Biopure Corporation is one of the pioneers in the development of oxygen therapeutics using “Hemoglobin”, a new class of pharmaceuticals that deliver oxygen to the body’s tissues. Biopure developed two main products under years of research and development, “Hemopure” for human use, and “Oxyglobin” for animal veterinary use, both represented a new oxygen based treatment approach for managing patients’ oxygen requirements.
Biopure’s two products differ from other blood substitute products being developed by two main rivals, Baxter International and Northfield Laboratories, in a way that its hemoglobin based source is bovine rather than human. Both of Biopure’s blood substitute products were in the final stages of the approval process of the Food and Drug Administration (FDA) in 1998. Oxyglobin had just received the FDA’s approval for commercial release declaring it safe and effective for medical use.
Hemopure on the other hand was entering final Phase 3 clinical trials and was optimistically expected to see final FDA approval for release in 1999. FDA approval of Oxyglobin and its possible subsequent release into the veterinary market caused concern over whether the early release of Oxyglobin would reduce BioPure’s ability to price Hemopure when the product finally received approval. The animal supplement was approved sooner than its human equivalent due to less-strict regulations in the animal consumer market.
There is a production capacity of 300,000 units, with $200 million spent on research and development for both Oxyglobin and Hemopure. Given that the two products were almost identical in properties and function, it was thought by the vice president for Human Clinical Trials at Biopure that the early release of Oxyglobin would create an unrealistic price expectation for Hemopure. This paper thoroughly examines and analyzes the potential benefits for launching Oxyglobin right away and compares them to the drawbacks that are concerned by the Human Clinical Trials.
After concluding that the early launch of Oxyglobin would be more beneficial, we prepare a marketing strategy most suitable for the Oxyglobin launch and end our report with the financial projections. Situation Analysis Before discussing the potential for animal and human markets, we first analyze the cost structure of Biopure. * Research and Development cost so far: $200. 00M * Production Cost (Fixed cost): $15. 00M/year * Distribution Cost: $15/unit * Cost/unit ($1. 5)* Annual Capacity (300,000units): $0.
45M * Total Cost before launching Oxyglobin: $215. 00M * Total Cost after launching Oxyglobin (1 year): $219. 95M Human Blood Market The annual available demand for human blood is 14M units. The 14M units can be categorized into uses of red blood cells, which include Acute Blood Loss (8. 1M units), Chronic Anemia (3. 2M units), and Not Transfused (2. 7M units). Under Acute Blood Loss, the blood is allocated into elective surgery anonymous donations (5. 8M units), elective surgery autologous donations (1. 1M units), emergency surgery in hospital (1.0M units), and trauma in field administration (0. 2M units).
Under Not Transfused is divided into rejection (1. 2M units) and expiration (1. 5M units). With the increasing costs and struggles to collect blood from qualified donors due to misconceptions of contracting diseases, lack of time, or even fear of needles, the market segments that presents the most promising opportunity for Biopure’s Hemopure is trauma in field administration (0. 2M). The article mentioned, “only 10% of trauma victims received RBCs ‘in the field’ or at the site of the accident.
Blood transfusions for the remaining 90% of victims were delayed until the victim arrived at a hospital emergency room”. This delay is the main reason for the 30% fatality rate in the trauma cases where the patients end up bleeding to death. Covering only the trauma market segment, Biopures capacity is already insufficient at 0. 15M per year. Therefore, Biopure must expand production in the long run to meet customers’ requirements in different high potential market segments such as elective surgery anonymous donations and emergency surgery in hospital where demand is 5.8M and 1. 0M units respectively.
Veterinary Blood Market In calculating the annual demand for veterinary blood market, we consider the following factors: 15,000 small-animal veterinary practices, 800 cases of dogs suffering from acute blood loss, and 30% of these dogs would have benefited from the blood transfusion. Multiplying the three factors gives us 3,600,000 units, which is annual demand for veterinary blood market. This calculation assumes that each dog or each case uses 1 unit of blood. However, we recall that Biopure’s annual capacity is only 300,000 units.
Therefore, we must segment the market to derive the appropriate price. According to the survey of “Veterinarians Reported Willingness to Trial Oxyglobin” and “Pet Owners’ Willingness to Trial Oxyglobin”, we derive the price of $150 where supply closet meets demand at 315,000 units. This number is derived from multiplying 3,600,000 annual demand, noncritical cases percentage of Veterinarians who would trial (25% when $150 per unit), noncritical cases percentage of pet owners who would trial (35% when $300 per unit).
The calculation assumes that veterinaries use the basic doubling rule of charging their customers. Therefore, in this case, veterinarians will pay $150 and charge customers $300. The huge demand for human blood can be seen as if there is much higher potential for Biopure to penetrate and focus their sales in this market. However, after taking the threats of existing substitutes (donated blood) and the threats of existing competitors (Baxter and Northfield) into account, we’ve found the human market to only be moderately attractive.
The veterinary blood market, on the other hand, is extremely attractive and looks fit for Biopure to use as a stepping stone to penetrate into this untouched market. With no competitors currently seeking for FDA approval of Oxygoblin, this implies that Biopure will be able to enjoy monopolistic benefits for at least two years if they were to launch the product now. Next we prepare a marketing strategy for a successful launch of the animal blood substitute. Marketing Strategy The key to the marketing strategy is focusing on the Animal blood substitute.
Biopure will take advantage of the void competition, and the 84% veterinarians who are dissatisfied with the current blood transfusion alternatives available in the marketplace. Biopure’s Oxyglobin is FDA certified with no threats of competitors, and releasing this product now into the market will be a viable decision. In addition, our market strategy is to build up Biopure’s reputation through the success of Oxyglobin, in preparation for the release of Biopure’s Hemogoblin, when it is FDA certified two years from now. Target Markets.
The biggest constraint to veterinary transfusion was the lack of an adequate blood supply. In addition, few animal blood banks existed. The launch of Oxyglobin will create additional options to veterinarians when deciding on blood transfusion alternatives, and to meet demands of blood supply. Our marketing strategy is to target veterinarians in both primary care and emergency care practices who are dissatisfied with the current blood transfusion options. Positioning Biopure will position itself as the only blood transfusion substitute in the animal care industry.
This positioning is achieved by being the only company with a FDA certified product to market to veterinarians. Therefore, Biopure will have a monopoly advantage until competition arrives. Strategies The objective of Biopure is to launch Oxyglobin, and position itself as the prime substitute to veterinary blood transfusion. The market strategy will first seek to create customer awareness of our product and its usefulness. The message that Biopure will intend to communicate is that Oxyglobin offers veterinarians a reliable substitute for blood, and in addition to having a life-shelf of two years.
This message will be communicated through independent distributors, trade publications, and trade shows. The first will focus on national, regional, and local distributors. This will provide detailed information to customers with a face-to-face type of communication. Biopure will target emergency care practices. Although emergency care practices make up only 5% of the overall industry, 75% primary care specialists will refer an acute blood loss case to an emergency care center. The second will focus on trade publications and trade shows.
This choice of marketing will educate veterinarians about the existence and benefits of Oxyglobin. In addition to this direct marketing, there are six trade shows held yearly, and around 2,000 to 10,000 veterinarians attend to each. These two marketing methods will create demand for the sales, since the majority veterinarians approached by independent distributors will hopefully recognize the product through the trade shows or word of mouth. Marketing Program Biopure’s marketing program includes pricing, distribution, and advertising and promotion.
- Pricing – Oxyglobin will be charged at $150 per unit
- Distribution – Biopure will use a direct to consumer distribution model. Selling products through independent distributors
- Advertising and promotion – The message of Oxyglobin is communicated through the trade shows and publications, and the 15-minute visit per week from sales representatives of its primary distributor
SWOT Analysis of Biopure Strengths
- Larger production capacity
- Product is stored at room temperature
- Longer shelf life
- Disease free
- FDA approved for Oxyglobin.
Weaknesses
- FDA not approved for Hemogoblin (2 years waiting process)
- Short half life time (2- 7days after transfusion)
Threats
- Negative public perception of source (cattle as source of product)
- Competitors
- Historical lack of Vet transfusion usage
Opportunities
- Supply blood substitute during times of shortages
- Building reputation of Biopure with the launch of Oxyglobin
- Potential to take company public for more funds Financial Projections
We can calculate the projections for Biopure’s costs and revenues as shown below. 3.6 million total demand for Oxyglobin X . 25 X . 35 = 315,000 units which is just above production capacity Therefore SALES: 300,000 X $150 = $45,000,000 in year 1 COST (Year 1) Fix cost $15M Distribution cost 15X300,000 Cost per unit 1. 5X300,000 TOTAL COST (Year 1) = $19,950,000 PROFIT = $25,050,000 To breakeven (if everything remains constant): 200M(R&D) / 25. 05M = 7. 98 years, which is acceptable and standard for large projects. With the launch of the Hemopure, return on initial investment time will be even shorter than 8 years.
Conclusion.
Based on our findings, Oxyglobin should be launched early as it would allowed for an audience test: achieve acclaim/recognition for a break-through discovery that is beneficial because it fulfills an unsatisfied need (better quality blood transfusion, availability) and reduces costs to both suppliers and consumers. Biopure should target the upper end market segment making sales to wealthy dog owners and to some of the dog shows. This early launch would contribute to easier entry into secondary (human) market – “tested on animals” – more trusted than untested competitors.
The company can utilize production to full potential rather than waiting on the optimistic prediction that the FDA will approve Hemopure in the next two years. Based on our financial projections, Biopure would lose the opportunity to earn approximately $25 million per year if they decided to stall the launch. This is a great opportunity for Biopure to be the first mover into an unexplored animal blood substitutes market and setting up a framework for their next product, Hemopure.