Gil Y. Roth05.10.10
Newsmakers: Lilly & Fisher Clinical Services
Clinical materials alliance advances Lilly’s FIPNet strategy
By Gil Y. Roth
In March of this year, Eli Lilly & Co. announced that it was expanding its clinical trials materials supply chain relationship with Fisher Clinical Services. As part of the initial five-year agreement, Fisher will take responsibility for Lilly’s in-house CTM manufacturing, packaging, and labeling at Lilly’s on-site facility in Indianapolis, IN. Also, Fisher will handle distribution of all CTM in North America for Lilly.
To find out more about the partnership and how it fits into Lilly’s FIPNet strategy (Fully Integrated Pharmaceutical Network, as opposed to a Fully Integrated Pharmaceutical Company, or FIPCo, model), I spoke with Ralph Lipp, Ph.D., Lilly's vice president pharmaceutical sciences R&D, and Patrick Durbin, president, BioPharma Services Division of Thermo Fisher Scientific.
Photo courtesy of Fisher Clinical Services |
Contract Pharma: Tell me about the new partnership between Lilly and Fisher Clinical Services.
Ralph Lipp: I truly believe that Lilly and Fisher together are doing a wonderful thing. One of the main driving forces in Lilly’s R&D environment is speeding innovation. For us, the patient is the True North. We have reached our all-time high of more than 60 molecules in our clinical pipeline, so it’s a very exciting time.
We’re looking at different ways to win in this environment. A couple of years ago we embarked on the so-called FIPNet strategy. FIPNet is part of Lilly’s transformation to compete and win in a new environment. It used to be that Lilly was a FIPCO, in which we pretty much owned every segment of the value chain, from discovering medicines to when they are made available to the patients we serve. With FIPNet, we’re casting a wider net to partner with organizations and institutions to tap into their resources, their technologies, their talent, their expertise, so that we can focus on our core capabilities. This agreement with Fisher Clinical Services is a great example of FIPNet.
When you combine the size of our clinical portfolio with the need we have for our CTM supply and logistics, the FIPNet strategy led us to find a strong partner to help us make sure our medicines get to the clinical trials sites in more than 50 countries, in a reliable, high-quality fashion. We realized that we’ve had a strong relationship with Fisher for around 20 years and, moreover, there was a high amount of trust between us as partners. So, a few months back, we decided to explore the opportunity for a real strategic partnership.
Patrick Durbin: This deal is a natural outcropping of a couple of things. We’ve been working transactionally with Lilly for almost two decades on the Fisher Clinical Services side, so we had a long history. Over the past several years, Lilly has looked at the relationship with Fisher Clinical to be more critical to its business than maybe it had been in the past.
There’s been a lot more investment in people’s time, in collaboration, in shared metrics, in shared goals. This evolution began to happen in which we were collaborating more closely in business matters with Lilly. Then they came to us late in 2009 with a business challenge: As part of FIPNet, they’re making decisions about which services are core to Lilly and which aren’t. They’re assessing where they have truly strategic providers with the scale, breadth and capabilities to enable them to fully outsource certain functions that they once handled internally.
For us, what it meant was taking a quality relationship to the next level. We had the challenge of taking the resources that Thermo Fisher Scientific has to offer, in terms of scale, in terms of CTM and CTM Logistics capabilities, and in terms of capital. What we get out of this is a deeper, multi-year collaboration with Lilly.
CP: How long does the deal run?
PD: It runs five years, with renewable options at the end of that period. We get to operate uniquely with Lilly, on site in Indianapolis, helping them very early on in the planning and scheduling of all their clinical trials materials needs. So for us, we gain a much deeper visibility into their business and an opportunity to collaborate on cost-savings initiatives and on process improvement, and ultimately figuring out ways to get clinical materials to patients in trials faster and more accurately than ever before.
RL: This is a very transformational event for us. Professionally and personally, I think it also means a lot that Fisher was willing to come here to Indianapolis and work through our location, because of its impact on the life sciences sector in Indiana and the opportunities for current Lilly employees affected by the change. These are very important factors for Lilly. We are looking forward to Fisher Clinical Services building its first presence in Indianapolis.
CP: What benefits do you think accrue to Fisher, beyond the guarantee of business from Lilly and the new facility?
PD: Well, the business isn’t guaranteed. I think it’s assured, but I wouldn’t say it’s guaranteed. The facility is going to be Lilly-specific. It’s embedded on their campus, so it would be logistically difficult to bring other customers in. We contemplated the whole approach to this as, “How can we help Lilly do their on-site work better and more effectively?” This is an opportunity to bring a contract service provider mindset on-site to collaborate with Lilly.
Photo courtesy of Fisher Clinical Services |
In a sense, it’s an “insourcing” relationship. This deal is such a hybrid of so many ways of thinking about the partnering relationship, that “insourcing” is the shorthand way of describing it. The degree of collaboration between Lilly and Fisher is extraordinarily high. Yes, maybe some of the capabilities that used to be internal have now been insourced, but the nuance that gets lost is how collaboratively we’re working with Lilly while still maintaining our autonomy and unique employment responsibilities.
CP: How will you balance that with developing outside business for the facility?
PD: We’re not intending to bring other customers through the facility. There’ll be plenty of Lilly work to do; in fact, it’s more work than probably could be done at that one site. That was part of the attraction for Lilly, gaining access to our worldwide footprint that will help them with overcapacity and scheduling challenges that come up regularly.
CP: I’m used to the more straight-up asset-transfer deals, where a provider acquires a facility from a sponsor, gets a supply agreement from them, and then works to bring in new business to supplement the agreement. Why go with this hybrid model?
RL: This was very, very important to us. As I said, we don’t believe that we need to fully own all aspects of the CTM supply chain, but we do need to have a high security and dependability and, to that end, we needed to have a very clear access to a certain amount of capacity in that space. To us, it was the utmost importance that the resources, which will be owned by Fisher, will be 100% dedicated to Lilly work.
CP: Fisher will be doing further work for Lilly outside of the facility, I take it?
PD: Correct. By the end of this year, we’ll take over all of their CTM logistics for North America. They historically managed that out of their Plainfield, IN facility, and it’ll now be managed by our network. That comprises around 15,000 to 20,000 clinical trials shipments annually.
CP: I have to admit, this sounds a bit different than other asset-oriented deals, like Lilly’s Greenfield Laboratories deal with Covance. Patrick, how do you characterize the risk involved in focusing on a single client?
PD: It’s our belief that Lilly has a robust pipeline, and that they’re intent on optimizing that pipeline. We saw this as an opportunity to collaborate with a strategic customer and help them solve some of their business challenges. One of the most rewarding things as a provider is being able to step up like this and collaborate more fully with a client.
CP: Do you think that model of this deal — as opposed to the straight asset-transfer — is going to carry over with other pharma companies?
PD: We’re having numerous conversations across the spectrum, including true asset transfers in which the facility is easily segregated from the rest of the campus, allowing multiple customers to be run through the facility. There are others that are looking more at this insource opportunity, saying, “We want to keep the facility unique to [Pharma Company A],” and that they want us to come in and help them do things more efficiently and effectively.
CP: Will Fisher be taking on the current employees at the facility?
PD: We’re not just transferring all the employees. We’re interviewing them now as part of our hiring and selection process, as we try to find the best fit of employees we can for the facility. Our hope is that we’ll find roles for most or all of them.
CP: How many people will the site employ?
PD: The range is between 80 and 120 people.
CP: What’s the timeframe for the new equipment you’re bringing into the Indianapolis site?
PD: It’s an ongoing process. We plan to deploy some software systems and some label-printing capabilities very early on in the relationship. We have a steering committee working on the pace and priority of the systems and process changes that we’ll make over the next few years.
CP: Describe the negotiation process between your companies on this deal.
RL: It was a very strong partnership from the get-go. We tried to sketch out what the future might look like. To be honest, we needed to explore this model with Fisher, not just tell them what we envisioned. We had a couple of ideas, and they too proposed a number of topics. Together, we looked it and figured out what the right things were to pursue and what we should not try. We created this model together.
PD: We certainly collaborated on what the finished deal would look like. When we sat together for the first time, and both parties had ideas of what the model could be, it ended up morphing considerably from that, but in a collaborative way. Lilly is an early adopter of very unique ways of looking at their business structure. They’ve done several fairly large deals with providers who had the trust, scale and capability to do it. Lilly has its core values of what it wanted to do from a business perspective, and Fisher Clinical Services had a similar list of what our core values were and what our aspirations were. We were able to sit down and mutually resolve Lilly’s business interests with Fisher’s. I think both parties came out feeling very good about the collaboration, seeing how a good idea that was discussed four or five months ago became a great set of ideas by the time the deal was done.
I give Lilly the credit for making the business decisions and saying, “Here’s how we’re going to operate, and here’s how we’re going to treat the providers we select,” and making that an extraordinarily collaborative process.
CP: Do you think that collaborative spirit is in evidence among other major pharmas?
PD: I don’t know. Winners will get it. They’ll look at their providers as true business partners, not merely as servants. The providers that get treated in that manner will gravitate to the customers that approach them that way.
CP: What were some of the directions you decided not to pursue?
PD: I think there were some services and processes that we needed to talk through. Some of them made sense to outsource, while others were a hybrid where both Lilly and Fisher are working in a new way. And there were some things that needed to stay part of Lilly’s core capabilities.
RL: We looked at a variety of capabilities and tried to figure out which ones needed to be bundled into a strategic relationship. Not everything that we considered went into the final construct.
PD: As you mentioned, service providers typically look at a broad asset deal as leverageable across multiple customers. That was a concept we talked about, but in the end, it wasn’t necessary in the way we constructed the deal. I felt that we wound up with a better set of ideas than when we started.
CP: What services did Fisher provide Lilly in the earlier stage of the relationship?
PD: We provided numerous services over the years, including project management, overencapsulation, placebo manufacturing, packaging (either in blister or bottles), labels, and logistics, particularly in Europe.
CP: How important is a provider’s scale when it comes to this sort of partnership? Fisher is part of a company with 35,000 people.
PD: There’s no one in our space who’s close to our size. Within contract CTM, we’re at least twice the size of our closest competitor. From the perspective of access to capital, Thermo Fisher Scientific had $400 million in free cash flow in 4Q09. So when you have that level of capital that you can invest in these kinds of deals, there aren’t a lot of other providers with that stability and scale.
On the BioPharma Services side, we have approximately 4,000 people worldwide. Typically, our customers have around 50 to 400 people on the CTM side, so we’re 10 times the size of our biggest customers, in that area.
CP: On the flipside of scale, Lilly isn’t the biggest of the major pharmas. Does “not having to be The Biggest In The Field” give Lilly a certain freedom and flexibility to develop FIPNet that a larger competitor may not have, Dr. Lipp?
RL: Internally, our saying about FIPNet is, “We clearly desire to play bigger than our size.” This strategy lets us do that. We have that huge clinical portfolio, but we can only do this because we’ve already incorporated a FIPNet strategy. It would likely be more difficult for Lilly to move such a portfolio if we were not already integrating like this.
PD: I’d add that Lilly has a very partnership, collaboration-based culture. I think that’s how they interact internally, and it’s certainly how they treated us as a strategic provider. I think that may be different than some pharmaceutical companies.
RL: For many years, we have very active alliance management with our partners. We want to achieve those mutually beneficial situations by treating our partners as equals. This has served us very well.
CP: Previous publicized Lilly FIPNet deals seem to be positioned earlier in the drug development chain. This deal, as well as the deal with Covance, are further along in that value chain. Is that a deliberate strategy, to move FIPNet further and further along the road to commercialization, or is it more an opportunity-based process?
RL: We look at FIPNet as a broad strategy. You’re right to point out that the first endeavors were focused on the early parts of the value chain. It really does cover the entire chain, however, from very early stage work to late-stage clinical trials and even Phase IV trials. We look at the overall value chain.
CP: How much further do you see it evolving?
RL: We’ll look into further opportunities, comparable to what we’ve done with Fisher. It’s important that we understand what capabilities are truly core to Lilly and what we would like to partner with. There’ll likely be further development in future, but it will always be a case-by-base process.
In this case, we clearly understand that the clinical supply chain is a very important capability. But from a strategic perspective, we came to the conclusion that we do not need to own all aspects of it. That thought process will be used to determine other areas for enhanced engagement in FIPNet activities at the corporate level.
CP: How has the field and the perception of outsourcing changed during your careers?
PD: I grew up on the CRO side, and I’ve watched that industry change from being highly transactional, one-off project providers to being deeply integrated in customers’ processes, technologies and trials. On the CTM side, we’re seeing the exact same thing, but at a much more accelerated pace.
I’ve never seen pharma change as quickly as it’s changing now. The economic pressures are so profound that they’re acting with an urgency I’ve not seen in my 25 years in contract clinical services. The biggest change is the rate of change, in other words.
What prevented pharma from acting in the past was that there were a lot of nice, small, one-off, transactional companies out there, but there was no one who could step up and make clients feel safe that they’d be there tomorrow. Our scale changes the whole conversation with the customer.
I meet with senior executives at pharma companies, and every one of them is signed up to deliver billions of dollars in tangible, hard savings in 2010 or 2011. They are looking at how they do things fundamentally, much more deeply than they ever have in the past.
I call it “the dis-integration of pharma.” Pharma is no longer saying, “We need to be vertically integrated in all aspects of our business.” They’re going to focus on discovery, on early R&D, maybe on being great commercialization companies. But do they need to be a manufacturer? Do they need to carry all these resources on the clinical research side? Do they need to have all these data management resources? What kinds of statisticians do they need to have on the clinical research side?
My view is that pharma is dis-integrating, and I mean that in a positive way. I think it’s an unstoppable trend, based on the unsustainable economics of drug development. The reality is that pharma needs to do things differently, and that will lead to collaborating with partners. We’re seeing it on the biotech side, with pharma partnering on discovery and early development with small companies.
Collaborations and partnerships are different when it comes to the services side, to manufacturing, research and packaging. But they’re analogous, and they’re going to grow the same.
RL: I’ve been in the industry for 20 years. During that time, many companies were clearly run as FIPCos, with a little bit of outsourcing here and there, maybe to buffer peaks in demand. Over the last few years at Lilly, I’ve really seen a move away from tactical utilization of external providers to a more strategic one. I’m impressed by what my colleagues at Lilly have been able to do, these past few years. It’s a process that can only accelerate.