Biopure

Brief Overview:
Biopure has two new products namely Oxyglobin and Hemopure. Oxyglobin is a first of its kind, new blood substitute for the veterinary market and has passed all the tests and is ready for consumer use. Hemopure is another such blood substitute for the human market and it will take a minimum of two years to launch the product from now. There is a concern about creating an unrealistic price expectation for Hemopure by marketing Oxyglobin before Hemopure. Whereas another point of view is that selling Oxyglobin will benefit the company by generating revenues that could be utilized while launching Hemopure and also in gaining valuable experience as to how to market and avoid the same errors while launching Hemopure. There are many other advantages of launching Oxyglobin early which have been clearly stated in the analysis that follows.
Question 1: Should Biopure launch Oxyglobin before the launch of Hemopure?
Recommendation: Yes, Biopure should go ahead and launch Oxyglobin as soon as possible
Justification:
SWOT Analysis

Strengths
Weaknesses
First product of its kind
Shelf life of 2 years without refrigeration
Oxyglobin has already got FDA approval
Due to the same production facility being used for both, only one amongst Oxyglobin or Hemopure can be produced at a given time
First of its kind, so market behaviour is tough to predict
No existing Distribution Network

Opportunities
Threats
No other company producing blood substitute from cattle-based haemoglobin right now.
This patented process has given Biopure a lead of at least 2 years
By marketing Oxyglobin first, Biopure will be able to study the market easily
The brand image built and assets accumulated, on success of Oxyglobin will help Biopure in its IPO

Hemopure has still not got the FDA approval
Competitors, if they get the approval, will launch the product in late 1999. Whereas Biopure can release their product only in 2000

Though Biopure was founded in 1984, it has not generated any revenue till 1998. So, it has to start generating revenue because in this span of 14 years they have already generated Research & development cost of $200 million
84% of the veterinarian doctors complained about lack of alternatives for blood transfusion
As Oxyglobin is FDA approved and there are no other competitors in animal blood transfusions market, launching Oxyglobin now will give Biopure the early bird advantage(a minimum of 2 year advantage over any other potential competitor).
As per Exhibit-9, there is high probability of failure in Phase-3 trials of many newly developed drugs. Hence, we have to hedge the risk for delay or failure of Hemopure trials. Releasing Oxyglobin now will bring some revenues till Hemopure is launched or in case of Hemopure’s failure
Oxyglobin will give a firsthand experience to Biopure at launching a product which it has never done and will be learning experience for launching Hemopure
It will give a fair idea into the scale of production, sales and distribution ground level problems which will take time to get resolved and help in preparing ground for Hemopure
Revenue generated from Oxyglobin can be used for the launch of Hemopure and can help in avoiding financial bottle necks.Also since one of the competitiors for Hemopure has a much larger production capacity,revenues could be used to invest in increasing production capacities
It will give some idea about the company to the investors if Biopure decides to go for IPO before Hemopure launch
Influence of Oxyglobin’s price on Hemopure is questionable as both operate in different segments and awareness of price of product in other segment is not significant
Marketing department can take care to position Oxyglobin and Hemopure as two different products
Question 2: How best to market Oxyglobin?
Recommendations & Justification:
Pricing: Price of a single unit of Oxyglobin=$200
Total Veterinaries in USA in 1995 = 15000
Primary Care Veterinaries = 14250 (95%)
14250 * 17 = 242,250 Units p.a. for dogs
Emergency Veterinaries = 750 (5%)
750 * 150 = 112,500 Units p.a. for dogs
Total Demand of Blood for dogs = 354,750 Units p.a.
No. of Dogs with Acute Blood Loss in 1995 = 15000 * 800 = 12,000,000
2.5% Critical Cases = 300,000
27.5% Non Critical Cases = 3,300,000
Assumption: A Non-Critical case requires an average of 1 unit of blood and a Critical case requires 4 units of blood
Type of Case
Price to Veterinarian
% of Buyers*
Demand
Critical Cases (300,000 Cases per annum)
$50
90
1,080,000

$100
80.75
969,000

$150
60
720,000

$200
39
468,000
Non Critical Cases (3,300,000 Cases per annum)
$50
57
1,881,000

$100
28
924,000

$150
8.75
288,750

$200
1.5
49,500

*Note: While calculating demand we have made conservative estimates. The % of buyers is calculated by multiplying the percentage value of veterinarians and pet owners. Thus implying that a Pet Owner will buy a product only when he himself is aware of it first hand and the veterinarian is also willing to advice Oxyglobin. Thus we can expect that the real demand could also be higher than the calculated figures
Price to Veterinarian
Total Demand
$50
2,961,000
$100
1,893,000
$150
1,008,750
$200
517,500

Maximum Capacity of Production=300,000 Units
All the units produced by Oxyglobin will be sold and pricing it at $200 will then generate the maximum profits.
We now further do a Breakeven Analysis to substantiate this claim.
Profitability
Assumption: Marketing & Sales Costs = 20% of Revenue
Price
200
Capacity Veterinary per year
300,000
Marketing & Sales Team Costs (20% of Revenue)
12,000,000
Production Cost
15,000,000
Total Fixed Costs
27,000,000
Blood cost per unit
1.5
Distribution Cost
15
Total Contribution
183.5
Break Even
147,139
Profit=Total Units Sold(Maximum Capacity)*Contribution – Total Fixed Costs
28,050,000*

*Note: The Marketing and Sales costs for the year 1999-00 would be significantly lower hence increasing the overall profit. We have approximated the total profit for the first 2 years post launch to be $60 million.
Distribution & Promotion:
Biopure should choose manufacturing direct approach over independent distributors
Justification:
The cost of the former is $15 plus Salaries of Sales team which is going to substantially lower than $ 60 if we choose the distributor network. The product is first of its kind requiring a detailed sales pitch and using manufacturers’ sales force is a better option. Also the sales team should periodically mail the vets and call them regarding the benefits of the product and also to get feedback (along with meeting them face to face).
Conclusion:
Launching Oxyglobin at the price of $200 and using ‘manufacturer direct’ distribution would give an estimated profit of $60 million in the first couple of years .If Hemopure gets FDA approval, its relative advantages over the other competitors(namely ease of storage, low cost of source material) and over blood transfusion(risk free, ease of availability) would help it gain a good market and the extra revenue may be utilized to still expand the production facility to produce more of Hemopure to offset the high capacity advantage of one of its competitors.