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Nucleon, Inc.

Dilemma
Dec 1990, critical manufacturing choices.
Hurst asked Moore to evaluate and give recommendation.
Nucleons first potential product, Cell Regulating Protein
1.
Human clinical trials were next major hurdle.
No manufacturing facility, which met FDA requirements.
5 options.

Background

Founded in 1985 by Dr. Alan Ball, to develop pharma products.


1985 to 1988, researched to produce CRP-1 outside the human body.
CRP-1 was a naturally occurring protein contained in blood plasma.
Scientists determined the gene that instructed cells to produce CRP1.
The gene was then cloned.
CRP-1 produced was sent to academic collaborators.
Potential as a treatment for burns and kidney failure.

Strategy and Competition

New field of R&D, known as biotechnology.


One strong patent can ensure survival for years.
Biotechnology patent law was new and uncertain.
Nucleon had a strong patent position on the CRP-1 molecule.
Given the small size, essential to pick the right projects.
Maintaining close contact with universities became necessary.
Attractive niche: relatively few firms were working on CRP-1.
Companies were integrating vertically into manufacturing.

Continued
Linking up with Merck for marketing.
1990, Nucleon had 22 employees, 18 engaged in R&D.
Raised approximately $6 million in VC & $600,000 as
grants.

Drug Development: From Research


to Market

Evaluating chance of achieving a dominant proprietary position.


Large market and no alternative treatments.
CRP-1 was too complex and was produced by genetic engineering.
Difficult to either identify the relevant genes or to get host bacteria.
Pre-clinical research consisted of experiments on animals.
Expected to begin human trials for CRP-1 by 1992.
FDA regulations were the most stringent for human clinical trials.
Three phases of human trials, over 3.5 to 8 years.

Approximate Time Frame for CRP-1


Project

The CRP-1 Project: Current


Applications

Two major therapeutic applications burn wounds and kidney failure.


Every step documented to produce identical products.
Basic process steps; fermentation, purification, formulation, filling.
Fermentation initially focused on growing E. coli.
Many firms encountered problems as genetically engineered.
For regulatory reasons, critical to run the process exactly as specified.
Great deal of trial-and-error, being a new process.
A process working well can fail completely when transferred.

Continued
Scaled up the process for making 10 liters.
Product characteristics

Process Flow for CRP-1

Column chromatography steps to

The Financial Environment

Critical issue affecting Nucleon was capital availability.


Equity markets grew tighter and VCs expected 30% returns.
In 1980s, it would have been much easier to get funding.
Today, VCs require some solid phase I/II clinical results, and stable
manufacturing process, you would still have some pretty tough
terms.
Nucleon was about to receive about $6.5 mn from its VC.
The possibility was that a long awaited shake-out was about to
hit the biotechnology industry.

Decision Tree

What are your recommendations regarding the


manufacturing of CRP-1 for phase I and phase II
clinical trials?

What are your recommendations regarding the


manufacturing for phase III clinical trials and
commercialization?

How should you justify your recommendation to


investors in the company?
NPV
Loss/Gain if
patent is not
granted
Threat of
information
leak

PP

PL

CP

CL

LL

16500

3596

19276

6372

7275

-18495.6
Low

-6069.53
Low

-15719.5
High

-3293.49
High

3000
High

Ease of scale

Funding for
other new
projects

What is your recommendations regarding


Nucleons long term manufacturing strategy?
Small company

Stretched finances
Lack of personnel
Manufacturing Inexperience
Green manufacturing organization
Lack of specific talent in manufacturing
Mammalian Cell Culture
Useless facility

Continued
Low risk, low reward strategy
Risk of failure is high otherwise.
Focus on R&D
Fastest guns on the block.
All resources into R&D.
Learning curve in R&D.
Strategic alliances
Strong alliances with universities.
If successful, stronger ties with licensee.

What this company should look like in 10


years: R&D boutique, R&D boutique with
pilot scale manufacturing or an integrated
manufacturing enterprise?

R&D boutique

Fast decision making


Lack of learning curve
Change of direction into new vector
Easy funding