Nucleon Case

Why Not License?

Although Licensing provides the lowest risk, we believe Licensing is the worst possible choice the company can pick. If they pass Phase III, they will lose $2-4 million of opportunity cost in FDA payments as soon as the product is approved for distribution. The amount of money they save on Licensing does not offset the loss of money as soon as the product is approved. That means that the cost for Licensing is in the 3 years is actually not $0. Since its cost is $2-4million, this is almost equal to the cost of Contracting, which is $4.795 million. If the cost to License-License is the same as the cost to Contract-License, then we can see by looking at the graph that the second option almost beats the first in every way. This makes Licensing in the WORST possible option available. It does not give any alternative actions after Licensing from Phase I. Any moderate risk-taker, given the circumstances, would choose to Contract-License over License-License, given these variables.

Why Not Contract?

As we can see from the graph, Contracting and Piloting has the same slope, payoff and royalties. The only real difference is the cost to start up. The amount of money that is saved from entering a contract does not offset the amount of risk and loss of intangible assets that may accrue.

Pilot Phase I&IIStrategy

Since we eliminated Licensing and Contracting as Options for Phase I&II, that leaves us with Piloting as the best option. Although it cost more for them to start up, we can see from the graph that they get the same slope, payoff and royalties in the end. Their growth in profits is the same but taking this option allows them to have an increase in intangible assets

Phase III Strategy

In Phase III, we have the option of either Vertically Integrating, or Licensing. Given that we have already established a Pilot in Phase I&II, the expected value of Licensing compared to Piloting afterwards was roughly one-fourth. Revenue wise, Vertically Integrating was the better option.

The company already has the experience and knowledge from previously creating the Pilot. It was very easy for them to Scale up.

Raising Money for Phase I&II

How do they raise the funding for Phase I&II? Well they currently have $6.5 million and the total cost for the start up of the pilot is $7.394 million. This leaves them 0.894 million short, but if we look at the first and second year, it only requires them to have a total of $3,350