Nucleon Case

I. Background

Nucleon is a small biotechnology start-up company focused on developing biotechnological pharmaceutical products based on a class of proteins known as cell regulating factors. The company has been in the market for five years, and currently, they are in the process of human trials for their first potential product, “cell regulating protein-1” (CRP-1). Overcoming these phases, Nucleon has to decide among several alternatives on producing CRP-1. Knowing that the process involved a tremendous amount of time and money, Nucleon has to choose the right decision for their long-term survival in the intensively competitive and high-stakes drug industry.

II. Problem Analysis

Before a drug is launched to the market, it has to pass human trials to get approval from the FDA. There are three phases on human trials: (I) basic safety assessment, where the drug was administered to healthy volunteers to find out any adverse reactions. This phase would require 6-12 months and if there is no serious side effect, the product then (II) administered to patients having disease the drug was presumed to treat to find out whether the patients’ condition improved or suffered by any adverse side effects. This phase would require 1-2 years and then, (III) the product’s efficacy is assessed with a relatively large sample of patients on statically rigorous basis that involved multiple hospitals and required 2-5 years. It would take around 8 years to complete these trials and would cost around 30-100 million.

While the drug is promising, Nucleon could not get enough funding for their growth (current capital $6.5 million) and having only 22 workers available within the company would not help either. At this stage of its development, it is crucial to compare and see the risks and advantages of each manufacturing alternative.

III. Options Analysis

There are three options available for phase I and II. Table 1 lists each of their advantages and disadvantages.

PHASE I & II

ADVANTAGES DISADVANTAGES

THE NEW PILOT PLANT

пЃ* Enable the firm for future larger-scale development

пЃ* Possibility to gain experience in manufacturing before hands-on commercial productions

пЃ* Have control over process and quality procedures

пЃ* First step towards vertical integration пЃ* Costly: $7,394,000

пЃ* Time consuming in hiring technicians with manufacturing experience

пЃ* Possibility of having an idle plant

пЃ* Loss of focus from R&D activities

пЃ* Process uncertainty: shifting fermentation procedure (from bacterial to mammalian cells)

CONTRACT MANUFACTURING

пЃ* No major capital investment compare to Pilot Plant

пЃ* Less risk

пЃ* Companies supplying contract manufacturing services had facilities and personnel in place

пЃ* Risky disclosure of confidential information

пЃ* Contractor does not provide reliable time and cost estimates because of the limited information of the product

пЃ* Time consuming negotiations (take many months)

пЃ* Long technology transfers (9 months)

пЃ* Difficult to estimate contract quantities per period

LICENSING TO OTHER COMPANY

пЃ* No expenditures

пЃ* Receive a fixed licensing fee upon signing the contract

пЃ* Royalties on gross sales (5%)

пЃ* Allow Nucleon to concentrate on R&D activities пЃ* Highly reduction of revenues

пЃ* If CRP-1 succeed, there is possibility to regret the shift of responsibility

Table 1.

Each of this options constitute large amount of money, table 2 differentiate the costs and revenues of each of these phase I and II options. Although licensing will cost nothing to Nucleon, the revenues it will earn are relatively low compare to the other options. However, the fact that the licensed partner will substitute them in marketing the product, licensing option had the chief benefit of generating cash immediately.

Options Costs ($000) Revenues

a. Pilot Plant 7,394 full

b. Cost Manufacturing 4,795 full

c. License - $3,000 licensing fee + 5% of gross sales

Table 2. Estimated cost and revenues for phase I and II

For phase III, there are two options available. Table 3 below list the options along with its advantages and disadvantages.

PHASE III

ADVANTAGES DISADVANTAGES

VERTICALLY INTEGRATE TO COMMERCIAL MANUFACTURING