Biopure Corp. Case Study

Biopure Corporation
Written Case Study

I. Current Situation Audit
A. Issue
Oxyglobin and Hemopure are two blood substitutes that Biopure Corporation was developing. Oxyglobin was recently approved by the FDA for veterinary use while Hemapure is estimated to be approved in two years for human use. If Oxyglobin is launched it will be the first blood substitute for the veterinary market a small and price sensitive market. There is a perceived risk by Ted Jacobs, the VP of Human Clinical Trials at Biopure, that if Oxuglobin, the vet product, is launched before Hemopure and at the low price of $150/unit, that it will become very challenging to sell Hemopure once launched at $800/unit.
B. Market Analysis
a) Human
14 million units of RBCs were donated in the United States in 1995, 12.9 Million from volunteer donors and 1.1 million from autologous donors (donate to self, few weeks prior to surgery). 50% of the blood supplies are handled by the American Red Cross. Of the 14 million units donated 2.7 million are discarded due to expiration or contamination, 3.2 million transfused into anemia patients and the remaining 8.1 million transfused into surgery and trauma patients. Blood Collection is a struggle as post AIDS blood contamination paying for donation of blood units is prohibited by the law; it should be done on volunteer basis. Due to low rates of donation and short shelf-life, shortage of RBC units in medical facilities in not uncommon and therefore the need for blood substitutes in the human market is high.
b) Veterinary
The veterinary market is smaller than the humans as in 1995 2.5% of 800 dogs/vet GP suffering from acute blood loss were deemed critical and received transfusion, for a total of 300,000 dogs (800x15,000 vet GPx 0.025), although there is a potential to cover 30% of these pets or about or 3.6 million dogs. These veterinary GP lack adequate supply of canine blood units lack of animal blood banks. Vets rely on housed donor animals which 84% of them are dissatisfied with the current available blood transfusion alternatives. This constitutes a big opportunity for Oxyglobin.
C. Competition
Biopure has two competitors for the human product, Baxter and Northfield both of whom are pursuing a Hemoglobin purified from outdated RBC at unit cost ranging from $8-$26 vs. Biopure’s hemoglobin purified from cattle at unit cost of $1.50. Both Northfield’s and Baxter’s products are expected to launch 2 years after Oxyglobin and same year as Hemopure. Oxyglobin’s only competition is the blood collected from in-house animal donors. One important difference between Hemopure/Oxyglobin and competition is that Biopure’s products do not require storage at 4°C and can be stored at room temperature; this is a significant difference because there is no added cost attributed to refrigeration.
D. Pricing
Hemopure as Baxter’s Hem Assist and Northfield is expected to be priced between $600-$800/unit and I suggest that it prices at the highest range of the spectrum because it does not require refrigeration and there will be perceived savings by pharmacists and hospital managers. On the other hand Oxyglobin and because of the “doubling rule” used by the vets meaning they charge pets owners double the price of the manufacturers ask price), it is arguable and to keep the drug affordable that the price ranges from $80-$100 per unit. Others argued that the price should be set at $200/unit because of all the advantages, added business and cost savings it brings to the practice and pet owners as well.
II. Problem/Decision statement
Two related issues need to be addressed by the CEO.
• Should Oxyglobin be launched before Hemopure?
Although Oxyglobin was granted approval by the FDA, few challenges remain to be sorted, such as:
1. Reluctance of veterinarians to use the product instead of blood from animal donors
2. Setting the price of the product at a rate that won’t affect the future sales of Hemopure
3. Devise a good distribution strategy for the product (manufacturer direct vs. distributor)
On the other hand Hemopure needs to overcome the following obstacles:
1. FDA approval
2. Price of hemoglobin vs. blood transfusion ($600 vs. $125)
3. Fierce competition from Human hemoglobin by Baxter and Northfield
4. Uptake by physicians
Biopure needs to launch its first product to start generating revenue, take the company public, raise more funds to support Hemopure’s Phase 3 trial and launch.
Before deciding on launching Oxyglobin ahead of Hemopure, all the challenges mentioned above need to be addressed.
III. Strategies for Improvement
To overcome Oxyglobin’s challenges listed above, the following criteria need to be met:
1. Target Emergency care vet practices
2. Target large Vet practices (3+)
3. Set the price at $200 (see Appendix 1 for analysis)
4. Focus Marketing efforts on non-critical dogs
Biopure should start by targeting emergency care vet practices as blood transfusion are more common there, 150 transfusion/year as compared to 17 at vet GP, penetration to this market will measured by unit sold per care center and lower reliance on animal donors. To increase the market share further large vet practices with 3+ doctors as according to exhibit 7 pg 17 of the case, these practices have the highest “average monthly case load” of about 450 dogs per month, it’s imperative to measure a rapid incline in uptake of our product by these practices. Based on the analysis in Appendix 1, it is clear that setting the price at $100 is more lucrative but we have to plan for the launch of Hemopure and therefore we should consider setting the price at $200 to justify its launch at $600 to $800 in 2 years. We should monitor the sales of Oxyglobin at this price and monitor if the uptake from vets is increasing from the 5% predicted by the market analysis (table A). Finally, focusing the marketing effort on non-critical dogs is crucial as they are a sizeable market and because although veterinarians can justify using this product to critical dogs, it’s hard to justify that for non-critical dogs (pricing and efficacy should help support that). The cease of using animal donors in these clinics will show that Oxyglobin is successfully replacing this old practice.
Alternatively it is important to think about the possibility of setting the price of Oxyglobin at $100 to reap as much benefit from being the first and only vet blood-substitute, in the event that Hemopure doesn’t get approval from the FDA. It’s highly probable that Hemopure won’t be successful in the clinic because it’s of cattle origin, they changed the formulation to be stable at room temperature (excipients could be toxic) and the concentrations used are much higher than their human counterparts. In this case and to mitigate this risk, lowering the price to a $100 will help the sales and uptake of the product by a larger market. The market research conducted prior to launch (Table A and B) shows that a high number of veterinarians and pet owners will use the product at the $100/$200(x2) price.
Based on the calculations in Appendix 1, it is clear that setting the price at $100 is more lucrative to Biopure than pricing it at $150 or 200$ because of the double price rule which affects the uptake by both pet owners and vets. To be cognizant and not to jeopardize the future Hemopure launch, I recommend that we set the price at $200, because there is a need for a blood substitute as 84% of the vets are reporting overall dissatisfaction with the blood transfusion alternatives available in the marketplace. Secondly, Oxyglobin provides an alternative for animal blood donated by other animals which incurs the risk of matching and potential transfer of diseases. The storage at room temperature adds value as this will reduce the need to buy expensive refrigerators that need calibration, validation and maintenance. Finally, there no assurance that vets will automatically double the price of the product especially if they foresee a high demand by pet owners, a practice that we should encourage and help the vets appreciate the upside.
Although blood transfusions in the veterinary market are infrequent and the market scope is limited, Oxyglobin has the potential to become a lucrative investment for Biopure. It is possible that Hemopure will not be licensed by the FDA, that humans will resist buying a product of cattle origin especially that human hemoglobins will be available around the same time by competitors and that physicians will not prescribe it for the reasons described above. To minimize these risks and to start generating revenue that will help the company grow, become public and raise more funding, I therefore recommend that we sell Oxyglobin first before the launch of Hemopure.

IV. Appendix 1:

Assumptions: 1unit transfused/dog
• Potential Market:
15,000x800dogsx30%= 3.6 Million dogs requiring transfusion x $100= $360M
15,000x800dogsx30%= 3.6 Million dogs requiring transfusion x $150= $540M
15,000x800dogsx30%= 3.6 Million dogs requiring transfusion x $200= $720M
• Available Market:
Priced at 100$
Critical:
Based on Tables A and B, 95% of Vets and 85% of pet owners are willing to use Oxyglobin if sold at $100 (double price for owners $200 based on doubling rule): 0.85x20 (2.5% of 800)=17 dogs x 15000x0.95= 242,250 dogs x 100$= $24.2M
Non Critical:
Based on Tables A and B, 70% of Vets and 40% of pet owners are willing to use Oxyglobin if sold at $100 (double price for owners $200 based on doubling rule): 0.4x240 (30% of 800)=96 dogs x 15000x0.7= 1.0M dogs x 100$= $100M
For a total market critical +noncritical= $124M
Priced at 150$
Critical:
Based on Tables A and B, 80% of Vets and 75% of pet owners are willing to use Oxyglobin if sold at $150 (double price for owners $300 based on doubling rule): 0.75x20 (2.5% of 800)=15 dogs x 15000x0.80= 180,000 dogs x 150$= $27.0M
Non Critical:
Based on Tables A and B, 25% of Vets and 35% of pet owners are willing to use Oxyglobin if sold at $150 (double price for owners $300 based on doubling rule): 0.35x240 (30% of 800)=84 dogs x 15000x0.7= 441000 dogs x 150$= $66.1M
For a total market critical +noncritical= $93.1M
Priced at $200
Critical:
Based on Tables A and B, 60% of Vets and 65% of pet owners are willing to use Oxyglobin if sold at $200 (double price for owners $400 based on doubling rule): 0.65x20 (2.5% of 800)=13 dogs x 15000x0.60= 117,000 dogs x 200$= $23.4M
Non Critical:
Based on Tables A and B, 5% of Vets and 30% of pet owners are willing to use Oxyglobin if sold at $200 (double price for owners $400 based on doubling rule): 0.3x240 (30% of 800)=72 dogs x 15000x0.05= 54,000 dogs x 200$= $10.8M
For a total market critical +noncritical= $34.2M