Economics of Strategy

NUCLEON

Section B Group 4
Aashis R (300)
Numrata Navada (320)
Praveen Pillai (326)
Rishit Mehta (333)
Shorya Chaplot (344)

Introduction
Case Facts
Date: December
1990

Research Strategy
Chance of achieving dominant proprietary position

Company:
Nucleon, Inc.

Large market to justify R&D

Employees: 22
(18 in R&D)
Product: CRP1
( Cell Regulating
Protein)

Drug development where no alternative treatments

are available
Critical information obtained from academic literature
but heavy reliance on in-house research as well

Drug Development Phases

Research
Research

Cloning
Cloning &
&
Purificati
Purificati
on
on

PrePreclinical
clinical
Research
Research

Human
Human
Clinical
Clinical
Trials
Trials

Options
Available Alternatives
Phase 1 and Phase 2
Option 1: Build a Pilot
Plant for phases 1 and 2 +
Vertically Integrate for
phase 3

Build
Build aa Pilot
Pilot Plant
Plant

Option 2: Build a Pilot

Plant for phases 1 and 2 +
License for phase 3
Option 3: Contract
manufacturing for phases
1 and 2 + Vertically
Integrate for phase 3
Option 4: Contract
manufacturing for phases
1 and 2 + License for
phase 3
Option 5: License for all
phases 1, 2 and 3

Phase 3

Vertically
Vertically Integrate
Integrate

Contract
Contract Manufacturing
Manufacturing

License
License to
to Another
Another
Company
Company
License
License to
to Another
Another
Company
Company

Options
Pros and Cons
Option 1
Pros

Option 5
Pros

Cons

All the revenues

Beyond nucleons
will be with the
financial capabilities
firm
Lack functions to

in-house
operate
manufacturing
manufacturing plants
capabilities
Uncertainty of

Quality and process

Optionrevenues
3
control
Pros
Cons
No capital

expenditure in Phase

I and II
Very little monetary
risk
Large scale

manufacturing
Option 2
Pros
|
capabilities
Cons
In-house
Share the
manufacturing
confidential
capabilities (Pilot
information about the
plant)
drug
Less risk, no capital Significantly lower
investment later
income

|
Cons

No investment at
all
Initial payment
which can be used
for other
researches
Less monetary risk

Low returns
Mortgaging
companies future
Not sustainable for
long terms

|
Risk of confidential
information leakage
High capital cost of
commercial
manufacturing
Organizational
changeOption 4
Pros

|
Cons

Risk of confidential
No capital
information leakage
expenditure in phase
Low returns
I and II
Not sustainable for
Contracting
long term
companies have core
competencies

Cost Benefit Analysis

Phase 3 approved

01

NPV : $4.588 Mil

02

NPV : $1.406 Mil

03

NPV : $6.723 Mil

04

NPV : $2.641 Mil

05

NPV : $5.596 Mil

OPTION

OPTION

OPTION

NPV is the second highest

for option 5

OPTION

OPTION

Nucleon Data
Sheet

Cost Benefit Analysis

Failure Cases
Phase 2 Failure

Phase 1 Failure
-3.665M

-1.373M

2.307M

Pilot Plant

-4.668M

Contracting-2.553M
Licensing

2.307M

Least risk in Licensing if

phase 1 or phase 2 fails.
The risk is exponentially
increased when phase 3
fails or product information
is leaked.

Recommendations
Licensing for all the phases
(Option 5) is the best option for
a start-up like Nucleon.

Small companies have

stretched resources

Quick funding for R&D

Possibility of moving to
mammalian cell culture
rendering the manufacturing
facility obsolete

Allows Nucleon to keep its

focus on the core
competency of R&D

By focusing on R&D can

secure investor confidence

Learning curve associated

with manufacturing

RETURNS
Risks posed by Option 3
outweighs the Higher
NPV if it succeeds

PROFITS
Positive NPV from
1991 unlike Option
3 which is breaks
even in 2002

RISKS
Risk due to information
leakage is mitigated by
complete Licensing

Complete
Licensing
FUTURE PROOF
Licensing for use only
as Burn treatment.
Further uses still a
property of Nucleon

HIGH FREECASH FLOW

3M cash flow readily
available for improving
research

THANK YOU