Covance buys Eli Lilly facility in 10-year deal

By Damian Troise and Tom Murphy, ASSOCIATED PRESS
Posted: August 07, 2008

INDIANAPOLIS - 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 drugmaker 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 as we can and have not been able to actually keep up with the demand for these services."

Herring said his company already performs 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 percent and 90 percent capacity because it works with several drugmakers. That helps balance the workload when one company's development pipeline slows.

Shares of Princeton, N.J.-based Covance were trading at $97.96, up $0.70 (0.72 percent) this morning. Lilly shares were priced at $48.07, up $0.07 (0.15 percent) this morning.

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