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Biopure Case Study

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Biopure Corporation Case Study Richard Addington PHD Table of Contents 1. Executive Summary 2. Situation Analysis a. Human Blood Demand b. Human Blood Pricing c. RBC limitations 3. Internal Environment d. Strengths and weaknesses of Oxyglobin e. Strengths and weaknesses of Hemopure 4. External/Competitive Environment f. Baxter g. Northfield h. Biopure 5. Animal Blood Market 6. Marketing Plan i. Positioning j. Pricing k. Communication 7. Way Forward for Hemopure Executive Summary

In 1998, Biopure Corporation is one of the three legitimate contenders in the emerging field of “blood substitutes” along with Baxter International and Northfield Laboratories.

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Many opportunities are available in the human blood market due to several disadvantages of the currently available alternatives. Biopure has invested $200M on the R&D of blood substitutes with its primary goal being the development of a human blood substitute, Hemopure. It has recently received FDA approval for Oxyglobin, a blood substitute for the veterinary market, whereas Hemopure will enter phase 3 clinical trials and s expected to get FDA approval by late 1999.

Biopure is now faced with the big decision on whether to launch Oxyglobin now and reap the near-term benefits or wait till Hemopure is approved and established in the market. The following analysis examines the current market demand for the human and veterinary blood substitutes, the competitive environment, the pricing strategy for Oxyglobin and how it will impact the future launch of Hemopure. Situation Analysis Human blood supply 8 million people donated blood in 1995.

Although 75% of adults qualify as a donor, fewer than 5% actually donate blood in a given year. Given the low rate of donation and short shelf life of RBCs several medical facilities suffered a shortage in RBCs Human blood demand 2. 5 million patients suffered from acute blood loss from trauma and surgery in 1995. An additional 1. 5million patients suffer from chronic anemia and also require blood transfusions. Blood loss resulting from trauma and exceeding 2 units needs immediate blood transfusion.

A total of 1 million “borderline transfusions” (blood loss was between 1 to 2 units) occur each year. Despite the potential benefit of a blood transfusion, the majority of these cases are avoided due to the fear of diseases or negative reactions caused by RBCs The demand for RBC’s to treat acute blood loss expected to rise with the ageing US population – 40% of all acute blood loss transfusions occur in individuals over 65 years of age. They comprised 15% of adult population in 1995 and are expected to double in absolute numbers to 25% of the adult population by 2030.

Human blood pricing Since the AIDS crisis it has been illegal to sell blood, as such all blood donations are free The cost of blood ranges from $275 to $425 per unit and covers the cost of collection and administration, storage, handling, cross-matching and documentation RBC limitations * Red Blood cells can only be stored for 6 weeks in refrigerated conditions * Blood transfusions are subject to blood type and incorrect matches can be fatal. RBC’s can be infectious and include the risk of AIDS among other diseases. Blood transfusion is only available in hospitals which results in over 30% of trauma patients dying prior to the operation * Blood supply is lower than demand especially during peak periods (summer and winter) Internal Environment Oxyglobin as a blood substitute for animals Strengths * No competitors – Sole approved product in the market * High supply of raw materials from cattle – Blood obtained at $1. 5/unit * Stored at room temperature * Disease Free * Longer shelf life * Immediately 100% effective Weaknesses & Threats * Short Half Life * 5-10 units max dosage Negative public perception of source (animal vs. human) * Historical lack of Vet transfusion usage Hemopure as a blood substitute for humans Strengths * High Market Potential * High supply of raw materials from cattle – Blood obtained at $1. 5/unit * Universal blood substitutes * Disease free * Longer shelf life * Immediately 100% effective Weaknesses & Threats * FDA final approval * Acceptance of use by medical professionals * Competitors – Baxter & Northfield * Negative public perception of utilizing blood from cattle * Production capacity of 150,000 units per year

External/Competitive Environment Blood substitutes have a reduced risk of contamination and increased storage capability. The main competitors in the market of RBC’s and blood substitutes are Baxter, Northfield, and the current volunteer blood donations market that exists for RBCs. Further competitive rivals are not expected due to the extensive FDA approval process, lengthy R&D testing requirements, and patent regulations Baxter * Leader in development and manufacturing of blood-oriented medical equipment * Large facility – production capacity is 1 million units/year, spent $250 million on R&D. Product – HemAssist – to be priced between $600-$800 * Rely on Human blood supply – Purchase outdated RBC’s for $8/unit * Production cost of approximately $50 million per year ($50/unit) Northfield * A Small firm with the sole purpose of developing its human blood substitute “PolyHeme”. * Production capacity is 10,000 units a year however they hope to construct a $45 million facility with a capacity of 300,000 units per year. * Product – PolyHeme – to be priced between $600-$800 * Rely on Human blood supply – Purchase outdated RBC’s for $26/unit * Production cost of approximately $30 million per year ($100/unit) Biopure Specializes in protein purification for pharmaceutical use. * Hemopure 2 years away from final approval. * Derived from the blood of cattle. * Production capacity of 150,000 but possible production limitations due to expected concurrent usage of production equipment for animal version. * Need for removal of hemoglobin clusters from product excess process in production ability. * Cost for Biopure at $1. 50 per unit of animal blood * Production cost of approximately $15 million per year ($100/unit)

Biopure’s primary competitive advantage is that Hemopure is shelf-stable at room temperature while the competitive products need to be frozen or refrigerated. Moreover, by utilizing cattle as the source of hemoglobin, Biopure have an abundance of raw material at a much lower cost that Baxter and Northfield who rely on human RBCs. Veterinary blood market There are a total of 15,000 veterinary clinics, 95% of which are primary care practices. Emergency care practices make up the remaining 5% however receive a 75% referral rate for major surgeries.

The patients are composed of mainly dogs (50%) and cats (35%). Veterinary blood demand 800 dogs suffered from acute blood loss in 1995 and required emergency care. 30% of these dogs required a blood transfusion but only 2. 5% were considered severe cases and received the procedure. Emergency care practices and larger primary care centers tend to handle all the blood transfusions: 15% of practices handled 65% of all canine surgeries with 10% of the practices handling 55% of all trauma cases. Veterinary blood supply Current blood banks are insufficient, and the demand greatly exceeds supply. 3% of blood is drawn from donor animals (78% in emergencies) with 150 units of blood transfused per emergency care compared to the 17 units per primary care center. Veterinary blood pricing Blood collection, storage, typing and cross matching are too costly for proper operations. Primary care practices charged pet owners between $80 and $100 per unit and a typical emergency care practice charged a pet owner $130 to $170 per unit. Analyzing the Veterinary blood market opportunity Biopure’s Oxyglobin is currently the only existing FDA-approved substitute ready for launch. Moreover, 84% of doctors are dissatisfied with current alternatives.

The total number of units of blood transfused in emergency care practices was 112,500 units in 1995 with a total of 242,250 units from primary care centers. These figures only represent 2. 5% of the total number of dogs who received a blood transfusion while 30% of the total would have benefited from the procedure. As a result there is a potential demand of 4,257,000 units per year. Oxyglobin’s production capacity of 300,000/year only represents 7% of the total potential market demand. Based on the above information, it is clear that there is a huge opportunity and Biopure should launch the product immediately.

In addition, there are several other advantages of launching the product instantly: * Biopure will receive recognition for a break-through discovery that is beneficial and fulfills a need in the market (better quality blood transfusion, availability). * Give the brand credibility and result in PR coverage increasing the overall awareness levels. * Facilitate Biopure’s entry into the human transfusion market. * Provides Biopure with the potential to optimize its production in the future: Biopure can split the production between Oxyglobin & Hemopure based on the larger per-unit profit and future demand and competitive environment. Raise capital for future expansion of Hemopure – Increase production capacity * Strengthen investor confidence for the impending IPO * Provide insights into the future launch of Hemopure in the human market. The challenge for Biopure lies in the firm’s ability to differentiate these products through product education geared toward veterinarians, doctors, and insurance companies which provide the medical recommendation and critical link to the end consumer Marketing Plan for Oxyglobin Positioning strategy The product should be positioned as a high-quality supplement for blood transfusion that the veterinarians can trust.

It should be available to animal owners at an affordable price. Pricing strategy The average cost of a blood transfusion to the customer is slightly above $100. (In 1995, primary care practices charged pet owners between $80-$100 per unit and a typical emergency care practice charged a pet owner $130 to $170 per unit). The cost of a visit to an emergency care practice on the other hand could easily run from $200 to over $1,000. Veterinarians were cited as the trusted source for determining a patient’s treatment selection, which puts pressure on the new substitute segment to target these veterinarians.

In order to determine the best price to launch Oxyglobin, we need to examine the results from the veterinarian survey conducted and combine the leanings with the potential market demand and production capacity of Oxyglobin. Almost all critical cases are attended to by emergency care units who handle the majority of blood transfusions; we need to focus our attention on them as they will help us drive our revenue. Oxyglobin’s production capacity represents only 7% of the total potential market demand. Given Biopure’s limited supply capabilities, it is not recommended to price the product at $100 or less.

Although a higher percentage of veterinarians and consumers would be willing to try the product, it would frustrate them in the long run as we would not be able to satisfy their demand for the product. Pricing Oxyglobin at $200 on the other hand is too high as only 5% of veterinarians would recommend the product for non-critical cases. This may also jeopardize Bipoure’s image as a new entrant into the blood substitute market which could affect the launch of Hemopure in the future. Hemopure is the company’s primary goal and we do not want to be perceived as an expensive product and negatively impact the future launch.

In conclusion, pricing Oxyglobin at $150/unit is the recommended option given the market demand and production capabilities of the firm. Conducting a sales exercise to predict the total revenues generated from emergency care centers at each price will further justify the recommendation. Since almost all critical cases are attended to by emergency care units we will take this into consideration for the following calculations. Price| Critical Cases| # Emergency Centers| Number of Units| Sales Revenue| $50/unit| 100%| 750| 112,500| $5. 63 M| $100/unit| 95%| 712| 106,800| $10. 8 M| $150/unit| 80%| 600| 90,000| $13. 5 M| $200/unit| 60%| 450| 67,500| $13. 5 M| As seen in the above table, charging the veterinarians $200 will yield the same sales revenue as a $150 for critical cases; this is where the noncritical cases need to be taken into account. A much higher percentage of vets are willing to try Oxyglobin at $150/unit (25%) for noncritical cases as opposed to $200/unit (5%). It is important to note that these figures do not represent the total sales revenues for Oxyglobin as we are only taking the emergency care practices into account.

Moreover, the market is expected to grow considering the advantages of the product and the demand for a substitute. Distribution Biopure should focus its targeting on emergency care practices. Although those only make up 5% of the overall industry, 75% primary care specialists will refer an acute blood loss case to one of these centers. Furthermore, Biopure should target large practices (3+ doctors) through regional distributors, both of which account for the largest sales in the industry.

Considering the limited volume of supplies Biopure currently faces, a national distribution may not be desirable right away, until the company at least increases its production capabilities and is established in the market. A regional distributor would be sufficient enough to understand the specific needs of its market and the current output capacity. A larger vet practice could prove more efficient in terms of the availability of materials and the reduction of transfers, thereby also reducing the consumer’s costs and increasing the rate of success by providing a quicker service.

The way forward for Hemopure Hemopure and Oxyglobin, although similar in several ways, are meant for two completely different segments and should not be compared based on price. Oxyglobin is targeted at veterinarians and the animal market while Hemopure is communicating to doctors and insurance companies for the human market. Price expectations are different for humans than they are for animal needs. The price for Hemopure will be compared to the other products in the market ($600-$800), whereas there are no direct competitors for Oxyglobin.

With the success of Oxyglobin, consumers will perceive the brand as providing good value for money and enable Biopure to increase the cost of Hemopure. It is vital for Baxter to monitor the developments in the human blood substitute market until they receive the FDA approval as technology is always changing and the demand for the product may vary. As a relatively junior company that is not as well known for human blood related products or as well funded as Baxter, potential Biopure consumers will require a large degree of product education in an effort to build loyalty and brand recognition for Hemopure.

The blood substitute market is currently non-existent and requires a highly sophisticated sales pitch aimed at a well-educated and technical consumers; namely doctors and insurance companies. It is recommended that Biopure adopt a “manufacturer direct” distributor policy for Hemopure. The distributor’s primary sales pitch will be an educational experience for the consumer regarding value based pricing and the unmet perceived need for this product. It is eminent that the sales pitch clearly identifies the advantages of Hemopure vs. he competitor’s products in order to generate interest and demand. Furthermore, it will educate the consumers on the additional processes required for Hemopure versus Oxyglobin thus justifying the higher cost. It is important for Biopure to conduct a survey on the doctor’s and consumer’s willingness to try Hemopure at different price options. If the results from the survey are in line with the expectations, I recommend launching Hemopure with an initial price of $700 per unit to moderate any price war with the competitors (Since the competitors are expected to launch between $600 and $800).

Baxter is a larger organization and benefit from economies of scale with an estimated production cost of $50/unit compared to the $100/unit currently applicable for Biopure. In summary, the high demand and lack of competition in the veterinary blood substitute market provides a great opportunity for Biopure to launch Oxyglobin. Doing so will help gain credibility, win the trust of the consumers, and expand the business to later tap into the human market.

Cite this Biopure Case Study

Biopure Case Study. (2016, Dec 11). Retrieved from https://graduateway.com/biopure-case-study/

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