Biopure

Corporation
Pricing and Marketing a High-Tech
Product

Biopure: Invested so
far: $200m
Sales to date: $0

Only 2 products
Blood substitutes from bovine blood

Oxyglobin

Hemopure

Veternary market

Human market

Just FDA approved

2 years to FDA approval

Tolerates small hemoglobin

molecules

No small hemoglobin
molecules (otherwise
identical)

Manager: Andy Wright

Manager: Ted Jacobs

The dilemma
What to do with Oxyglobin
Launch now market is small and price
sensitive
Or
Wait till Hemopure (market is large and
price insensitive) is launched
Why the dilemma? Jacobs believes
Oxyglobin price will influence Hemopures

Questions raised in the case

1. Reasons for and against launching
Oxyglobin
2. The market potential for Oxyglobin and
Hemoglobin
3. The impact of Oxyglobins price on
Hemopure
4. The challenge of how to go to market with
Oxyglobin

Reasons against launching Oxyglobin

O (@ $150/unit) will create downward pressure on H
(@planned price $600-800)
Human market potential very large, animal market relatively small
No foreseeable competition in animal market, so launch after, not
before H
H is bovine sourced, open to attacks from competitors with human
sourced products. O will aggravate this position
Biopure is a human products company why jeopardize this?
Biopure has limited production capacity why devote this to O?
We dont need the money we have VC funding

Reasons for launching Oxyglobin

Timing for H launch is still uncertain, no guarantee of
FDA approval
Delaying O launch means giving up 2-3 years
revenues
The products are in different markets, not
interchangeable, no real opportunity for cross market
comparisons
O has a 2 year first mover advantage in animal
market
O marketing team is in place and ready to go

The Potential for O

Estimate 1 (from p5)

15000 practices
(# of vet practices)
X 800 dogs/yr/practice
(dogs with acute blood loss)
X 2.5%
(% of dogs who get a transfusion)
= 300000 units/year
X $150/unit
= $45 000 000 per year

Estimate 2 (from p5, based on primary care vs emergency)

242250 units per year (=15000 practices X 95% primary care X 17 units/year )
+ 112500 units per year (=15000 practices X5% emergency care X 150 units/year)
= 354750 units/year
X $150/unit
= $53 200 000 per year

Whats your view on this forecast?

It could be VERY conservative

While only 2.5% of dogs suffering from acute
blood loss receive a transfusion, 30% would
benefit from it
Transfusions in vet market are constrained due to :
Lack of adequate donor suply
Potential for ve reaction
84% dissatisfaction with current transfusion
alternatives

Viewed this way:

Then if all dogs who needed transfusions got them
(i.e. 30% vs. 2.5%)
Then the market could be 12X times bigger
So 12 x the first forecast of $45m above = $540
000 000 p.a.
And 12 x the second of $53.2 = $638 500 000
And we havent even begun to look at cats (35%
of vet market) or bunny rabbits!!

The Market for a Human Blood Substitute

As a wholesale
replacement for donated
blood (Exh 5)
Potential market = 11.3m
units/year (8.1m acute
blood loss; 3.2m chronic
anemia)
At price of $700/unit the
market is worth
$7.9Bn/year
H is limited in chronic
anemia
But, market is still HUGE!

As an alternative in Select
Applications Only
Donated blood is
Well entrenched, widely
accepted
Readily available, wells-supplied
Relatively inexpensive, (between
$125-$225 unit)
Relatively safe

So, maybe only look at trauma

cases, and borderline trauma
cases

Trauma Cases
500 000 each year, in 90% transfusion is
delayed; this delay partly responsible for
30% fatality rate (p.4)
H is well suited for these:
Easy to use (no typing)
Easy storage (long shelf life no refrigeration)
Low price sensitivity of consumer (pay or die?)

The Trauma Market

10% of trauma victims received ave 4 units
blood each (i.e. 200 000 units [exh 5] to 50
000 patients)
Assume now that all patients now receive
transfusions, then market is 2 000 000/year,
X $700, and is worth $1.4Bn.

The Borderline Transfusion

Market
Surgeries in which here is only small blood
loss (about 1.5 units, case p. 4)
IF this deamnd were to materialise then,
then 1 000 000 cases x 1.5 units X
$700/unit = $1bn/year

Under these more conservative

scenarios
The market is worth only between $1.4Bn
and 2.4Bn/year
So human market cold be smaller than at
first appeared

The Competitive Environment

Animal Market

Human Market

Potential about $500m/year

Potential as high as $8Bn/year

Biopure has a 2-5 year first

mover advantage

2 significant competitors who

have already entered phase 3
trials. Baxter especially is a
major player

Most likely competition

would come from Baxter or
Northfield; however their
products are human based, so
they are unlikely to divert
resources

Both Baxter and Northfield

will likely highlight the fact
that their products are based
on human blood as opposed to
bovine

So what's a likely scenario in the

human blood market?
Baxter takes lions share (50%), Biopure
and Northfield fight for the rest (lets say
25% each).
Lets say the market also just turns out to be
the trauma market.
A 25% share of that would mean 500 000
units and sales of $350 000 000

Will O impact on the Price of H?

According to Jacobs, yes. But is O the appropriate
benchmark for H? Some price benchmarks:
Some reference
prices

Description

$101.50

VC of goods sold (p.9) 150000 units of H@ a

cost of $15m, independent of volume. Raw
materials cost $1.50/unit, so COGS = $101.50

$150

Jacobs estimate of O to vet

$175

Ave cost of donated RBCS (case Exh 6)

$300

Price of O to pet owner, simple doubling

$350

Ave cost of autologous RBCs (case Exh 6)

$600-$800

Planned price of competitor products

$$$

The value of a human life

For consumers, just how much of

a guide is O to the price of H?
Most visible benchmark will be donated human blood
price = $175/unit
For risk averse recipients, benchmark is autologous
blood = $350/unit
For trauma victims: What is water worth to someone
dying of thirst in the desert?
If Baxter and Northfield price at $600-$800, then
these, not O, become the benchmark prices
Andthe products are not really interchangeable
(the small molecules)

SOO looks like a good

thing
But, it has to go to market and is anything but a sure
thing
Biopure has never launched a product before
Biopure is new to the veterinary market
Company is dominated by technical and manufacturing
types (see Exh 2)
Only recently employed someone to market O, and only 7
people supporting him
Vet market can be price sensitive and vets can be
gatekeepers (Mrs. Jones, your Fluffy needs a blood
transfusion, but is expensive, and hes old)

Target Markets
Comprehensive (whole vet market)
Or
Selective (those practices that perform the
greatest number of transfusions)
Distribution
Independent
Direct salesforce

O Pricing
Options:
Price low (e.g., $100) pros and cons
Price high (e.g. $200) target emergency
care
Price very high (e.g. $400)
Also look at consumers willingness to pay
(tables A & B) vets are more price
sensitive than pet owners

So..
Would you
launch
Oxyglobin?

Oxyglobin was launched in April

1998
Price = $150, sold directly to vets, focusing on
emergency care practices
Initial sales promising and product received praise
from customers
But, vets viewed O in one of 2 ways:
50% saw it as a replacement for donated blood
50% saw it as an emergency alternative to donated
blood thus used it only in special cases

By end of 1998, annualized sales were 50 000 units,

penetration of between 15-20% of all vet practices