BIOPURE:

Situational and Qualitative Analysis (5C): Attribute/Factor/ Situation

Biopure Corporation Founded in 1984, private biopharmaceutical firm specializing in ultrapurification of proteins for human and veterinary use, planning to get listed Oxyglobin for animal market & Hemopure for human market Oxyglobin Approved Hemopure Expected by late 1999 (in Phase 3 Clinical Trials) Cattle blood $1.50 per unit Can be stored at Room Temperature Single Mfg. facility with annual capacity of 300,000 units of Oxyglobin or 150,000 units of Hemopure or linear combination $15 mill per year Oxyglobin - $100-200 Hemopure - $600 800

Baxter International An acknowledged leader in the development, manufacture and sale of blood related medical products with over $5.4 bill in sales and $670 mil in net income in 1996 HemAssist for Human Market HemAssist Expected by late 1999 or early 2000 (in Phase 3 Clinical Trials) Out-dated Human Blood $8 per unit Needs Refrigeration Single $100 mill Mfg. facility with annual capacity of 1 million units $50 mill per year $600 800

Northfield Laboratories A small 45-person firm, founded in 1985, for solely developing human blood substitute PolyHeme for Human Market PolyHeme - Expected by late 1999 (in Phase 3 Clinical Trials) Out-dated Human Blood $26 per unit Needs Refrigeration Plan to build $45 mill facility with annual capacity of 300,000 units $30 mill per year $600 800

Corporation

Blood Substitutes FDA Approval Raw Material Variable cost Shelf Storage Manufacturing Facility Capacity Production cost (Fixed) Expected Pricing

SWOT ANALYSIS FOR BIOPURE CORP:

STRENGHTS: - Oxyglobin-first blood substitute in veterinary market with full government approval - Only products with cattle based primary source - Free of infectious agents and contamination -Increased shelf life (2 years), shelf stable at room temperature

WEAKNESSES: - Short half life, excreated from the body within 2-7 days - Potential for high toxicity, transfusion levels of only 5-10 units - Production capacity low as compared to one of its main competitors- Baxter - FDA approval awaited for Hemopure

SWOT ANALYSIS
OPPORTUNITIES: - Can Build a strong brand name with Oxyglobin before the launch of Hemopure - No other blood substitute available in the animal market, ahead of competitors in animal market by atleast 2 years - Since products are shelf stable, are better suited for emergency cases - Lower Production variable costs since production uses cattle blood unlike competitors THREATS: - Delay in the FDA approval, if Hemopure fails to pass the FDA tests then can it will cost the compnay heavily - Tough competition from PloyHeme and HemAssist, both expected to get FDA approval by the same time - Oxyglobin was likely to create an unrealistic price expectation for hemopure

Problem Identification: When is the best time to introduce Oxyglobin?

What should be the launch strategy for Oxyglobin that ensures that the potential of Hemopure is not jeopardized?

Complication: Oxyglobin is ready for launch. Its the first in the animal market and has a big head-start. It can generate the first revenue for the firm which can be used to launch Hemopure and cover operations till Hemopure is launched. It will help Biopure learn the go-to market strategy as well. Also, there is a desire to take Biopure public and a proven success of Oxyglobin can improve the IPO. But the low pricing of Oxyglobin will jeopardise our ability to price Hemopure at a high price since the two products look very alike, a 500% price differentiation would be hard to explain. Quantitative Analysis: Assuming a worst case scenario i.e. the market is not growing at all

Revenue Analysis Sale Price ($) Capacity Veterinary per year Market Size (in Units of Blood) NonCritical Market Oxy Adoption Sales Potential
1 2

Case I 100 300,000 242,250 70% 169,575 16,957,500 112,500 95%

1 2

Case II 150 300,000 242,250 25% 60,563 9,084,375 112,500 80% 90,000 13,500,000 150,563 22,584,375 45,000,000

Case III 200 300,000 242,250 5% 12,113 2,422,500 112,500 60% 13,500,000 79,613 15,922,500 60,000,000

Oxy Revenue Potential ($) Market Size (in Units of Blood) Critical Market Oxy Adoption Sales Potential Oxy Revenue Potential ($) Total Sales Potential Total Total Oxy Revenue Potential ($) Revenue Constraint based on production capacity

106,875 10,687,500 276,450 27,645,000 30,000,000

Production Fixed Cost ($) Variable Cost per unit ($) Total Units Total Variable Cost ($) Total Production Cost Distributor Price ($) Channel ($) Total Marketing Cost ($) Total Cost ($) Profit Break Even Sales Break even sales as a percentage of sales potential 1. Sales Potential = Market Size X Adoption 2. Revenue Potential = Sales Potential X Sale Price
4 3

15,000,000 1.50 276,450 414,675 30.0 15.0 4,146,750 19,561,425 8,083,575 218,978 72.99% 150,562 225,844 45.0 15.0 2,258,438 17,484,281 5,100,094 144,928 48.30% 79,612 119,419 60.0 15.0 1,194,188 16,313,606 (391,106) 108,303 36.10%

3. Total Variable Cost = Variable Cost/Unit X Total Units 4. Total Marketing Cost = Minimum price (Distributor Price, Channel Price)/unit X Total Units

Break Even Sales

80% % of sales potential 60% 40% 20% 0% 100 150 Price ($) 200

Recommendations: We should launch Oxyglobin in now for the following reasons 1. 2. 3. We will have big headstart and therefore a lot of chances to grab the existing market and grow the market It will recover the fixed costs i.e. investment in production facilities etc. In case, we take Biopure public, it will help improve the IPO of the firm

Also, we will not be jeopardising the Hemopure market : 1. 2. 3. 4. 5. It will help understand the market strategy for Hemopure It can generate revenues we could use to launch We are pricing Oxyglobin higher to cover the gap We will price Hemopure a lower, because we have lower per unit raw material cost We can also negotiate a deal with insurance providers, in which case this would not be an out of pocket expense and therefore patient/doctor wont be affected Place : We should also use manufacturers sales force because because a. b. it requires a very sophisticated sales pitch if the pricing is more than 50$/unit, this channel would be relatively cheaper

Price : We recommend a price of 150$. Although profits are more in 100$, the difference in profits from 150$ is not significant, we do not want to compromise the positioning of Hemopure in future. Although we expect the FDA approval to come through, in case it doesnt, we can always slash the market prices, to increase adoption anytime we want to. Also, since the calculations are done for market size in worst case scenario, the market size would improve and profits would too. Because the presence of blood substitute would satisfy the demand that was not satisfied earlier due to scarcity.

Promotion: For veterinarians, promotion should be done through the 5 big journals of the vet market and the six large trade shows Promotion should also be done for the pet owners, because they can influence the vets for the artificial blood transfusion

Other recommendation: 1. Hemopure should be launched towards the lower end of price, say around 600$, a. b. 2. because of tough market competition, explaining a big price difference from Oxyglobin would be difficult

Production capacity should be increased, because even though our raw material cost is very low compared to competitors, our variable costs are still high because of a very high per unit production cost

Variable Costs Raw material Cost Production Cost* Marketing Cost**

Biopure 1.5 100.0 15.0 116.5

Baxter 8.0 50.0 15.0 73.0

Northfield 26.0 96.8 15.0 137.8

Cost/unit *Assuming the production at full capacity **Assuming same across firms