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Eli Lilly faces up to the new realities of the bio/pharmaceutical industry through outsourcing.
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.
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).
Table I: Eli Lillys strategic sourcing relationships.
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, firstname.lastname@example.org, www.pharmsource.com.