Biopure case study analysis PDF

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Patrick Anderson Biopure Case Study Company Overview Biopure Corporation - privately owned pharmaceutical firm • 2 new products (blood substitutes)  1. oxyglobin 2. hemopure • Only company actively engaged in development of blood substitutes for smallanimal vet market • Invested $200 million in the development of blood substitutes • Currently has no revenues with very little debt and financing of $50 million to support operations for another 2 yrs. • Stakeholders are anxious to make the company public Biopure Corporation (“Biopure”) is a privately owned biopharmaceutical firm founded in 1984 specializing in the ultra purification of proteins for human and veterinary use. Biopure’s entry to the fieldwere Oxyglobin for the veterinary market and Hemopure for the human market. What distinguished these products from other “hemoglobin-based” blood substitutes under development was the fact that they were “bovine-sourced” as opposed to “human-sourced”. In February 5, 1988, Oxyglobin had its final approval from the FDA and was ready for launch, while Hemopure was still at its Phase 3 clinical trials and was optimistically expected to see final FDA approval for release as a human blood substitute sometime in 1999, approximately two years away. Because of these circumstances, the CEO of Biopure Corporation, Carl Rausch, must make a decision on whether to launch Oxyglobin prior to Hemopure or wait until Hemopure isapproved and established in the market.

SWOT ANALYSIS Strengths: 1. First blood substitute, which has received full governments approval. (Oxyglobin) 2. Technological expertise, which enables it to produce blood substitute with bovine RBC. 3. Products are “Universal” blood substitutes. Weakness: 1. No prior expertise in launching the product and marketing. 2. No self generated revenues as on date. 3. No distribution network in place. Marketing  Promotions targeting hospitals and doctors Differentiating Hemopure and Oxyglobin Awareness sessions for doctors Training sessions for sales representatives

Market Overview Human blood market Around 14 mn units of RBCs are available from donation RBCs: Low rate of donation and short shelf life, thus periodic shortages  Demand of RBCs is expected to rise by 2030  Donated RBCs has a lot of limitations:  need of exact blood type matching  reduced O2 carrying efficiency  limited shelf life  need of refrigeration  risk of disease transmission Veterinary blood market Blood transfusions were infrequent About 30% of cases would have benefitted significantly from transfusions, only 2.5% actually received it There was inadequate blood supply and few animal blood banks Primary care practices blood requirement cost $80 to $120 /unit, emergency ones cost $130-170 /unit Lack of time and resource to type the donor and blood recipient. 84% of veterinary doctors expressed dissatisfaction with the currently available blood transfusion alternatives Competitors for blood substitutes • Baxter International is the leader in development and sales in blood related medical products.“HemAssist” Baxter’s patented blood substitute • NorthField Laboratories is another competitor in this blood substitute market. “Polyheme” is very similar to Baxter’s HemAssist in its production and usage. Reasons for launching the product 

Oxyglobin was the first new “blood substitutes” for the veterinary market, and other companies would take 2 to 5 years to bring an animal blood substitutes product to market ,which will help Biopure (the Company) to open the popularity in the market.

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Biopure had spent over $200 million in the development of Oxyglobin and Hemopure and in the construction of a state-of-the-art manufacturing facility. Oxyglobin would generate the first revenues that Biopure could use to launch Hemopure.

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The launching can fill the scarcity of animal blood supply, which will help Biopure to maximize the market share in the veterinary market, and then the proven success with Oxyglobin might have a greater impact on an IPO than the promise of success with Hemopure.

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Though the animal market is smaller than human market, the launching of Oxyglobin will help Biopure to gather experience with regard to marketing channel strategy.

Reasons against launching the product 

Since Oxyglobin will release with a low price, Hospitals and insurance firms might call the Biopure to justify a 500% price difference for what they see as the same product. Oxyglobin would create an unrealistic price expectation for Hemopure if released first.

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It will have high risk at this point to launch Oxyglobin when Biopure is in IPO progress, because the market prospect of Oxyglobin is hard to forecast.

Market potential for Oxyglobin in the animal market and Hemopure in the human market Market Cap calculation of Oxyglobin The calculation of the market cap is defined as follows: The target market volume (rough estimate) = Number of veterinary practices * number of animal in each practice * willingness to trial Oxyglobin * unit each animal needs We estimated the factors as following: a) Number of veterinary practices: 15,000 (mentioned in the article) b) Number of animal in each practice: 800/85% ( dogs take up 50% of patient volume and cats take up 35% of volume) c) Willingness to trial Oxyglobin: (27.5%*70%+2.5%*95%)*(27.5%*60%+2.5%*90%)= Suppose priced at $100, under the probability of 30% of these dogs would have benefited significantly from a transfusion of blood, 2.5% are critical cases and 27.5% are non-critical cases, we can calculate each weighted willingness to trial Oxyglobin of veterinarians and pets owners, the product of the two percentage is the integrated willingness to trial Oxyglobin. Here suppose the percentage in dogs practice can be broadly representative)

d) Unit each animal needs: 1 unit e) By entering the estimations above, we get The target market volume = 15,000*800/85%*(27.5%*70%+2.5%*95%)*(27.5%*60%+2.5%*90%)*1=572,426

At last but not least, we must notice that all the figures used above is from 1995.It is very likely that the numbers will rise by the year of Oxyglobin release. Market Cap calculation of Hemopure According to the paragraphs referring to the human blood market and Exibit5, we can easily find the target market for Hemopure in the human market as follows: Elective Surgery: Anonymous Donations Emergency Surgery (in hospital) Trauma (in field administration) Not Transfused: Due to Rejection Due to Expiration Total:

5,800 1,000 200 1,200 1,500 9,700

Impact of Oxyglobin’s pricing on Hemopure Oxyglobin’s pricing for Hemopure price is bound to form a reference and comparison of the role. In the market, pet products and people use the same type of product there is a proportional relationship between, or correlated. The coefficient is generally between 0.3 to 3 times. In other words, if Oxyglobin pricing at $100, then Hemopure in general should be between 30 to 300 times. We cannot ignore the presence here of some inherent , although we cannot directly say the pricing of pet products determined that people use the same type of product price must be to what extent . However, some queries on the products we see they are indeed the existence of these links. Based on the impact of just said, we also believe that the pricing of Oxyglobin will be a liability to Hemopure. We noted that our pricing for Oxyglobin probably should be between 100-150 (the second question we have detailed presentation of this specific product pricing principles and price). As we mentioned above, Hemopure price should not exceed $450. But, in fact, we want to set a higher price, between $ 600-800. It would appear that, once the price is bound to make the hospitals, insurance companies, patients

feel that this price is too high (not to mention Oxyglobin the same company's products). For the price of acceptance will have a direct impact. In contrast, if we are priced below $450, obviously we lost that part of the profits could have had. So we think this is negative impact.

Before the launch of Oxyglobin we think the management should consider the following issues: a) Pricing the product – which will be discussed in section 2; b) Identify the target client – according to the demand analysis of veterinary blood, 15% of veterinary practices handling 65% of all canine surgeries and 10% of practices handling 55% of all canine trauma cases. The Company should focus on the 10% - 15% main veterinary practices; c) Choose between “manufacturer direct” and distributor – which will be discussed in Section 3; d) Build up its own training team – as there was no such product in veterinary market, the Company should set up a training team and training courses for target client; e) Production capacity – the Company should also make sure there is enough production capacity to meet the market demand. Pricing the product When pricing the product we mainly consider the following factors: a) The demand elasticity – we have reviewed the survey of the willingness of veterinaries and owners who would trail product. We noted that there is a big difference between critical case and noncritical case. Usually speaking, buyers (both veterinaries and owners) would be willing to pay a high price in the critical case, for example, 80% of the veterinarians would pay 150/unit and 65% of the owners would pay 400/unit. Also, we noted blood transfusion is mainly used in emergency cases instead of ordinary cases. So we can choose to price based on critical case. b) First move advantage – as there is no such product launched in this market

before, and consider the Company as the only seller, we can charge a relatively high price. c) Cost recoup – to achieve high growth of the Company, the price should be high enough to recoup all kinds of costs. The fixed cost of production of 300,000 units is 15 million per year, 50/unit. The raw material will cost 1.5/unit. We also have to cover the selling expenses. d) Further impact on pricing of Hemopure – as some of the staff has pointed out that the launch of Oxyglobin will set a baseline for future launch of Hemopure. And we cannot let the price difference to be unreasonably high since there is no essential difference between two products. By considering the factors above, we suggest that the Company should price Oxyglobin at 150/unit. Distributor or Manufacturer Direct a) Commitment to the product – as the substitute of blood, the training session of the product is very important in the whole marketing plan. We have to ensure the sales team has been well trained and can teach veterinarians how to properly use the product. Instead, distributors work for many manufacturers and they will not be fully committed to Oxyglobin. b) Limited target client – as discussed above, we will only focus on 10% - 15% of total veterinary practices which means the total target will be limited to 1,500 – 2,250. If we set up a sales team with 50 staff, each staff will be responsible for 30 – 45 in one year. c) Cost consideration – the distributor will take 30% of the total sales as commission which means in every unit sold at 150/unit, they will take 45. As for direct sales, it only takes 10 – 15 which is much cheaper. All in all, as the first mover in this market, the Company should try their best to increase market penetration as soon as possible, even if selling the product at loss....