Biopure

BIOPURE PAPER

Recommendation: I strongly recommend that Biopure launch Oxyglobin immediately at a price of $150.00 and initially focus principally on large primary and emergency practices that perform the greatest number of transfusions. If this segment proves successful, a full market strategy could be devised and implemented. In terms of distribution, I recommend the use of a direct sales force, whose greater knowledge and dedication would increase sales and contribution, since independent distributors charge approximately 30% of the selling price and carry a large variety of products.

To launch or not to launch? Biopure is faced with the decision whether to introduce Oxyglobin, a universal blood substitute with a two year shelf life, into the market or delay its release until Hemopure, its human counterpart, is approved by the FDA and launched. I have determined several reasons why Oxyglobin should be launched without waiting for FDA approval for Hemopure. Firstly, delaying the launch for Oxyglobin means foregoing approximately three years of revenues, since it usually takes that long for the FDA to approve phase three products. Furthermore, the revenues and the production that could be generated could serve several purposes. Engaging in production now can begin Oxyglobin and Hemopure's learning curve and product life cycle, which may ultimately help in generating greater profits for Hemopure in the future. That is to say that if Biopure can sell all 300,000 units/year for $150/ unit, potential revenues for three years amount to $135million, and approximately 89million of that amount is profit which it may use to expand production or launch Hemopure (Exhibit E). It is also important that the timing of Hemopure's approval is highly uncertain and it may be longer than three years before it is approved. While the two products are almost physically similar, they were designed for two different markets, thus decreasing the potential for cross-market pressure. Moreover, Oxyglobin has at least two years first-mover advantage in the animal market, while in the human market, two competitors, Baxter and Northfield, already exist and are awaiting approval from the FDA. Regardless of the fact that Biopure has never launched a product, a marketing team already exists and launching Oxyglobin might be a trial field before deciding whether to, and how to, launch Hemopure in the future. While the animal market may not look promising at first, it may be important to note that the market is expanding, making it even more attractive to pursue since Biopure will have the first-mover advantage. Lastly, a negative image from many pet owners could develop if they are aware of the existence of Oxyglobin but realize that it will not be released. This may also negatively impact the launch of Hemopure, since Biopure may come under scrutiny.

On the contrary, several reasons exist why someone may argue that Oxyglobin should not be launched. Many will argue since the human market is larger, taking any action that may jeopardize the opportunity should be avoided. While, this may be true, the numbers generated in the next section will show why, from Biopure's perspective, the animal market may be more profitable than the human market. Secondly, some may argue that a price on Oxyglobin may provide a downward pressure on the price Biopure can charge for Hemopure. While the two products are almost identical, Hemopure does require additional procedures to remove the clusters that may be detrimental to humans. The associated cost is not known by the public. Furthermore, it is important to note that pharmaceutical companies charge different prices for products used by both humans and animals, for example the antibiotic Augmentin. This is primarily due to the fact that insurance companies cover the majority of the cost in humans. Furthermore, some may argue that given the limited production capacity, and the fact that Biopure has sufficient funds of over $50 million to support operations, waiting until Hemopure's approval is economically feasible. While this may be true, it is important to remember that timing of approval is unknown, and beginning the production of Oxyglobin may reduce the cost of producing Hemopure in the future (ie. Economies of scale, learning curve effects, increased efficiency etc.), which may make Hemopure and Oxyglobin more profitable in the future. Seeing the positives and negatives of the launch, it is highly recommended that we launch Oxyglobin.

Market Potential in Animal vs. Human. The most important step in determining whether to launch Oxyglobin is the market potential and possible profits for Oxyglobin and Hemopure. Exhibit A looks at specifically the dog market for Oxyglobin. If only 2.5% of dogs, or approximately 90,000, received transfusions, and 354,750 units were used by both primary and emergency practices, then each dog received approximately 4 units. If all the potential dogs that could have benefited from a blood transfusion were included (ie. 30% noncritical), then the total number of units used for blood transfusions would be approximately 14,256,000. This shows the potential Oxyglobin may have. Exhibit B further breaks these down into potential profits that could be received from transfusions. Based on current transfusions, the animal market, excluding cats, looks promising, offering current revenues of $45million to $55million a year. Calculating the market potential for a blood substitute, the current revenues increase to the range $540million to $638.6million. Now if cats are included in the calculation, the potential profits will range from $76.5million o $90.4million under the current conditions, to $918million to $1085.5million if the potential in increased by a factor of 12 (30%/2.5%). The human market does not look so promising. Overall, the market does not seem very large, but it seems that it has potential to grow. Because of an inadequate supply of blood, only critical cases have undergone transfusion. While 84% of veterinarians are dissatisfied with the current blood substitutes, the potential for Oxyglobin to penetrate the market and treat critical and noncritical cases is large.

Looking at Exhibit C for the human market, under the current statistics, the market potential, including acute blood loss and chronic anemia, is approximately $7.9billion dollars. But since Hemopure may be found inappropriate for anemia because of the toxicity of transfusing more than 10 units, $2.24billion must be deducted. Although the market may still look to have great potential, it is important to remember that Hemopure will only be used in several instances, under conditions where RBCs would not apprear appropriate. Consider the two cases of trauma and borderline transfusions, where Hemopure should penetrate more because of it ease of use, ease of storage and patients decreased