Nucleon Inc.
Case Analysis
Group 2, Section A, PGP22
• Sayak Chakraborty: PGP/22/247
• Satyajit Roy: PGP/22/258
• Gaurav Anasane: PGP/22/262
• Ambrish Chaudhury: PGP/22/272
• Satyaki Dutta: PGP/22/379
Synopsis
• Nucleon Inc. is a biotechnology startup founded in 1985
• The core competency of Nucleon lies in R&D but nearly zero expertise and know-how in manufacturing
• CRP-1 had been its main development project since inception which has two major therapeutic
applications- treatment of burn wounds and for acute kidney failure; burn wound application being the
primary focus
• Though the actual product is still several years away, the company had to decide how and where CRP-1
would be manufactured before it could launch clinical trials
• The management is in a dilemma whether it must invest in vertical integration for manufacturing process
or license the manufacturing aspect
• There are over 200 companies in this sector that are specialized in R&D. The race to be the pioneer in gene
cloning has made competition tougher
• Nucleon is a small-scale company with limited capital and it is difficult to set up its own manufacturing
unit on the other hand licensing the product would result in a small amount of royalty if the product is a
hit. Besides, there are threats of trials getting failed as well.
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Key Facts, Challenges and Options ahead
Key Facts:
• The FDA regulation asks for 3 phase clinical trial. Phase-I,II & III will take approx. 9 months, 1 year and 2.5
years respectively
• The first 2 phases will require nearly $7.4 mn if done using new pilot facility and $4.8 mn if done using
contract production
• The 3rd phase will require additional $21 mn as well as 20 extra manpower if done in-house
Challenges:
• Investors want proprietary position before investing; Process patenting is difficult and time taking
• VCs expects minimum 30% ROI and Public equity market is in poor condition
• Capital requirement is huge and will be needing extra $20 mn for R&D on 2 other products in next 4 years
• Competitors are already trying to develop similar drugs using alternative technology
Options ahead: 5 options in hand
• Pilot Manufacturing (Phase I & II) + Commercial Manufacturing (Phase III)
• Pilot Manufacturing (Phase I & II) + Licensing (Phase III)
• Contract Manufacturing (Phase I & II) + Commercial Manufacturing (Phase III)
• Contract Manufacturing (Phase I & II) + Licensing (Phase III)
• Licensing everything
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Option 1: Pilot(Phase I & II) + Commercial Mfg.(Phase III)
Pros Cons
• Helps in building the foundation for future expansion • Idiosyncratic and occasional usage of asset
into commercial manufacturing • No experience in manufacturing and everything has to
• Information security and control over the process & be started from scratch
technology • Financial risk in building the new plant is high as it will
• Provides the opportunity to retain the ownership to gain be a sunk cost in case of Phase I & II failure
embedded benefits • Shift in focus from R&D
• Transaction cost will be lower in case of internal
manufacturing
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Option 2: Pilot(Phase I & II) + Licensing(Phase III)
Pros Cons
• No need of additional $21 mn investment in commercial • Threat of information security
manufacturing • Less control over process and product quality
• Can continue to focus on its core competency i.e. R&D • Lesser revenue due to low royalty
and gain competitive advantage through the same
• Low financial loss in case of failure in getting FDA
approval
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Option 3: Contract(Phase I & II) + Commercial Mfg.(Phase III)
Pros Cons
• Lesser initial investment for phase I & II • Threat of information security
• Specialized expertise from contract manufacturing • Less time to build up the commercial manufacturing
service provider will drive efficiency at initial phases and facility as technology transfer and scaling up
success probability will be higher • No experience in manufacturing and everything has to
• Commercial manufacturing plant will provide the be started from scratch
opportunity to retain the ownership to gain embedded • Asset specificity exposes to additional risk as there is
benefits process and product uncertainity
• Control over process in commercial stage
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Option 4: Contract mfg.(Phase I & II) + Licensing(Phase III)
Pros Cons
• Low capital requirement throughout the life cycle • Threat to information security
• Low financial risk in case of failure in critical trial • No control over process
• Proven manufacturing facilities and the expertise of the • Risky to commit large volume which might not be
contract manufacturer can help in better output in terms necessary in case of change in product specificity
of efficiency as well as product quality • Less revenue as royalty payment will be low
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Option 5: Licensing (Phase I,II & III)
Pros Cons
• No capital investment throughout the product lifecycle • Threat to information security
• No financial risk in case of product failure • No control over process or product
• Continued focus on its core competency i.e R&D will • Less revenues as the royalty payment will be low
provide competitive advantage over time • Company’s long-term growth opportunity is challenged
• Immediate cash inflow of $3 mn can be used in research
and development of other products
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Comparative Analysis
Score on a Scale of 1-10
Line Items Weightage
Option 1 Option 2 Option 3 Option 4 Option 5
NPV 35% 8 3 10 5 6
Loss in case of failure in FDA approval 20% 0 7 1 8 10
Asset Ownership & Control Over Process 10% 10 5 7 3 1
Information Security 10% 10 7 4 3 1
Scalability 5% 10 5 7 3 0
Focus on future R&D 20% 1 3 5 8 10
Overall Weighted Score 5.5 4.5 6.2 5.7 6.3
• Based on the comparative analysis we can see that Licensing is the most appropriate option
• Option 3 i.e. Contract + Commercial Manufacturing is the 2nd best option and considering all the aspects, there is not
much difference
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Thank You
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