UPDATE: Lilly unloads some research operations

Eli Lilly and Co. will shed about 440 jobs after the sale of its Greenfield Laboratories and outsourcing other work.

But the Indianapolis-based drugmaker hopes Indiana sees no net loss of jobs from its restructuring moves.

The announcements this morning are part of a quickening effort by Lilly to reduce overhead costs before it loses patent protection on a string of drugs, which now make up 60 percent of its revenue.

In Greenfield, Lilly is selling its labs for toxicology and other drug development tests to New Jersey-based Covance Inc., a contract research organization. Covance is paying Lilly $50 million for the labs and has promised to offer jobs to all of the 260 employees who work there. Lilly has agreed to give Covance at least $1.6 billion of work over the next decade.

The labs are housed on the same campus as Lilly’s Elanco Animal Health division. Elanco, which employs 350 at the site, will move to leased space in a yet-to-be-built headquarters. Lilly hasn’t picked a site, but will use Browning Inc. as its developer.

The Greenfield site is one of Lilly’s oldest operations, dating to 1914.

Covance already employs 1,000 Hoosiers in Indianapolis and Evansville. Covance CEO Joe Herring told investors this morning that the company hopes to land contracts with other pharmaceutical companies and ramp up the 600,000-square-foot Greenfield facility to full capacity. Lilly officials said the labs now operate at half their capacity.

“There’s room to grow. We’ll invest as we see the need,” Herring said.

Lilly also will outsource some of its clinical trial monitoring work to North Carolina-based Quintiles Transnational Corp. and some data management work to New Jersey-based i3 Research.

Those moves will affect another 265 Lilly employees who are located in Indianapolis and in other parts of the United States and Puerto Rico. Lilly will offer slightly more than half those employees new positions, mainly to help manage and support its new outsourcing contracts with Covance, Quintiles and i3.

Unlike Covance, neither Quintiles nor i3 has operations in Indiana. However, i3 has secured an office on the northeast side of Indianapolis, just off of Gray Road between 96th and 106th streets, according to Lilly spokeswoman Angela Sexton.

The remaining job losses likely will come at Lilly Center for Medical Science at the Indiana University School of Medicine. Formerly called the Lilly Clinic, Lilly has used the site for clinical trials since 1926, when its scientists worked to find a treatment for pernicious anemia.

But because Covance has the capacity to perform clinical trials in Indiana, Lilly likely will close its Indianapolis clinic, eliminating 48 jobs. The deal with Covance is expected to close Oct. 1.

“We don’t want to duplicate” with Covance, Sexton said.

Most big pharmaceutical companies have been increasing the amount of work they outsource to contract research organizations, particularly in the last couple years, said Les Funtleyder, an analyst who follows Lilly for Miller Tabak & Co. in New York.

“As long as the quality of the work is the same, then they just don’t have to maintain it. It’s capital costs and it’s personnel costs,” he said. “It does beg the question, Why are they only at half the capacity? Don’t they have more coming?”

Lilly has been filling up its drug pipeline, and now has 50 molecules in clinical testing. But it has been unable to get a new drug on the market for the last three years.

Lilly will lose its exclusive patent rights on its bestseller, the antipsychotic Zyprexa, in 2011. Zyprexa posted sales of nearly $4.8 billion last year.

Then in 2013 and 2014, Lilly will lose patent protection on four other drugs, including its antidepressant Cymbalta and its Humalog insulin. In all, those five drugs accounted for 60 percent of Lilly’s $18.6 billion in revenue last year.

“What we call Years YZ – the period beginning in 2011 when patents for several medicines begin to expire – requires a thorough transformation of our company that includes reduced cycle times and lower research and development costs,” said Lilly CEO John Lechleiter in a statement.

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