NUCLEON INC.
Prepared by -
Section: A
Abhimanyu SharmaPGP/19/001
Apoorva MittalPGP/19/007
Nilesh RayPGP/19/029
Rajkamal SendhaPGP/19/038
Shibashis SahuPGP/19/050
Decision tree of Nucleon Inc. Phase III
Phase I/II
Internal commercial
manufacturing
New pilot plant
Licensing manufacturing
and marketing rights
Internal commercial
manufacturing
Alternatives for Nucleon Inc. Contract manufacturing
Licensing manufacturing
and marketing rights
Licensing the product to
Licensing
another company
Present day, 1990 Dec, 1993 June, 1994
Commencement
of sales, Jan, 1998
Options available for Nucleon
Alternativ Phase I/II Phase III PROS CONS
es
1 New pilot Internal 1. Develop nucleus of future large scale in 1. Currently lacks manufacturing capability
plant commercial house manufacturing facility 2. High risk in building pilot plant due to possibility of
manufacturing 2. Entire sales revenue belongs to them in sunk cost
the future 3. Capital investment required to build the pilot plant
3. No sharing of proprietary information 4. Future process uncertainty
2 New pilot Licensing 1. Part of the risk is passed to the licensing 1. Sharing of exclusive information about the drug
plant manufacturing company making process with the manufacturer
and marketing 2. Does not need to invest heavily for large 2. Future process uncertainty
rights scale manufacturing
3 Contract Internal 1. No major capital investment in phase I/II 1. Risk of confidential information disclosure
manufacturin commercial 2. If CRP-1 fails, contract could be easily 2. Technology transfer and scale up will take a long
g manufacturing terminated time for negotiating an agreement and validating
3. The risk factor is quite low for phase I/II the process
4 Contract Licensing 1. Minimum capital investment in either of 1. Sharing of exclusive information about the drug
manufacturin manufacturing the three phases making process with the manufacturer
g and marketing 2. Minimum risk in failure of the drug 2. Risk of confidential information disclosure
rights 3. Technology transfer and scale up will take a long
time for negotiating an agreement and validating
the process
5 Licensing the product to another 1. No capital investment in either of the 1. Employees may consider it as mortgaging
company three phases companys future
2. Can focus on their core competency of 2. If product is successful, Nucleon will receive far
R&D lower revenue
3. Upfront payment of $3 million required
which could be invested in further R&D
progress
New pilot plant + Internal
commercial manufacturing
Year Total Cash Flow
1991 -3350
1992 -1840
1993 -23204
1994 -4013.33
1995 -4013.33
NPV = $ 4,35,175.36
1996 -4013.33
1997 -4013.33
1998 22466.67
1999 35786.67
2000 45986.67
2001 47986.67
2002 and onwards 1275853.37
All figures in $000
Assuming discount rate of
New pilot plant + Licensing
manufacturing and marketing rights
Year Total Cash Flow
1991 -3350
1992 -1840
1993 -2204
1994 0
NPV = $ 1,18,292.34
1995 0
1996 0
1997 0
1998 12370
1999 9950
2000 12500
2001 13000
All figures in $000 2002 and onwards 330000
Assuming discount rate of
Contract Manufacturing + Internal
commercial manufacturing
Year Total Cash Flow
1991 -250
1992 -1995
1993 -23550
NPV = $ 4,37,605.49 1994 -4013.33
1995 -4013.33
1996 -4013.33
1997 -4013.33
1998 22466.67
1999 35786.67
2000 45986.67
2001 47986.67
2002 and onwards 1275853.37
All figures in $000
Assuming discount rate of
Contract Manufacturing + Licensing
manufacturing and marketing rights
Year Total Cash Flow
1991 -250
1992 -1995
1993 -2550
NPV = $ 1,20,722.46 1994 0
1995 0
1996 0
1997 0
1998 12370
1999 9950
2000 12500
2001 13000
2002 and onwards 330000
All figures in $000
Assuming discount rate of
Licensing the product to another
company
Total Cash
Year Flow
1991 3000
1992 0
1993 0
1994 0
NPV = $ 63,351.67
1995 0
1996 0
1997 0
1998 2685
1999 4975
2000 6250
2001 6500
2002 and onwards 165000
All figures in $000
Assuming discount rate of
NPV Comparison of the available alternatives
435175.36 437605.49
118292.34 120722.46
63351.67
Recommendations
As per the NPV analysis, we recommend Nucleon Inc. to
go for
Alternative 3: Contract manufacturing in the phase I/II
and then go for internal large scale manufacturing.
No major investment in phase I/II
If the CRP-1 fails in the initial two phases, the contract
can be easily terminated
