Nucleon Inc. - Case Solution

This case solution includes an Excel file with calculations.

Which combination of options should Nucleon Inc. choose and why?

Nucleon Inc.’s management should choose to license its products immediately. Given the high capital costs of either a pilot plant or a full-scale FDA- approved manufacturing facility, the likelihood of failure in the experimental drug industry, and given that licensing results in immediate cash and zero future outlay, “Option 5” provides a safer yet very profitable future.

NPV

Strictly from a net present value point-of-view, Licensing has several advantages.

First, Exhibit 1 shows that Option 5 has the highest NPV of all the options for Nucleon Inc. in the short term (through 2002), besting the next-highest NPV project by nearly a factor of two.

Secondly, in the long term (through 2009), it still manages a positive NPV but drops to 3rd out of the five choices.

While Option 1 (Build/Build) exhibits a very high long-term NPV of over $7 million, the other options overshadow it. Option 3 (Buy/Build) has a higher NPV both in the short term and long term and requires less capital outlay (reducing risk) for Nucleon Inc.

Similar to Option 1, Option 2 (Build/Buy) is…