Purdue University’s decision to close the Chao Center in West Lafayette is a setback for Indiana’s effort to grow a vibrant contract drug manufacturing sector. But it’s just the latest in a series of unexpected changes—not all for the worse—since Indianapolis-based BioCrossroads launched a contract drug manufacturing initiative in late 2007.

The Chao Center formulated and manufactured small batches of chemical drugs used in clinical trials and performed analysis on experimental drugs. Purdue is hoping to find a private company to come in and take over the 5-year-old facility.

“That is a loss for our system,” said BioCrossroads CEO David Johnson. “It’s more a loss for the scientific part of our system than the business part.”

What BioCrossroads hoped to do was to package and pitch a full range of services offered by Indiana companies to help small drug-discovery firms move their experimental compounds through the various stages of testing. BioCrossroads still maintains an office in one of the nation's hotspots for drug discovery, San Diego.

But since that office opened in early 2008, the entire industry has changed. When the stock market melted down in late 2008, venture capital dried up for drug- discovery firms, pushing them to seek out large pharmaceutical companies to help develop their drugs.

As such deals were struck, large drug companies, such as Indianapolis-based Eli Lilly and Co., were also looking to outsource more work to contract research and manufacturing firms as a way to reduce their costs.

“The contract drug development is brisker than ever, but you’ve got to pay attention to who’s paying the bills,” Johnson said. More often, big pharma is writing the checks, he said, even if a drug being developed is owned by a small biotech firm.

The recession prevented the Chao Center for Industrial Pharmacy and Contract Manufacturing from getting enough business to make a profit, according to Joe Hornett, director of the Purdue Research Park. The Chao Center’s most consistent work was making seromycin, a medicine to treat drug-resistant tuberculosis, for Lilly.

It’s not clear how much interest the Chao Center might generate among private contract-manufacturing firms. Lilly successfully sold its manufacturing facility in Lafayette to Germany-based Evonik AG last year, after shopping it for a year, by promising to be the facility’s first customer.

Johnson said Purdue could also package itself and its scientists as it pitches the Chao Center to private firms. “The attraction for an outside party would obviously be the relationship with Purdue,” he said.