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: Ted Jacobs
Manager: Andy Wright
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 Hemopure’s
Questions raised in the case
1. Reasons for and against launching
Oxyglobin
2. The market potential for Oxyglobin and
Hemoglobin
3. The impact of Oxyglobin’s 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 don’t 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
What’s 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 haven’t 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, wellssupplied
– 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 lion’s 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
$150
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
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
• And……the products are not really
interchangeable (the small molecules)
SO……O 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 he’s 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 consumer’s 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