Biopure Marketing Goals Concerning Oxyglobin

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The key issue is to determine when Oxyglobin should be introduced to the market without jeopardizing Hemopure’s potential and how it should be marketed.

In addressing the issue, the following were considered: a sensitivity analysis for potential consumption of different price series, associated revenues and costs, and gross profit from different distribution methods.

It is recommended that Biopure:

1. Introduce Oxyglobin immediately at a price of $100 to veterinarians. 2. Have an independent sales force distribute the product to maximize profits. 3. Advertise Oxyglobin in both veterinarian journals and trade shows.

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4. Establish a successful brand to launch Hemopure in the future. 5. Oxyglobin should be advertised

Based on other Massachusetts companies’ initiatives that have not gotten FDA approval in the last few years, it is safe to assume that it is a possibility not to get the approval or to be given the approval rather late as it happened to Baxter. Further, the potential dip in the stock price if Hemopure were rejected can be avoided if the company acts quickly and takes advantage of a market that currently has no competition: the animal blood substitute market.

Obtaining market share is critical now that Biopure’s Oxyglobin has been approved. Biopure has a chance to be the first player to enter this market and recover its research and development costs within two years.

Even when Biopure was primarily focused on developing a human blood substitute, the opportunistic development and later approval of Oxyglobin, an animal blood substitute, is a valuable opportunity that has to be considered.

Exhibits A and B place potential demand (1995) at 3.9 million units for noncritical cases and 0.35 million units for critical ones. Further, Exhibit C shows the probability of consumption in units after factoring in the probability that veterinarians and pet owners would try Oxyglobin at different price series. The table shows that at $100 a unit, Oxyglobin would be used in 81% of critical cases and in 28% of noncritical cases.

Hemopure, the human blood substitute, was only about to enter the third phase of the FDA clinical trials. Only because Oxyglobin and Hemopure are almost identical in physical properties and appearance, it does not mean that they cannot be priced differently. There are currently different medical products and services for humans and animals that are differently priced. Exhibit 8 from the case shows that very few veterinarian procedures are priced over $100. In contrast, a human blood transfusion is priced above $1500 without insurance according to the Houston Memorial Hospital.

Hemopure’s market consists of people who lose blood in large quantities like in accidents, gunshots. And and aging population (double of what it is today by 2030) in need of Red Blood Cells to treat certain conditions like chronic anemia and acute blood loss. Launching Oxyglobin at a low price would not necessarily create an unrealistic price expectation for Hemopure because human health care is far more expensive than animal care. Additionally, the emerging and growing necessity for blood substitutes will yield great demand in the following years which will translate to higher selling prices for Biopure, all things equal.

Despite the fact that Baxter International launched the first human blood substitute, HemAssist (presumably priced between $600 and $800), Baxter International’s and Northfield Laboratories’ blood substitutes rely on outdated human blood as a source of hemoglobin which is more expensive than Biopure’s raw materials (bovine blood) at $1.50 a unit. Moreover, their products need to be frozen until used, while Biopure’s products are shelf-stable at room temperature. This makes Biopure’s products more advantageous because buyers can save money on refrigeration costs as the company makes a higher profit because of their raw material’s lower price.

In terms of production, Biopure has capacity to produce only one product at a time, namely, an annual capacity of 300,000 units of Oxyglobin or 150,000 units of Hemopure or some linear combination of the two. On the other hand, Baxter has a production capacity of 1,000,000 Northfield’s capacity is at 10,000 units per year, which is considerably less than Biopure. According to Exhibit D, potential demand for Oxyglobin alone priced at $100 is 1.3 million. Biopure does not have any competition but cannot supply that level of output presently, which would potentially raise prices as demand skyrockets once the product is introduced in the market.

Biopure conducted two surveys that showed customers’ willingness to try the product at a higher price depends on the gravity of the emergency. Exhibit E shows that by selling the product at $100 a unit, $137 million can be generated in revenue, which is more than the revenue that can be obtained when selling it at any other price. This has to do with the probability of consumption and its correlation to the gravity of pets situations in general.

Veterinarians have expressed their frustration with current animal blood distribution. Biopure has two options distribution options: National-Regional-Local and Independent Sales Force. Comparing distribution costs from Exhibits F and G, it is clear that going for the independent sales force approach Biopure can more than reduce costs by half. Distributing the product (at $100 a unit) with the NRL option would cost around $41 million as opposed to $18 million with independent sales distribution.

Exhibits H and I show that the highest gross profit attainable is $120 million when using an independent sales force and pricing Oxyglobin at $100 a unit for veterinarians. These and all exhibits show that Biopure should launch Oxyglobin immediately and recoup the $200 million developing costs in only two years.