NUCLEON, INC

An Analysis

RECOMMENDATIONS FOR MANUFACTURING OF

CRP-I FOR PHASE I & 2

1998
1999
2000
2001
2002

Sales
(thousand)

Outsourcing before
Phase I clinical trials
itself

53700000
99500000
125000000
130000000
150000000

One time cash payment

Total Inflow (w/o discounting)
Cash Outflow (cost for phase
1 & 2 production setup)

Cash Outflow (cost for phase

3 production setup)

Cash Outflow (cost for phase

3 trials)

Undiscounted NPV

7394000

7394000

Outsourcing
production after
Phase 2 trial

2685000
4975000
6250000
6500000
7500000
27910000
3000000
30910000

30910000

5370000
9950000
12500000
13000000
15000000
55820000
7000000
62820000

Inhouse
Production but
outsourcing
Marketing after
Phase 2
21480000
39800000
50000000
52000000
60000000
223280000
5000000
228280000

21000000

100000000
99886000

55426000

RECOMMENDATIONS FOR MANUFACTURING OF

CRP-I

For inhouse facility to cater to phase 1 & 2, it needs 7.394 Mn

For outsourcing production it needs 4.795 Mn
If it will license, it will get 3 Mn immediate cash flow and 27.91 staggered
Company already has 6.5 Mn cash and is in no immediate
need of cash or doesnt have so licensing is not needed
Difference between cost outflow required for outsourcing and
self production for Phase 1 & 2 is only ~2.5 Mn. So since the
future returns are high if Phase 1 & 2 succeeds and it can
raise the required capital, self production makes sense

RECOMMENDATIONS FOR MANUFACTURING OF

CRP-I
Pros

New Pilot
Plant

Contracting

Licensing

Cons

Opportunity to scale up
In-house production to help with
the research
Better control and quality
procedures
Extra ammunition for future
competition
Will help in capability development
Medicine might have therapeutic
uses, thus plant
No major capital investment
needed
Contract can be terminated if trials
fail
Use of existing approved facility
Product right stays with the
company

Immediate Cash Inflow

No operational and bureaucratic
hassles
Will retain rights for other
therapeutic uses

As of now they dont have reliable

process ready
If clinical trials fail, excess obsolete
will be there
Process uncertainty (mammalian
cells)
No prior experience and not the
core competency
Asset Specificity
Not inexpensive
Time consuming
Very few companies capable and
willing
Confidential information disclosure
Optimal quantity estimation is very
difficult
It is surrendering right for the
therapeutic use for which it is
being tested
High trade off cost (lower
revenues)