly employees working at the
site.
Most recently, Lilly announced a strategic deal with Fisher Clinical Services, a unit of Thermo Fisher Scientific (Waltham,
MA), for manufacturing, packaging, labeling, and distribution of clinical-trial materials (CTM). Under the agreement, Fisher
Clinical will assume responsibility for the CTM operations at Lilly Technology Center in Indianapolis and will purchase Lilly's
manufacturing and packaging equipment. Staff of Lilly's CTM operations will be given the opportunity to apply for positions
with Fisher Clinical Services.
Table I: Eli Lillys strategic sourcing relationships.
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The Covance and Fisher Clinical deals are notable for their size and scope. Lilly, however, also has put into place other
strategic deals for a variety of services in discovery, clinical research, and manufacturing (see Table I).
FIPNet strategy
Lilly has been forced to deal with circumstances of looming patent expirations and late-stage clinical failures that are particularly
dire even by Big Pharma standards. It has responded by coming up with some of the most innovative drug-development and restructuring
initiatives yet seen in the industry.
One of those initiatives is its FIPNet (fully integrated pharmaceutical network) strategy. Under FIPNet, Lilly is partnering
with service providers with which it has gained extensive experience and which have proven that they can perform key functions
more quickly and cost-effectively than Lilly has been able to perform them in-house. The Covance, Fisher Clinical, and other
strategic sourcing arrangements shown in Table I are part of the FIPNet strategy.
Another noteworthy initiative has been Chorus, Lilly's effort to do a better job of qualifying potential drug candidates and
reducing the costs associated with late-stage clinical failures. Originally established as an experimental business unit focused
on selected discovery candidates, Chorus completely rethought the process by which drug candidates are screened and selected
for further development and devised an entirely new set of experiments to determine the drug potential of compounds identified
in the discovery process. The Chorus program has been so successful that it has been expanded to encompass more compounds
through the early-development process and is participating in a novel new venture with a private equity firm to develop new
drug candidates.
FIPNet and Chorus are a long way from the traditional vertically integrated and paternalistic culture of what was once described
to me as "the Lilly Way." Desperate times call for desperate measures, but those desperate measures may be the innovations
that Lilly and other global bio/pharmaceutical companies need in an increasingly challenging environment.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, info@pharmsource.com
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http://www.pharmsource.com/.
