Covance, Lilly Deal Grows on CRO Industry
Earlier this week, we reported news about the Covance-Lilly $1.6-billion deal, but Clinicaltrialstoday.com has learned additional details about the blockbuster transaction between the contract research organization (CRO) and major pharma company from interviews and Wednesday’s investor conference call.
Dave Windley, longtime CRO analyst and managing director at investment bank Jefferies & Company, nailed it in the conference call when he characterized it as a “very, very large deal.” (He might have added another “very” or two.)
The deal is big for several reasons:
Size: The sheer size of the contract: $1.6 billion over 10 years, is historic. It does sort of make backlog numbers for Covance irrelevant, as Windley noted the company has been asserting.
Type: The asset transfer will likely set a trend for the CRO industry and pharma. Covance will acquire Lilly’s 450-acre early drug development campus in Indiana, for $50 million and will take on about 260 Lilly employees. Joe Herring, Chairman and Chief Executive Officer of Covance, concluded his conference call by saying that he was happy that Covance was “first-to-market” with this kind of deal. The industry should expect to see more deals of this kind in the not-too-distant future.
Market expansion: Lilly’s transfer to Covance of its non-GLP (Good Laboratory Practice) toxicology, in vivo pharmacology, quality control laboratory, and imaging services gives Covance an easier and less costly entrance in specialty markets it had been eyeing for sometime. These areas will only increase in importance as go/no-go decisions continue to be made earlier in the drug development process.
There’s no doubt this deal puts Covance on the cutting edge of CRO-pharma partnerships. Covance has been counted on as a quality CRO over the years, placing at or near the top of many CenterWatch surveys of investigative sites. It’s a CRO that delivers on double-digit earnings and revenue growth almost like clockwork. This deal may be the dawn of a new era for Covance—and the industry.