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In 1998, Biopure Corporation is one of the three legitimate contenders in the emerging field of “blood substitutes”. Biopure has invested $200M on the R&D on blood substitutes in the past with its primary goal being the development of a human blood substitute ( Hemopure) but Its entry into the animal market (Oxyglobin) had been some somewhat opportunistic. Oxyglobin got FDA approval recently, whereas the Hemopure will enter phase 3 clinical trials and is expected to get FDA approval by 1999. Now Biopure has to decide whether it has to launch the Oxyglobin or should it wait till the Hemopure is approved.
The following analysis examines the current market demand for both the blood substitutes, the pricing strategy for Oxyglobin and how it will impact the future pricing of Hemopure and proposed IPO, the contingency plan if Hemopure is not approved and the treats by the competitors (Baxter International and Northfield Laboratories). Analysis of Internal and External Environment An exhaustive analysis of the strengths, weakness, opportunities and threats were analyzed based on the internal and external environment (Exhibit 1) of the long-simmering debate with Biopure on whether to launch Oxyglobin or wait until Hemopure is approved.
The Five most weighted prime outcomes of the analysis are represented below. [pic] Alternatives – Evaluation On analyzing the current situation the following alternatives has been considered as possible 1. Launch Oxyglobin a. Pricing at $150 using “manufacturing direct” b. Pricing at $200 using “manufacturing direct” 2. Don’t launch Oxyglobin until Hemopure gets FDA approval Based on the estimated market demand for Oxyglobin and Hemopure (Exhibit 2 & 3), financial projections (Exhibit 4) and based on other factors, the alternatives have been evaluated as below.
Alternative 1: Launch Oxyglobin Pros – The product is already approved by FDA – No other competition for at least 5 years – Marketing team is already in place – Provides at least 2 years of experience in producing and marketing synthetic blood products prior to lunch of Hemopure – Solid revenue stream may improve IPO price – Lunching Oxyglobin will mitigate risk or loss for current investors – Provides additional positive cash flow Cons – Veterinary market is small and limited – May takes focus away from Hemopure development Further association of Hemopure with animals rather than human treatment (may reinforces negative connotation of “bovine” blood source) – May require future investment in production capacity to lunch Hemopoure or reduction in supply of Oxyglobin – Production of Oxyglobin will not provide sufficient return on initial investment Alternative 1-1: Launch Oxyglobin at $150 using “manufacture direct” Pros – Estimated demand of Oxyglobin exceeds the production capacity – Able to achieve the highest estimated profit $ __M with __% ROI – More affordable to customers
Cons – Greater gap between Oxyglobin Price and Estimated Hemopure sale price – Lower pricing of veterinary product may negatively effects ability to set higher price for Hemopure Alternative 1-2: Launch Oxyglobin at $200 using “manufacture direct” Pros – Smaller price difference between Oxyglobin and Hemopure; therefore, it may be easier to justify Cons – Estimated demand of Oxyglobin at this price is lower than the production capacity Alternative 2: Don’t launch Oxyglobin until Hemopure gets FDA approval Pros Reserve 100% of production capacity for more profitable Hemopure – Focus efforts and resources on approval and marketing of Hemopure – Less possibility of price reduction of Hemopure resulting from Oxyglobin pricing Cons – Price estimates are based only on news speculation of compotators’ pricing – Risk of competitors receiving FDA approval before Biopure – Risk of no FDA approval – Competition – No revenues for at least next 2 years – Negative effect on IPO pricing – Forgo 50 million of revenue over next 2 years Recommendation:
Based on our analysis, the course of action recommended to Biopure is to adopt alternative 1-1: launch Oxyglobin now for the price of $150 per unit using manufacture direct distribution method and launch Hemopure once FDA approval is secured. We have generated our recommendation based on a comparative analysis of each alternative’s ability to generate immediate cash flows versus long term viability, its impact on potential IPO, risk mitigation for investors, product launching expertise and minimizing internal disruption within company. Decision Criterion Grid
The analysis classifies each of these parameters as ‘green’, ‘yellow’ and ‘red’ where green indicates a highly favorable (alignment), yellow indicates neutral alignment, and red indicates an unfavorable alignment for Biopure. [pic] Cash flow generation: Alternative 1. 1 guarantees immediate cash flow and higher revenue stream for Biopure at $45 M with a margin of 56% compared to alternative 1-2 (52% margin) which could prove beneficial for the company to invest in capital expenditures and increase their production capacity to accommodate the potential launch of Hemopure IPO: Biopure is considering going public.
Having a product in the market will help Biopure establish a brand name and put itself on active stock investor’s radar. It would also ensure a steady revenue stream which will increase Biopure’s chances of achieving a lucrative IPO Risk Mitigation: Biopure’s investors have spent $200M so far on product development. They are eager to see return on their investment. Alternative 1-1 will secure a 13% ROI. Also, Biopure’s potential IPO would provide other sources to fund Hemopure R&D therefore current investors will not have to carry the full burden of risk associated with a failure to secure FDA approval for Hemopure
Experience in Product launching: Oxyglobin is the first product that Biopure will launch. This is a challenge for their marketing team. Considering that the animal market is relatively small and that Biopure has yet to take a product to the market, this step would give Biopure a chance to gain experience on product launching strategy and apply it to a larger human market once Hemopure receives FDA approval Internal disruption Alternative 1-1 will utilize the marketing team already in place. It will also guarantee the highest return which will ensure management team satisfaction
Long Term Viability While our recommendation emphasizes short term well being of Biopure. We believe that short term performance is vital for a sustainable profitability. Biopure can capitalize on short term gains to continue funding R&D and invest on market research to prepare for a smooth potential launch of Hemopure Appendix Exhibit 1: Exhaustive SWOT Analysis In this exhaustive SWOT analysis, each entry is classified based on Rankings 1-5, where 5 represent the maximum and 1 represent minimum of all. Strengths |Market |Rankings | |Flexible Usage of Blood Substitute |Both |4 | |Universal type (All) | |2 | |Free infectious agents and contamination (All) | |2 | |Increased shelf life (2 years vs. few weeks) (All) | |3 | |Immediately 100% efficient at transporting oxygen (All) | |2 | |Lower Cost with Storage |Both |5 | |Can be stored at room Temp (comp Frozen, donation 4C) | |4 | |implies a cheap distribution and storing infrastructure over competitor’s products. |4 | |Production |Both |4 | |Bio pure can produce 300K Units Oxyglobin or 100K Hemopure | |4 | |Could likely sell full 300 unit production of Oxyglobin at full 200 price | |5 | |The production of Oxyglobin and Hemopure can be interchangeable | |3 | |Potential of IPO |Both |3 | |Very little debt |Both |5 | |Current $50 M in venture capital – can support operations for next 2 years |Both |2 | |Less Competition |Human |2 | |No competitor has approval in making Blood substitutes for humans | |2 | |1 of three legitimate contenders’ in “blood substitutes” |3 | |Hemopure: cattle blood which is cheaper and abundant than expired human blood |Human |3 | |Near Future |Human |4 | |Bio pure FDA approval in 1999 | |3 | |2 years away from achieving FDA approval for Hemopure | |2 | |Hemopure can be marketed upon its approval |Human |3 | |The Only Approved Product – Monopoly? Vet |4 | |Oxyglobin 1st product approved for animals | |5 | |Bio pure only company in Veterinary Market (competition would take 2-5 years) | |3 | |Marketing Plan |Vet |5 | |A marketing team (Oxyglobin) is already existed | |5 | |Prepared to pay incentives to distributors | |3 | |Prepared to provide proper training and education | |3 | Weakness |Market |Rankings | |Limitations of Blood Substitutes |Both |3 | |Higher toxicity 5 to 10 max transfusions (All) | |1 | |Short half life excreted after 2 to 7 days vs. 2 months (All) | |1 | |Finance to support 2 years of dditional operation without generating revenue (over 50M$) |Both |2 | |Limited production capacity of 150K/Year -300K/Year |Both |5 | |No previous experience in lunching a product |Both |5 | |only 7 employees (marketing) |Both |2 | |Difference of opinion among managers as to correct marketing course to follow |Both |5 | |Long lasting debate among management factors over the launch of its two products | |4 | |Finance to support 2 years of additional operation without generating revenue (over 50M$) |Both |2 | |Need to care about the performance on public offering |Both |3 | |Hemopure is still in Phase 3 (Not approved) |Human |2 | |Little systematic testing to support price estimate of 600 to 800 per unit |Human |5 | |Hemopure is made from cattle not human blood. Human |3 | |Animal transfusions price sensitive if offered via primary care (80 to 100) |Vet |3 | |Low pricing – no recovery of 200M investment | |2 | |Hemopure may be found inappropriate for anaemia …… |Human |5 | |Vets practice simple doubling pricing |Vet |3 | |Opportunities |Market Rankings | |Blood is essential for life |Both |3 | |Little opportunity for new entrant due to FDA approval |Both |2 | |High Demand for Blood |Human |5 | |Increasingly difficult to get human donors | |2 | |In 1995 14 million units of RBC’s produced | |3 | |Only 50K our of 500K trauma patients got blood do to type and shelf life … | |4 | |Only 10% of trauma cases receives RBCs “in the field” …. |5 | |Human blood demand for acute blood loss expected to rise with aging population | |3 | |demand for blood focused on 10 to 15 % of practices | |4 | |In 1995 3. 2 million units of RBC’s discarded | |3 | |In “boarder line” conditions …. approximate of 1M/Year in the United States. | |3 | |Demand for RBCs to treat acute blood loss is expected to rise due to an aging population in the US (65+).
This segment is expected | |3 | |to grow from 15% to 25% of the adult population by 2030 receiving over 40% of all “acute blood loss“ transfusions. | | | |High Demand for Blood |Vet |5 | |3. 3 Mil dogs did not receive transfusion due to lack of supply | |3 | |only 2. 5% of an average of 800 dogs per practice (1995) received blood transfusion while 30% of these dogs would have benefit from | |4 | |it. This implies demand 12 times greater than the current supply!! | | |Typing for dogs not done – causes some complications | |4 | |Dissatisfaction with the current products |Vet |5 | |84% vets dissatisfied with blood transfusion alternatives | |4 | |Bovine sourced – inexpensive readily available supply | |3 | |Flexible Usage of Blood Substitute |Both |5 | |Universal type (All) | |4 | |Free infectious agents and contamination (All) | |3 | |Increased shelf life (2 years vs. a few weeks) (All) | |4 | |Immediately 100% efficient at transporting oxygen (All) | |4 | Threats |Market |Rankings | |Bovine sourced – Consumers may not want cow blood in side them |Human |5 | |2 competitors in making blood substitutes |Human |5 | |approximately the same development stage | |3 | |Northfield FDA approval estimated late 1999 | |4 | |Baxter – estimated FDA approval late 99 early 2000 | |4 | |Baxter – Production facility 1 Million Units / year | |3 | |Baxter International is known as the field leader in the blood–related products….. |3 | |Northfield currently 10,000 units per year – construction of 300,000 per year | |4 | |Veterinarians do not usually track cost of keeping dogs for transfusions |Vet |2 | |Price sensitive Market |Vet |5 | |Veterinary blood bank low cost $50 to $100 per unit | |3 | |Few pet owners with health insurance on animals | |4 | |Veterinarians only charge 130 to 170 per unit on average | |4 | |Baxter & Northfield make products from human blood (more appealing to consumer) |Human |2 | |There are no studies or data to suggest if this method is superior …. |1 | |FDA approval = Not a sure thing |Human |5 | |FDA approval for Hemopure may fail, which leaves massive debt | |4 | |Many recent high profile product failures | |4 | |FDA approval for Hemopure is not secure and Timing of approval is unknown | |5 | |Regular blood donations are significantly cheaper than Hemopure suggested price |Human |5 | |Hemopure may be found inappropriate for anemia …… |Human |2 | |Hard to justify the price difference between almost the same products |Both |4 | |B & N made from outdated RBC @ 8 to 26 $ (3. 2 Mill units) – limited supply | |3 | |Could sell at premium of 200 – Focus on emergency care (lower sales volume) | |3 | Exhibit 2 : Estimated Market Demand for Oxyglobin % of Vetranarians that would recommend Oxyglobin based on Price | |Vet Price |non Critical |Critical | |50 |95% |100% | |100 |70% |95% | |150 |25% |80% | |200 |5% |60% | | | | | |% of Consumers that would pay for Oxyglobin Based on Price | |Consumer price |non Critical |Critical | |100 |60% |90% | |200 |40% |85% | |300 |35% |75% | |400 |30% |65% | | | | | |Estimated % Use Oxyglobine( From above tables) | |Vet Price |non Critical Critical | |50 |57% |90% | |100 |28% |81% | |150 |9% |60% | |200 |2% |39% | Exhibit 3: Estimation of veterinary Market and per year Estimation of Veterinary Market | |Number Clinics | 15,000 | |Dogs with acute blood loss(per clinic per year) (per year) | 800 | | | 12,000,000 | |% dogs that would benefit from blood transfusions |30% | |Dogs that would benefit from blood transfusions | 3,600,000 | |% that got a blood transfusions |2. % | |Dogs that got blood transfusions( Critical Cases) | 300,000 | |Dogs that did not get blood transfusions but would benefit( Non Critical | 3,300,000 | |cases) | | | | |Current Demand | |Type of Clinic | Units per Year |% of Clinics |Number of Clinics | total | |Primary Practice | 17 |95% | 14,250 | 242,250 | |Emergency | 150 |5% | 750 | 112,500 | |Total | |100% | 15,000 | 354,750 | Estimated Demand Per Year* | |Vet Price |non Critical |Critical |Total | |50 | 1,881,000 | 270,000 | 2,151,000 | |100 | 924,000 | 242,250 | 1,166,250 | |150 | 288,750 | 180,000 | 468,750 | |200 | 49,500 | 117,000 | 166,500 | Exhibit 4: Financial Projections – Sensitivity Analysis Sensitivity Analysis : Vary production levels (best price Hemopure) | |Senario: | |Senario: | Senario: |15 |16 |17 |18 |19 |20 |21 | |Units of Oxyglobin |300,000 |250,000 |200,000 |150,000 |100,000 |50,000 |0 | |Units of Hemopure | – | – | – | – | – | – | – | |Fixed Cost | $ 15,000,000 | $ 15,000,000 | $ 15,000,000 | $ 15,000,000 | $ 15,000,000 | $ 15,000,000 | $ 15,000,000 | |Variable cost | $ 1. 50 | $ 1. 50 | $ 1. 50 | $ 1. 50 | $ 1. 50 | $ 1. 50 | $ 1. 0 | |Total Variable Production Cost | $ 450,000 | $ 375,000 | $ 300,000 | $ 225,000 | $ 150,000 | $ 75,000 | $ – | |Total cost | $ 15,450,000 | $ 15,375,000 | $ 15,300,000 | $ 15,225,000 | $ 15,150,000 | $ 15,075,000 | $ 15,000,000 | |Distribution Cost | $ 15. 00 | $ 15. 00 | $ 15. 00 | $ 15. 00 | $ 15. 00 | $ 15. 00 | $ 15. 00 | |Total Unit Cost | $ 66. 50 | $ 76. 50 | $ 91. 50 | $ 116. 50 | $ 166. 50 | $ 316. 50 |#DIV/0! | |Price Oxyglobin | $ 150 | $ 150 | $ 150 | $ 200 | $ 200 | $ 200 | $ 200 | |Cost Oxyglobin | $ 66. 50 | $ 76. 50 | $ 91. 50 | $ 116. 50 | $ 166. 50 | $ 316. 50 |#DIV/0! |Margin |56% |49% |39% |42% |17% |-58% |#DIV/0! | |Revenue | $ 45,000,000 | $ 37,500,000 | $ 30,000,000 | $ 30,000,000 | $ 20,000,000 | $ 10,000,000 | $ – | |Profit | $ 25,050,000 | $ 18,375,000 | $ 11,700,000 | $ 12,525,000 | $ 3,350,000 |-$ 5,825,000 |#DIV/0! | |Price Hemopure | $ 600 | $ 600 | $ 600 | $ 600 | $ 600 | $ 600 | $ 600 | |Cost Hemopure | $ 66. 50 | $ 76. 50 | $ 91. 50 | $ 116. 50 | $ 166. 50 | $ 316. 50 |#DIV/0! | |Margin |89% |87% |85% |81% |72% |47% |#DIV/0! |Revenue | – | – | – | – | – | – | – | |Profit | $ – | $ – | $ – | $ – | $ – | $ – |#DIV/0! | |Combined | | | | | | | | |Revenue | $ 45,000,000 | $ 37,500,000 | $ 30,000,000 | $ 30,000,000 | $ 20,000,000 | $ 10,000,000 | – | |Cost | $ 19,950,000 | $ 19,125,000 | $ 18,300,000 | $ 17,475,000 | $ 16,650,000 | $ 15,825,000 |#DIV/0! | |Profit | $ 25,050,000 | $ 18,375,000 | $ 11,700,000 | $ 12,525,000 | $ 3,350,000 | $ (5,825,000) |#DIV/0! | |Margin |56% |49% |39% |42% |17% |-58% |#DIV/0! |Investment to Date | $200,000,000 | $200,000,000 | $200,000,000 | $ 200,000,000 | $200,000,000 | $ 200,000,000 | $200,000,000 | |Investment incremental | | $ 50,000,000 | $ 50,000,000 | $ 50,000,000 | $ 50,000,000 | $ 50,000,000 | $ 50,000,000 | |ROI |13% |7% |5% |5% |1% |-2% |#DIV/0! | |I = 10% |10% |10% |10% |10% |10% |10% |10% | |PV | $153,921,406 | $112,906,421 | $ 71,891,435 | $ 76,960,703 | $ 20,584,300 | $ (35,792,103) |#DIV/0! | |[pic] ———————– MBA 610: Marketing Management Team Assignment Elad Wallach kaoru kajimachi Kelly Keith Siham Iguider Sureshkhanna Kumaresan June 20th 2010 Marketing Analysis of Biopure