Nucleon Case

Introduction

Nucleon, a small biotechnology start-up company is in the process of human trials for their first potential product, i.e., CRP-1. Nucleon has to decide among several alternatives on producing CRP-1 for their long-term survival in the intensively competitive and high-stakes drug industry.

Industry Analysis -Porter's Five Forces

The Pharmaceutical industry has several high entry barriers as shown in figure 1. Economies of scale, product differentiation, government policy and capital requirements and financial services are few barriers for new entrant. Level of threat from rivalry is also high in this industry. Industry has presence of large number of small firms of a similar size. They are in direct competition with one another, which can often lead to severe price reduction strategies as a competitive means. Power of buyers is medium in this industry because of mixture between concentrated and scattered buyers, i.e., doctors, end users, government etc. Suppliers have low bargaining power company can switch from their suppliers without incurring cost. Threat of substitute is non existence.

Nucleon General Environment

There are several external factors that affect the pharmaceutical company. Social: There is increasing demand for drugs because of high mortality rates of adults. Legal: The introduction of new drugs is closely regulated by FDA. Economic: Booming economy after 1980s is leading to increase in pharmaceutical companies. Political: Increase in minimum wage has leaded an increase in affordability of baby boomers. Technology: progress in biotechnology can be used to discover, develop and produce new drugs.

VRIO Analysis

The table 1 shows the status of the resources and capabilities of Nucleon, Inc. Product Design: Product design is a valuable, rare and organized to exploit its full potential; however it is still imitable as issues with patenting always exists. This puts the company with temporary competitive advantage. Research and Development: The Company's research and development is an important resource and capability, as it is the company's core competency. At present it is both valuable and rare, however, again it is imitable, and not yet organized to fully exploit it, thereby providing the company with only parity in terms of competitive advantage. Human Resource: The Company's human resources are valuable, rare, inimitable and fully exploited. It has a strong team with very good skill and know-how hence puts the company in sustained competitive advantage. Innovation: The Company's innovation provides it with the most competitive advantage through the fulfilment of all the requirements for sustained competitive advantage.

Product Differentiation

Product CRP-1 is differentiated from its competitor in terms of its uniqueness. It can be used for two major therapeutical applications: one for tropical treatment of burn wounds, the other for acute kidney failure and Nucleon has a strong patent position on the CRP-1 molecule.

Cost Leadership

Nucleon will be the sole supplier of CRP-1 if it passes the clinical trials. Hence Nucleon can dictate the price of CRP-1. It will be able to attend the temporary advantage with its own in-house manufacturing plant and skilled human resources.

Vertical Integration

Figure 4 shows the value chain of Nucleon and presently it is at the pre clinical trials stage. This clearly signifies that Nucleon is less vertically integrated. Nucleon has finished the pre-clinical trial with positive results and they are ready to perform clinical trial on human. It is now trying to accomplish more stages of value chain by forward vertical integration. Now as Nucleon is ready to perform clinical trial on human, nucleon has to consider different manufacturing options. It has to choose the right decision whether to vertically integrate or not vertically integrate to sustain in short run