Nucleon Strategy

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Class: Strategic Management Professor: Dr. Jeff Reuer Assignment: Nucleon, Inc. Date: 2/16/2013

EMBA Team #5 Dave Arlton Arrold Mullings Daniel Martinez Jose Sosa

ALPHA DOGGS

This analysis is based on the Harvard Business School case, Nucleon, Inc., Rev. April 14, 1994. Nucleon was founded in 1985 by Dr. Alan Ball. Nucleon was a small company operating in a relatively new biotechnical industry specializing in research and development (R&D). Competition in this industry was intense; Nucleon being one of over 200 companies founded since the mid 1970’s to develop pharmaceutical technologies based on advances in molecular biology and immunology. The legal environment in the industry was unsettled. Patent laws for genetically engineered microorganisms were only recently established leading to a lengthy and uncertain approval process. This added risk to undertaking development prior to receiving a patent. Due to Nucleon’s size and position in the market it was essential that right projects were selected. Nucleon elected to partner with established pharmaceutical companies, with strong distribution capabilities to market its products including CRP-1. CRP – 1 is a naturally occurring protein contained in human blood plasma. The pharmaceutical purpose of CRP-1 was to treat burn wounds and treat kidney failure; both markets estimated to be similar in size. Nucleon ultimately focused its initial efforts on a topical burn treatment. Nucleon completed the treatment development in 4 stages. During the research stage Nucleon management analyzed the potential investment to determine if it could generate profit and achieve a dominant proprietary position. Management evaluated the size of the potential market as well. Nucleon scientists gathered information during this phase by reviewing applicable literature and identifying and extracting CRP-1 in small quantities from human plasma. Through the cloning and purification stage scientists would identify and isolate the gene for cloning and then attempt to produce the protein in small amounts. During pre-clinical evaluation, doses of the protein were administered to animals with and without the ailments that CRP-1 was intended to treat. Nucleon faced the prospect of spending $6 - $10 million in R&D and for the preparation of regulatory documents in this stage. Phase I trials assessed basic safety to ensure that the drug did not cause serious, unexpected side effects after administering it to a small group of healthy volunteers. Phase I typically lasted 6-12 months. In phase II testing, the drug was administered to a small group of patients with the ailment the drug was developed to treat. The duration of phase II was typically 1-2 years. The final phase, Phase III, held the longest duration and the highest cost. Phase III was expected to last 2 – 5 years and cost between $30 - $100 million dollars. In phase III statistical methods were leveraged to test the products effectiveness after administering it to a large group of patients. FDA approval based on Phase III clinical trials could take 1-2 years. CRP -1 production required four steps to process development and manufacturing. Fermentation was the first and likely the riskiest process as its use in genetically engineered cells was fairly new; however, it was regarded by Nucleon as one of the most efficient ways to produce CRP-1 in quantity. Fermentation required incredibly tight process controls for successful completion. In the next step, purification, the CRP-1 protein was separated from other protein cells and purified through a filtration procedure called chromatography. Purification also required strict adherence to the process and testing to ensure FDA quality standards were met. In the formulation stage the product was made to the topical dosage form. Finally, CRP-1 was packaged and sealed for administration to patients. Nucleon faced a difficult financial environment, securing equity required high returns (30%) from investors...
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