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In the following pages we will analyze the product development and commercial
capabilities of the cell-regulating protein-1 (CRP-1) at Nucleon. After a brief overview
of the biotechnology industry and of the current situation of the company, we will
summarize the strengths and weaknesses of the different manufacturing
alternatives for the production of the CRP-1 molecule, giving the reasons for our
decision. Finally, we will focus on the long-term strategy for Nucleon.
Company overview
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 term biotechnological refers to the use of cells or
microorganisms that have been generate or modified by recombinant DNA,
hybridoma or other technology to produce APIs . The APIs produced by such
biotechnological process normally consist of high molecular weight substances,
such as proteins and polypeptides, in contrast with the relatively small and simple
molecules synthesized by the traditional chemical processes. In the end of 1990,
Nucleon is one of the 200 firms founded since the mid-1970s to develop
biotechnological processes and products. Intellectual Property (IP) is typically the
primary asset of most biotechnology (and pharmaceutical) companies and can
generate large revenues through out-licensing, in licensing, acquiring or selling IP.
Positioning and marketing IP, negotiating and monitoring license agreements, and
determining proper royalty payments are all critical to the financial welfare of
companies like Nucleon. Unfortunately, the biotechnology patent law is still new and
uncertain in 1990 and it is difficult to patent the process technology used to obtain
a biological molecule. On the financial side, potential partners are unwilling to fund
biotechnological projects in the early stages of development and, due to the state of
the public equity markets in 1990, it is impossible to go public for Nucleon.
However, analysts are predicting that Wall Street would again find biotechnology
stock attractive by 1991-1992. Moreover, Nucleon would be able to raise about $6.5
Mio from venture capitalists, grants, interests and existing cash on-hand by 1991.
Since its foundation, Nucleon has been focused its research efforts almost only on
the CRP-1 molecule, while two new cell regulating factors (which we will call CRF-1
and CRF-2) are still in the early stages of the development. CRF-1 and CRF-2 would
be ready for clinical trials only in 1995 and would require $10 million spending each.
The product pipeline of Nucleon in December 1990 together with the average
spending/timing in R&D and preparation of regulatory documents is represented in
Figure 1.
Proof of concept Preclinical Phase I Phase II Phase III
12-14 months 6-12 months 1-2 years 2-5 years
CRP-1
CRF-1
CRF-2
$10 Mio $6-10 Mio $30-100 Mio
Figure 1: Product pipeline of Nucleon
The CRP -1 molecule has shown promising preclinical trials. The primary goals of
pre-clinical safety evaluation are to identify an initial safe dose and subsequence
dose escalation scheme, to identify potential target organs for toxicity and for the
study of whether such toxicity is reversible, and to identify safety parameters for
clinical monitoring. The success in the preclinical would grant the raise of $6Mio
additional funding from venture capitalist. Moreover, early research indicated that
the CRP -1 molecule had potential as a treatment of burns and kidney failure. The
company expects to begin clinical trials for CRP-1 as a burn wound treatment in
1992, previous submission of an IND for the CRP-1 to the FDA . The testing of the
kidney failure application needs two additional years and $3 Mio of work.
Clinical trials test the safety and effectiveness of a potential new drug in human
volunteers and patients. The trials are formally divided into three phases:
- Phase I clinical trials are small studies carried out on volunteers to determine the
safety of the drug and to find out how the body reacts to the drug, what side effects
are to be expected and what dosage levels can be used before the drug becomes
toxic. These trials usually involve about 20 to 100 normal, healthy volunteers.
- Phase II clinical trials are small trials on persons having the disease or medical
condition to determine whether the drug has some level of therapeutic effect. These
trials usually involve approximately 100 to 500 volunteer patients. The trials are
usually carried out with a treatment group, who receive the drug and a matched
control group, who receive a placebo. Phase II trials provide information on the
dosage level, the schedule for administering the drug, and the short-term safety of
the drug in patients.
- Phase III clinical trials are large, carefully controlled, relatively long-term studies on
patients to determine whether the drug will be truly effective under rigorous
experimental scrutiny and in normal medical settings. Information is also gained
regarding long-term side effects and safety. These Phase III studies usually require a
large number (several hundred or thousands) of patients.
After successful completion of the clinical trials a NDA for the CRP-1 can be
submitted to the FDA, which would review the application and grant a marketing
authorization in about 13 months. After FDA approval, the CRP-1 can be finally
commercialized. Nucleon expects the FDA approval by January 1998. Even if most of
the drugs that enter clinical trials never reach the market, Nucleon relies on the
several potential applications of the CRP-1 to offset the risk of failure. However,
Nucleon could not afford to market the CRP-1 on its own, since hundreds of sales
people would be needed. Therefore Nucleon needs to license out the marketing
rights for its product to established pharmaceutical companies.
The SWOT analysis of Nucleon as represented in Table 1 summarizes all the abovedescribed considerations.
Strengths
- Tight links with the academic/research community
- Strong patent position on the CRP-1 molecule
- Promising pre-clinical trials of the CRP-1 molecule
- Technical capability to identify potentially therapeutic regulating factors
Weaknesses
- Small size (22 employee) private held company
- Weak patent position on the genetic sequence
- Capital availability
Three years later, Genentech received approval from the FDA to market its first
product, a growth hormone for children with growth hormone deficiency the first
recombinant pharmaceutical product to be manufactured and marketed by a
biotechnology company. We think that Nucleon has no chance to raise enough
capital to vertical integrate its manufacturing with its first winning product. Nucleon
definitively needs to focus on R&D and to expand its product pipelines, before going
into commercial manufacturing. We therefore exclude the alternative of a vertical
integration of manufacturing for CRP-1. Nucleon should license out both the
manufacturing and the marketing rights to a partner at the beginning of Phase III
trials.
With reference to the licensing option for Phase I and II, considering that Nucleon
would be received further founding for about $6.5 Mio and looking at the forecasted
revenues, we think that the company should pursue Phase I and II clinical trials.
Licensing the CRP-1 molecule at the end of the preclinal phase would not bring
enough cash in-flow to justify the halved revenues in the commercial phase.
However, we would suggest Nucleon to look for a marketing/manufacturing partner,
possibly a large pharmaceutical corporation, as soon as the Phase I data are
available. Once granted the manufacturing and marketing rights to the partner,
Nucleon can take advantage of the first solid clinical results for the CRP-1 molecule
and ask the partner to fund the development of the mammalian cells technology. In
any way, it is important that Nucleon retains the rights to the technology. This
means that Nucleon can develop the technology for other indications a different
therapeutic area and raise additional founds by licensing it to other pharmaceutical
companies active in the new therapeutic area.
Now the choice has been reduced between a new pilot plant with bacterial
fermentation and contract manufacturing. A new pilot plant would allow Nucleon to
improve its skills in scale-up its processes and to gain some experience in
manufacturing. The research scientists should focus only on those cell lines which
can be scaled-up and a pilot plant in house would help in having more acquaintance
with scale-up problematic. The main problem with the new pilot plant is represented
by the risk of obsolescence of the bacterial cells fermentation. Nucleons scientist
are already developing a new version of the CRP-1 molecule using the mammalian
cells fermentation. Unfortunately, a pilot plant designed for bacterial cells
fermentation can not be adapted to run a mammalian cells fermentation process.
Considering that Nucleon has a strong patent position on the CRP-1 molecule only,
and not on the genetic sequence, we believe that Nucleon scientists should really
focus on developing a process with mammalian cells fermentation to generate the
CRP-1 molecule. We think extremely risky building a pilot plant for bacterial cells
fermentation, since we see the mammalian cells fermentation as a superior
technology with demonstrated potential for changing the basis of competition.
Nucleon seems extremely concerned about the alternative of contracting
manufacturing. The time issue does not represents any real problem: the material
for Phase I has to be provided by March 1992, being April 1992 the scheduled start
of the clinical trials. Nucleon has more than one year to reach an agreement with a
reliable contract manufacturer. A strict confidential agreement on the proprietary
details would permit to approach diverse contract manufacturers. An experienced
contract manufacturer can also help in finding a partner for
A schematic overview of our findings can be found in Table 4. All the indicated
actions are obviously dependent on the success of preclinical and clinical trials. We
have supposed only three years time to develop the mammalian cells technology:
the construction of the pilot plant can take place only after a successful
development.
Timeline Actions to be taken
1991 - Choice of the contract manufacturer for CRP-1
- Conclusion of preclinical for CRP-1
- Development of mammalian cells technology
- Development of CRF-1 and CRF-2
1992 - Phase I and begin of Phase II for CRP-1
- Search a partner fro licensing manufacturing and marketing rights for CRP-1 in
Phase III
- Development of mammalian cells technology
- Development of CRF-1 and CRF-2
1993 - End Phase II for CRP-1
- Development of mammalian cells technology
- Development of CRF-1 and CRF-2
1994 - Begin of Phase III for CRP-1: out-licensing of the manufacturing and
marketing rights
- Construction of the new pilot plant for mammalian cells technology
- Preclinical for CRF-1 and CRF-2
1995 - Scale up of the process for CRP-1 with mammalian cells technology
- Phase I and begin of Phase II for CRF-1 and/or CRF-2
- Phase III for CRP-1
1996 - Completion Phase III for CRP-1: file data to the FDA
- End Phase II for CRF-1 and/or CRF-2
- Phase I and begin of Phase II for CRP-1 with mammalian technology
1997 - End Phase II for CRP-1 with mammalian technology
- Start Phase III for CRF-1 and/or CRF-2
1998 - FDA approval for CRP-1 and commencement of sales
Table 4: Final summary