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Nucleon INC.

Group 7
Chinmaya Panday
WMP08096
Prashant Kr. Rai

WMP09096

Pranav Kumar
WMP09030
Ranjit Kr. Das
WMP09101
Saurabh Shukla

WMP09043

Back Ground:

Case Facts

Founded in 1985 by Dr. Allan Ball, An internationally respected researcher at


childrens hospital and Associate Professor of Clinical Medicine at greaves
Medical Center, to develop Pharma Products based on class of Protein called
CRP-1 (Cell Regulating Protein 1) . Robert Moore joined Nucleon as a
project manager.
Dr. Ball & group of Scientists were developing CRP outside the human body ,
which was actually a naturally occurring Protein.
CRP-1 was companys First Product. Which was developed with several
years of research work.
It had potential of treating Burns and Kidney Failure.
Since this was companys first Ever Product Upcoming for clinical trails to the
market, thus It didnt had any manufacturing facility for production of its drug
for Clinical trails Phase 1, 2 & 3.

For marketing, they were clear that partnering with a larger firms is the best option as they cant
afford marketing of their products

Company had 3 options for Production of the drug.


1. To build a 5000sqft pilot facility for Production of its EP drug for Clinical
trials of Phase 1& 2.
2. To contract the clinical manufacturing to outside firm
3. To License the manufacturing to another biotech company which would
eventually manufacture, Clinical develop & market the product.
The decision will have long-term consequences and may decide Nucleons
survival

Case Facts
Challenges on External Environment
Competition:

Was one of 200 Firms formed during mid 1970s to develop pharmaceutical technologies.
Company had 22 employees and 18 of them were involved in R&D. And of them 1/3rd
Scientists.
Competitors included pharma giants like Ely lily, Merck, & Hoffman LaRoche; made the
competition Intense.
Other Competitor were also working on similar technology for developing CRP-1, thus race of
succession, was intense to gain first developer advantage.
Biotechnology laws were very uncertain, as this was a newly upcoming field.
Investors wanted to see a strong proprietary position of the product before investing.
Nucleon was specialized in Laboratory Development but not manufacturing and Marketing

Financial Environment :

Raising funds became difficult

1.
2.
3.
4.
5.

Venture capitalist become more selective and demand at least 30% Return on Investment

Unwillingness of potential corporate partner towards early stage funding

Issuing an IPO was not really an option for company like Nucleon

-- Capital Availability was critical hurdle.


Drug Manufacture Process : Process Flow Chart
Fermentation
Cell Lysis
Protein Isolation
Formulation
Fill, Package and Label

Q1 What are your recommendations regarding


Manufacturing of CRP-1 for Phase 1 & 2 Clinical
trials?

Options

Advantages

Disadvantages

Build a New 5000


Square foot Pilot
Plant

Economies of Learning Act as a

nucleus of a future larger


scale, in-house manufacturing
capability Nucleon currently
lacked the expertise to operate
even a small manufacturing
plant

Could not be used for Phase III as it would


not meet FDA Standards for phase-III trials

High risk of failure


Plant being idled if CRP-1 failed
Risk of Process Uncertainty

More control over process and

quality
Contract CRP-1
Clinical
Manufacturing to
an Outside Firm

No major capital investment


Contract can be easily terminated

in event of clinical trial failure


Allow Nucleon to focus on R&D
Little risk, except that of small

termination penalties

Very few companies capable and

willing to do
High risk of disclosing confidential

information
High Price due to fixed costs of scale

up and batch set ups


Equally time consuming compared to

option 1
License the
Manufacturing to
another
biotechnology
company or a

No major capital investment

Mortgaging away companys future

Immediate cash generation. $3

Nucleon overall revenue would be

million upfront and 5% royalty


on gross sales

lower than if it would have made the


investment itself

Q1 What are your recommendations regarding


Manufacturing of CRP-1 for Phase 1 & 2 Clinical
Phase-I and Phase-II Optionstrials? Cont .
As per the understanding of the Case Nucleon should license the Product to
the another Pharmaceutical Company for Rest All stages, due to following
reasons:
This will fetch the company with immediate Fixed Payments and Future
royalties. Also it will save company making large Capital investments. And
allowed the company to concentrate on R&D.
Company has no money to invest for manufacturing Plant, and there are
other competitors who are developing the same medicine. By the time their
manufacturing plant would turn up, the competitors would have swallowed
the market.
Investors find the investments profitable only after Phase 2 of Clinical trails.
(Nucleon Phase 1).
Company itself is not sure of the product commercial success.
Company's core competence is R&D its doesnt even has staff for selling
their product, which is new to the market.
Licensing to a bigger company would give them royalty of the Licensee also.
As the product is new to the market, a licensing would give them an
appropriate reach to the market and also financial strength. Would save it
from many uncertainties.
They can concentrate on R&D In developing more medicines.

Q2 What are your recommendations regarding


Manufacturing of CRP-1 for Phase III Clinical trials
and Commercialization?
Options

Advantages

Disadvantages

Vertically
Integrated
into
Commercial
Manufacturi
ng

Funds can be arranged Good if the

Large Investment - $21 M

results of Phase I and Phase II were


promising so that venture
capitalists are expected to further
fund the research.
The plant can be used for

manufacturing other products too.


If FDA approved CRP-1, then

($20 M for cost of facility and


$1M for development of
resources) is required to scale
up.
Organizational change

required.
R&D can loose focus.

Nucleon would receive $5 Million


Risk of obsolescence of the
and royalties equal to 40% of gross
bacterial cells fermentation
sales.
Licensing
out
manufacturi
ng and
marketing
rights

Partner would have onus for Phase

III manufacturing and thereby


marketing. Hence, no further
investments required.
No requirement for organizational

changes. Hence, they can focus


only on R&D.
Nucleon will save $21 Million

investment

Low Revenue - After FDA

approval of CRP-1, Nucleon


will receive license fees of $7
Million and 10% of partners
gross sales.
In the long term, Vertical

Integration might not be


possible/ difficult.

Phase-III Recommendation
Inhouse
Manufacturi
ng

Nucleon

In house
Manufacturing
Licensing Out

In house
Manufacturing

Contract
Manufacturing
Licensing
Out

Licensing Out

Licensing Out

Nucleon should license all the manufacturing and Marketing functions to a bigger
Pharma Company for all phases.

Q3 . How to justify your recommendations to


Investors in the company?
License Out Commercial Manufacturing
It will get Guaranteed returns from licensing.
Ensured investments into R&D of mammalian based drugs and kidney treatment drugs
Ensured firms future by sustained competitive advantage through knowledge base Asset
Currently, the company had invested $6million from venture capitalists and $600,000 from
US government grants. Venture capitalists are merely interested in 30% returns.
The upcoming demands of the company as follows
Company needed $ 3 Million, for investing in development for kidney Failure
medicine(which is a life saviour, and hence more profitable product)
The Current Product is a Burn treatment product, which is not of a strategic
importance.(less profitable)
A pilot Plant of area 5000 sq ft will require a further investment of $6 million and
time.
During the Phase 3 of clinical trails requires (including Manufacturing, administering,
monitoring the result and analysing data and preparing regulatory paper work) an
investment of $100 million.
Which will take time and money both.
Whereas Money gets infused in the company on licensing and earned through other
bigger companys experience.
Outsourcing manufacturing will result in development of Competitors, as no
manufacturer can give best cost of production before understanding the complete
specifications and Process of manufacture.

Q4 . Recommendations regarding long term


Manufacturing strategy?

Nucleon will have to continuously improve its technology through


R&D (mammalian cells fermentation).

Vertical integration into manufacturing can provide firm & usage


specific resources and demonstrate commitment to any imminent
competitor.

In long term the company should invest in its own manufacturing plants.
However they can still share the marketing part with the bigger players ,
as they have a better marketing and distribution network.
This will result in increasing the profits and reducing the marketing risk.
The current product, CRP-1 is expected to be clinically used for Burns, but
the upcoming products were for kidney failures, thus by the time of launch
of the Kidney failure CRP, they must have a manufacturing plant of own,
as this will help them in securing their specifications and composition of
the CRP.

Q5. What does this company looks like after


10 years ?

Particular
R&D Boutique

Advantages

R&D Boutique with Pilot Scale


Manufacturing

Integrated Manufacturing
Enterprise

Disadvantages

Focus on core competency


i.e Research and
Development
The firms resources can be
used with flexibility

It wont be able to reap


financial benefits of the
product

Focus on core competency


i.e Research and
Development
More Control over clinical
trial processes

It wont be able to reap


financial
benefits of the product
Asset specificity is involved

Establish Nucleon as a fully


integrated Enterprise
It will reap full financial
rewards for all stakeholders

It involves high capital


investment
It involves high asset
specificity

After 10 years this company looks in face of an integrated Manufacturing


enterprise, Making profit to its maximum extent

In 10 years , the company would be matured and cash rich to accommodate all expenses
to protect its researches.
All the departments would be well established and well functioning and experience enough

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THANK YOU

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