Covance, a leading global contract research organization (CRO), signed a definitive agreement today with Eli Lilly that is designed to help transform Lilly’s R&D model.

In early trading this morning, Covance's shares were up 2.4% to $94.06.

Under the agreement, Covance will acquire Lilly’s 450-acre early drug development campus in Greenfield, Indiana, for $50 million and will offer employment to about 260 Lilly employees.

In addition, Covance will provide Lilly with a broad range of drug development services over the next 10 years in a contract valued at $1.6 billion. Under the agreement, Covance will assume ownership of the site and operations on or about Oct. 1, 2008.

“Today’s announcement represents an innovative approach to the R&D productivity challenges our pharmaceutical clients are facing,” said Joe Herring, Covance’s chairman and CEO. “Covance will invest in this facility and maximize its capacity utilization by conducting substantial work with Lilly and bring in new work from other pharmaceutical and biotechnology clients. We expect the Greenfield site to be a key contributor to the future growth and success of Covance.” 

Under this agreement Lilly will transfer responsibility to Covance for its non-GLP (Good Laboratory Practice) toxicology, in vivo pharmacology, quality control laboratory, and imaging services.  In addition, the contract includes a committed level of clinical pharmacology, central laboratory, GLP toxicology studies, and clinical phase II-IV services.

“This strategic agreement is a result of a long-term trust-based relationship between our two companies. Covance has proven they can help accelerate drug development timelines and improve efficiencies with Lilly, which will enable us to further focus on our core competencies in delivering better patient outcomes over the longer term,” said John Lechleiter, Eli Lilly’s CEO. “This industry-pioneering alliance will provide Lilly access to Covance’s broad and efficient drug development platforms. In addition, this collaboration will help us make our fixed cost infrastructure more flexible and continue to grow our portfolio of best-in-class and first-in-class pharmaceutical products.”