Google Winning

Topics: Fixed cost, Cost, Pharmaceutical industry Pages: 14 (4549 words) Published: January 21, 2013
Project Paper

Nucleon Inc. was founded in 1985 by Dr. Alan Ball. From 1985 until 1988 Dr. Ball and a small group of scientists researched ways of producing CRP-1 outside the body. CRP-1 is a cell regulating protein which Nucleon Inc. believed would be effective at treating burn wounds and acute kidney failure. In the field of biotechnology there was intense competition in R&D and patent protection. Nucleon believed it had a strong patent position on the CRP-1 molecule; its rights to other necessary proprietary positions were less certain. Nucleon’s management believed this to be a strong niche market since there was a large enough market and no available alternative treatments. Since CRP-1 was too big to synthesize, they used genetic engineering methods to produce the initial quantities. They first isolated small amounts of natural CRP-1, determined the gene produced CRP-1, and proceeded to clone it for testing. The first step Nucleon took was the 6-8 months of animal testing. By this point Nucleon would have spent 6 to 10 million in R&D and document preparation. To get FDA approval, Nucleon would have to undergo three phases of testing by the end of which they could have expected to pay $30-100 million dollars. Subject to the constraints of their limited capital availability, Nucleon was forced to choose between various options moving forward with CRP-1.

5 Options for all 3 Trial Phases
The New Pilot Plant
The Pilot Plant would be a 5,000 square foot facility with state-of-the-art processing equipment. This plant would meet all of the FDA’s standards for producing CRP-1 for Phase 1 and 2 of the clinical trials. Unfortunately, this plant would not be large enough to for Phase 3. Nucleon currently did not have the financial resources to produce a facility large enough to make the CRP-1 for Phase 3 trials. Nucleon would have full ownership of their product if work was done in the pilot plant. Pros:

* The pilot plant would give Nucleon a clear understand on how to make a much larger, in-house facility that could produce enough product for Phase 3. * The pilot plant would give the managers of Nucleon (who were mostly scientists in R&D) enough time to hire management to run their full scaled operation. * The scientists would have full power regarding decisions pertaining to CRP-1. * The pilot plant would allow R&D to experiment with new drugs at a cost effective price. Cons:

* High level of risk involved.
* Nobody knew the level of success CRP-1 would have in the market. * Most pharmaceutical drugs never reached the consumers. * The plant would be designed to produce a certain type of bacteria that the scientists were currently not using in CRP-1. * High cost to build new plant with a slow source of income. * Requires many venture capitalists

Contract Manufacturing
This is a second option for Phase 1 and 2 of the CRP-1 development. Nucleon would sign a contract with a larger pharmaceutical manufacturer to rent out a facility suitable for their production needs. Nucleon would still retain ownership of the product until Phase 3, where they had to license their product to another firm for mass production. Pros:

* No major capital investments were required for Nucleon.
* If CRP-1 failed, then the contract would be terminated with a small fee. * Facilities are located in convenient location.
* Small overall risk.
* Few companies with appropriate facilities were willing to loan them out. * Hard to keep confidential information secret with manufacturer * Specific details were needed in order for the contractor to provide a reliable time and cost estimate. * Agreement on a contract could be time consuming

Licensing the Product to another Company
If Nucleon did not want to wait until Phase 3, they could license their product to another company to manufacture CRP-1. The licensed partner would be in charge of all expenditures in clinical...
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