Lilly And Covance Commingle

Lilly
Lilly

In the latest move in the big pharma restructuring/outsourcing trend, Eli Lilly announced this morningthat it's selling a lab site in its home state of Indiana to the contract research organization Covance .

A CRO does lab and clinical work for biopharma companies. LLY is also on the hook to give Covance about a billion-and-a-half dollars worth of business over the next 10 years. The deal is designed to help Lilly get drugs to market faster and cheaper.

In the press release the CVD Chairman and CEO calls it a "landmark agreement" that "creates a new strategic paradigm". That might be true to a certain extent in terms of the length and size of the deal, but all of the major drug companies are hoking up with CROs as they farm out more and more of their pre-clinical and clinical trial research to downsize and cut costs. It's a big reason why shares of CVD and its main competitor Charles River Labs have been performing so well.

As far as Lilly is concerned, investors are focused on the end of next month when the Food and Drug Administration is supposed to make a decision on whether to approve the company's bloodthinner Effient. The agency recently delayed a ruling by three months. In an earnings day interview on CNBC a couple of weeks ago CEO John Lechleiter said he didn't think the FDA would send the drug to be reviewed by an advisory committee.

That's a move that could possibly delay a decision even more and/or throw the drug's fate into question. Lechleiter pointed out that the company's application for approval of the drug--if you printed it--would stack nearly as high as the Empire State Building. So, the FDA has a lot of data to comb through. In a research note to clients this morning, BMO Capital Markets' Bert Hazlett writes, "We are...optimistic/hopeful for the September (Effient) action date." He was providing a recap of a presentation by Lilly's head of U.S. operations, Dierdre Connelly, at BMO's "Focus on Healthcare" Conference yesterday. "They (LLY) continue to have high hopes for (Effient)," Hazlett said.

The "action" date for Effient is September 26th. But the FDA could make a decision any time between now and then or even push out the date again.

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