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