When Eli Lilly and Co. announced Aug. 6 that it would more than double the amount of research and development work it outsources to Covance Inc., Dr. Alfonso Alanis got nervous.
The CEO of contract researcher Anaclim LLC worried that more work for Covance would mean less work for local firms that provide drug development services to Lilly.
Executives at other local firms, who asked not to be named because of confidentiality agreements with Lilly, also have fretted that their substantial work for Lilly might find its way into Covance's hands.
But Lilly has taken concrete steps to assuage those fears. On the day it announced the deal, about 30 Lilly employees spent the day phoning, e-mailing and writing letters to more than 250 companies worldwide that have contracts with Lilly Research Laboratories, the research-anddevelopment arm of the Indianapolis-based drugmaker.
Alanis, whose Indianapolis company manages several clinical trials for Lilly and derives 40 percent of its revenue from Lilly, got a call that day from two Lilly employees.
"They told us that none of the work is going to be affected," he said. "We are very happy and very reassured to hear that."
The value of research work Covance does for Lilly will rise to about $160 million a year, up from $60 million now, according to officials at the New Jerseybased company. Covance performs testing in multiple countries. The company already employs 1,000 people in Indianapolis who work on large clinical trials for drugmakers.
Of the additional work going to Covance, a "very small amount" is work that Lilly already outsourced to contractors, said Andy Dahlem, vice president and chief operating officer of Lilly Research Laboratories. The rest is work Lilly was doing in-house.
Much of the work was done at Lilly's laboratories in Greenfield, which Covance has agreed to acquire for $50 million. Covance will offer jobs to the 260 Lilly workers at the Greenfield Laboratories, who conducted safety tests and other early-stage research on experimental drug compounds.
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.
The deals with Covance, Quintiles and i3 were just the latest, Dahlem said, in Lilly's attempt to transform itself from a solo performer in the world of drug development to the conductor of an orchestra of firms that play together to make new pharmaceuticals. Lilly hopes this transformation cuts 20 percent off its cost of developing a new drug, which averages nearly $1 billion.
"A thriving Lilly with innovation and partnerships has got to be good for business in central Indiana," he said.
Most executives at central Indiana companies that provide drug development services agree. But some also said Lilly's transition could be rough on small companies.
"It could on a long-term basis help to make this into a much bigger hub in the life science industry. But a small business deals on a short string all the time. You end up saying, 'You know, I really ought to be cautious right now,'" said Joe Pesek, CEO of PreClinomics Inc., an 18-person Indianapolis company that provides animal-based testing for experimental drug compounds. He declined to name any of his firm's clients.
The long-term potential Pesek and others see is that Covance's expanded operations would act as an anchor store in central Indiana's shopping mall of drug development services.
Drug development can include a host of different work, ranging from testing drug compounds in animals, analyzing a compound's chemical and biological traits, testing whether a drug is safe for humans, recruiting doctors and patients for human clinical trials, and analyzing the data from such trials.
Covance, which is known as a contract research organization, or CRO, has said it could double or triple the work force at the Greenfield Laboratories as it brings in work from other drug companies besides Lilly.
"It's like having Nordstrom or Saks at the Fashion Mall," said David Johnson, CEO of BioCrossroads Inc., an Indianapolis-based life sciences development organization. "It gives you this large, visible, anchor-like CRO here, which we think is going to bring in business for all the CROs here."
BioCrossroads already has been working with biotech drug firms in San Diego to come to Indiana for drug development services. The group's Linx initiative hired a part-time representative in southern California in May.
But Johnson and others also hope Indiana firms can capitalize on the growing trend of big pharmaceutical companies outsourcing more and more of their research and development work.
That trend has in the last two years led to more than 40,000 announced job cuts among major pharmaceutical companies, including Johnson & Johnson, based in New Jersey, and Pfizer Inc. and Bristol-Myers Squibb Co., both based in New York.
Meanwhile, greater outsourcing has been a boon to Covance's business. Its revenue has surged at a 12-percent to 18-percent clip in each of the last three years. In that same period, its profit spiked at least 21 percent every year.
Other large contract research organizations have experienced similar growth.
Alisa Wright, CEO of BioConvergence LLC, a Bloomington firm that provides several drug development services, said Covance's reputation as one of the biggest CROs will draw much more attention to companies like hers in Indiana that are virtually unknown outside the state.
"There are likely to be other life sciences companies that become aware of what Indiana has to offer," she said.
Some companies even expect Covance to do more outsourcing as it ramps up its work in Greenfield.
That's what Michael Evans, CEO of AIT Laboratories in Indianapolis, thinks. AIT has done work for Covance in the past, but is not currently.
"It also bodes well for us because Covance might farm out some work," said Evans, whose firm's revenue already is up 105 percent this year. "As this work gets farmed out to partners, it's going to bode well for everybody."
Shawn Comella has the same view. The CEO of Monarch LifeSciences in Indianapolis said he's currently working on a three-way partnership with Lilly and Covance. Monarch already does a significant amount of protein analysis for Lilly, but Comella declined to disclose how much.
About Lilly's decision to funnel more work to Covance, Comella said, "If anything, I see it strengthening the threelegged stool between us and Covance and Lilly."
Covance isn't committing to farm out work to central Indiana companies. But it does agree those companies can benefit from Covance's growth.
In an e-mail, Covance spokeswoman Laurene Isip wrote, "Local businesses in Indiana will stand to benefit from our presence in Indiana, as we grow and expand our business."