“Several more” big deals possible at Covance

By Nick Taylor

- Last updated on GMT

Related tags Contract research organization Covance

Covance has defied challenging market conditions and posted positive results for the third quarter, with the company believing more major R&D outsourcing contracts are a possibility.

These could take a similar form to the ten-year R&D deal between Covance and Eli Lilly, which outsourced the developmental pipeline to a greater degree than usual.

Covance claims that the deal has sparked interest among other pharmaceutical companies, who are keen to know if similar agreements could improve their operations.

Joe Herring, CEO at Covance, said follwing the Lilly deal pharmaceutical companies are starting to question: “How do we do something like that? What did they do? How did they do it? What gave them the confidence to do that? What are the economics of that? And what assets do we have that could be flipped that way?

And trust me, they are calling, they are asking. Now if I were them I would go as fast as I could. Because I would say there is a small handful of global CROs (contract research organisations) who have quality, global reach, scale, and that might know how to do this​.”

Herring warns that pharmaceutical companies will have to move faster than their usual “glacial pace​” to take advantage of this, as in two to three years all high-quality capacity may be taken.

Although the Lilly deal uses existing, underused capacity Covance believes there are limited suitable sites, which will restrict the number of “Lilly-type​” collaborations.

In the Lilly deal Covance acquired Greenfield Laboratories, Indiana, which it believes will add to its high-quality capacity. From the site Covance will provide R&D services for Lilly, with Herring believing that the deal will have a “direct, positive impact​” on financial results

The immediate impact of the deal has been helped by the changeover of staff from Lilly to Covance, with 97 per cent choosing to continue working at the Greenfield facility.

Securing the workforce was an aspect of the ‘stabilise’ phase of Covance’s development of the site. This phase is intended to smooth the transition from Lilly to Covance, with the company now looking beyond this to the progression of the site.

During Covance’s third quarter conference call Herring gave an overview of this progression, with the company planning on spending considerable time deciding how best to develop the site.

The intention is to develop “a world-class CRO facility​”, incorporating new services such as non-GLP (good laboratory practice) toxicology and nonclinical imaging. Herring admitted that an aspect of adding these services to Covance’s portfolio was deciding how to best position and market them to potential clients.

Attracting other clients to Greenfield is the final phase of Covance’s plan for the site, with Herring expecting this to occur at some point in the second half of 2009.

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