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
Cant afford to market its products

CRP-1

Fundamentally different from traditional drug; produced

by genetic engineering
Potential uses
Treatment for burns (Phase I trial will beign in
Apr92)
Kidney failure (2 yrs + $3 mn to start clinical
testing)
Nucleon Inc.

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

6/20/16

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.

6/20/16

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

Phase III

Alternative 1 (P +CM)

New pilot plant

Commercial manufacturing

Alternative 2 (P+ LM)

New pilot plant

Licensing manufacturing and marketing

rights

Alternative 3 (C +CM)

Contract manufacturing

Commercial manufacturing

Alternative 4 (C+ LM)

Contract manufacturing

Licensing manufacturing and marketing

rights

Alternative 5 (L)

Licensing the product to an another company

Nucleon Inc.

6/20/16

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

Nucleon Inc.

Will have to share exclusive

information about the drug making
process to the licensee.
Royalty amount is very low

6/20/16

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

Nucleon Inc.

Risk of confidential information

disclosure
Estimates of cost & time painstaking
with limited information
Low Returns in form of Royalty

6/20/16

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

Nucleon Inc.

Lower returns
Employees may consider it as
mortgaging companys future

6/20/16

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

Contract manufacturing
+
Commercial production

$7,935.20

$8,000.00

Microsoft Excel
Worksheet

$10,071.03

$6,000.00

$6,288.30

$5,158.72

$4,000.00

$3,023.31

$2,000.00
$0.00

2
Alt 1 (P + CM)

Nucleon Inc.

5
Alt 2 ( P + LM)

1
Alt 3 (C + CM )

Alt 4 (C +LM)

Alt 5 (L)

6/20/16

Analysis
Alt 1 ( P+ CM)

Alt 2 ( P +LM)

Alt 3 (C + CM)

Alt 4 (C + LM)

-$18,184.50

-$4,668.87

-$15,409.22

-$2,533.45

$3,000.00

Threat of
information leak

Low

Low

High

High

High

Ease of scale (1Easiest)

Funding for
other new
project

NPV (Ranking
1-best)
Loss/Gain if
patent is not
granted

Alt 5 (L)

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.

6/20/16

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.

6/20/16

Thank You

Nucleon Inc.

6/20/16