Pharmaceutical giant Eli Lilly and Co. of Indianapolis stunnedWall Street in late October when it announced its first earningsloss since 1951 -- $268.5 million for the third quarter.

Part of this loss can be attributed to strategic alliances withother drug companies, including biotech companies. "Lilly hasabout 20 collaborations with a variety of biotech and medicaldevice companies," D. Larry Smith, an analyst with Hambrecht& Quist of New York, told BioWorld.

Lilly's "up-front investment is well over $200 million, with halfof that in Centocor," Smith said.

Lilly intends these collaborations to help it fill its new productpipeline.

"New scientific opportunities are stretching R&D resources tothe limit," according to the company. "Although Lilly will likelyinvest more than $10 billion in its scientific programs duringthe 1990s, the company isn't immune to this pressure. ...Research alliances with other research-based organizationsrepresent a flexible, cost-effective alternative for the pursuit ofnew products."

The areas of research covered by these alliances tend tocomplement Lilly's internal programs. "They're areas we'vealready targeted," Ron Henriksen, Lilly's director of businessdevelopment for North America, told BioWorld.

For instance, in central nervous system (CNS) research, there'sAllelix Biopharmaceuticals Inc., Athena Neurosciences Inc.,Sibia Inc. and Synaptic Pharmaceutical Corp. And incardiovascular disease, Lilly's partners include CorTherapeutics Inc., Glycomed Inc., NeXagen Inc., SphinxPharmaceuticals Co. and Zynaxis Inc.

With the exception of its outright acquisition of Hybritech Inc.of San Diego in 1986, Lilly tends to take a minority equityposition in biotech partners. It also funds R&D, usually withmilestone payments.

"As a rule of thumb, Lilly invests $3 million to $5 million inearly-stage companies," H&Q's Smith said.

Almost without exception, Lilly reserves the right tocommercialize any products that come out of the R&Dcollaboration, with the biotech partner getting royalties onsales.

-- Jennifer Van Brunt Senior Editor

(c) 1997 American Health Consultants. All rights reserved.