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Nucleon Inc.

Key facts
Nucleon, Inc.
• Operates in highly competitive and high stake drug industry Leader in Cell regulating factor “Cell regulating protein-1 (CRP-1)” ,its first potential product Specialized in R&D (80% employees engaged in R&D) Raised $6 mn in VC and $0.6 mn as research grant till now Can‟t afford to market its products

• •
• •

FDA regulation for human clinical trial
Phase I : • Drug testing on healthy volunteers • Requires 6-12 months Phase II • Drug testing on small group of patients for adverse effect • Requires 1-2 years Phase III • Drug testing on large sample of patients • 2-5 years to complete • Most expensive phase

CRP-1
• Fundamentally different from traditional drug; produced by genetic engineering Potential uses • Treatment for burns (Phase I trial will beign in Apr‟92) • Kidney failure (2 yrs + $3 mn to start clinical testing)
Nucleon Inc.

1/29/2014

Challenges
Patents
• • • • Extremely difficult to patent process technology Investors want proprietary position before investing Long time for patent application processing High risk in carrying out development before patent was granted

Funding
• VC expects 30 % ROI ; Highly selective • Raising fund from public is virtually impossible due to poor condition of public equity market • Unwillingness of potential corporate partner towards early stage funding • Needs $20 mn for research on two new cell regulating factors in next four years

Competitors
• Developing drug to cure same disease using alternative technologies

Others
• Scaling up the production in 100 litre vessel
Nucleon Inc. 1/29/2014

Current Scenario
• • • • CRP-I is under “pre clinical research” phase Need of manufacturing strategy for human clinical trials and post FDA approval stage Available investment (including VC funding) is $6.5 mn R&D lab working on second generation CRP-I molecules (mammalian cells)

Way Ahead : 5 options
Phase I/II Alternative 1 (P +CM) Alternative 2 (P+ LM) Alternative 3 (C +CM) Alternative 4 (C+ LM) Alternative 5 (L)
Nucleon Inc.

Phase III Commercial manufacturing Licensing manufacturing and marketing rights Commercial manufacturing Licensing manufacturing and marketing rights

New pilot plant New pilot plant Contract manufacturing Contract manufacturing

Licensing the product to an another company
1/29/2014

Alternative1: Pilot plant(Ph I&II) & Commercial Manufacturing (Ph III]
 Develop nucleus of future large scale in house manufacturing facility which is utilized in commercial manufacturing  The whole „sales revenue‟ would be with them    Currently lacks manufacturing capabilities & manpower Risk in building Pilot Plant since in future it will be sunk cost if the Phase I& II trials fail Process uncertainty makes the Pilot Plant a liability in future if the process changes

Alternative2: Pilot plant(Ph I&II) & Licensing (Ph III)
 Develop nucleus of future large scale in house manufacturing facility  No investment in the commercial manufacturing facility   Will have to share exclusive information about the drug making process to the licensee. Royalty amount is very low

Nucleon Inc.

1/29/2014

Alternative3: Contract Manufacturing (Ph I&II) & Commercial Manufacturing(Ph III)
  No Major Capital Investment in Phase I&II  Very little risk  Manufacturing experiences gained which is then utilized in commercial manufacturing   Risk of confidential information disclosure Estimates of cost & time painstaking with limited information High capital cost required for commercial facility

Alternative4: Contract Manufacturing (Ph I&II) & Licensing (Ph III)
 No Major Capital Investment throughout the duration  Very little risk  Manufacturing experiences outsourced  Risk of confidential information disclosure Estimates of cost & time painstaking with limited information Low Returns in form of Royalty


Nucleon Inc.

1/29/2014

Alternative5: Licensing (Ph I-III)
 No Major Capital Investment throughout  $3m immediate payment which they can invest in R&D for treating kidney failure  No headache of scaling up in future

 

Lower returns Employees may consider it as „mortgaging‟ company‟s future

Nucleon Inc.

1/29/2014

Financial Analysis
Assumptions: • Cost data for pilot facility , contract production and sales are assumed to be at the year end • Sales are assumed to grow at 5% after 2002 till perpetuity • Expenses of 20 personnel hired for commercial manufacturing are calculated from the variable production expenses and overhead in new pilot plant facility : (1,204,000/6)*20 = $ 4,013,000
$12,000.00

Net present value
$10,000.00 $8,000.00 $6,000.00 $4,000.00 $2,000.00 $0.00 Alt 1 (P + CM) Alt 2 ( P + LM) $7,935.20

$10,071.03

Contract manufacturing + Commercial production
$6,288.30 $5,158.72

$3,023.31

2

5

1
Alt 3 (C + CM )

4
Alt 4 (C +LM)

3
Alt 5 (L)

Nucleon Inc.

1/29/2014

Analysis
Alt 1 ( P+ CM) NPV (Ranking 1-best) Loss/Gain if patent is not granted Threat of information leak Ease of scale (1Easiest) Funding for other new project Alt 2 ( P +LM) Alt 3 (C + CM) Alt 4 (C + LM) Alt 5 (L) 2 5 1 4 3

-$18,184.50

-$4,668.87

-$15,409.22

-$2,533.45

$3,000.00

Low 5

Low 3

High 4

High 2

High 1

5

3

4

2

1

 Though NPV is highest for Alt 3 (C+CM), but it has high risk if Patent is not granted and risk of information leak is high  Next higher NPV alternative (Alt 1 – P+CM) also has high risk if patent is not granted
Nucleon Inc. 1/29/2014

Recommendations
Alternative 5 (Licensing the product to another company) is best suitable under current business scenario
• Best in case patent is not granted • Upfront inflow of $3 mn cash • Flexibility to work on other research projects like mammalian cells and new cell regulating projects • Can focus on their core competency - R&D

Nucleon Inc.

1/29/2014

Thank You

Nucleon Inc.

1/29/2014