Biopure Corporation: Delivering Lifesaving Oxygen

Biopure Corporation was founded in 1984 by entrepreneurs Carl Rausch, now president and CEO, along with David Judelson as a privately owned biopharmaceutical firm specializing in ultra-purification of proteins for human and veterinary use.

In 1998, Biopure was one of the three legitimate contenders in the emerging field of "blood substitutes" or "oxygen therapeutics".Blood substitutes were designed to replicate the oxygen-carrying function of actual blood, while eliminating the shortcomings associated with transfusions from human donated blood. Biopure's future depended on two new blood substitutes, Hemopure, for the human market, and Oxyglobin, for the animal market. Biopure was the only company that was actively engaged in the development of blood substitute for the small-animal veterinary market in 1998. Oxyglobin has now received the U.S.

government's final approval for commercial release and is ready for launch, while Hemopure will be entering into Phase 3 clinical trials and expects to receive FDA approval sometime in 1999 (Dolan, 1997).Human blood substitutes were originally conceived as a vehicle to treat wounded soldiers in battlefield settings. By 1998, several companies appeared to be on the verge of viable blood substitute called "hemoglobin-based blood substitutes." These products were developed to exploit the natural oxygen-carrying capabilities of hemoglobin. Some of the products strengths were that it was "universal" needing no blood typing, they were free of infectious agents, they have an increased shelf life of 2 years compared with 6 weeks for donated blood, and as with Biopure's line, require no refrigeration (Dolan, 1997).Competitive AnalysisBiopure has two target markets at this time.

The veterinary market. The market in this area consists of primary provider veterinarians and clinics, emergency clinics, pet owners, and of course pets. After FDA approval, they will expand into the human market of hospitals, clinics, primary providers, patients, insurance companies. Insurance companies will also set reimbursement, so it is necessary that we at least be aware of the impact on our pricing.In considering Porter's five forces of marketing strategy for this particular industry, we must first look at who is our competition.

Currently Biopure is the only company who has completed and received FDA approval. Rivals include Baxter, an already known medical equipment/product company, Northfield, a new entrant into the substitute blood product market, and whole blood products donated to a few collection agencies. This could cause a slow market growth because of the small number of companies in the market causing supply and demand to be affected.However, since Biopure has the opportunity to set a price for veterinary usage and projected prices for Hemopure, they may be able to sustain a positive competitive advantage, even after others enter the market. This brings up the issue of barriers to entry and exit.

At this point, Biopure is FDA approved for it's veterinary product and looks forward and projects that they will have FDA approval for the human product Hemopure in two years. This creates barriers of entry for new companies, because they will lag behind. However, Baxter has already received FDA approval and has marketing, distribution channels and a well-known name that is in its favor.Buyer and Supplier Power should also be considered.

There is a targeted market to consider initially, that being the Oxyglobin (veterinary) market. Research has looked at this and we will discuss this later on, but compared to the number of human units sold, it will lag behind. We should also take into consideration that our product has a shelf life of two years. This is one of the benefits, however, the two-year shelf life also limits the number of products sold in a two-year period.

While pets are important, many pet owners may consider this to be too costly even using red blood cells.Buyers in the Hemopure market are much more numerous and the advantages for human consumption are more beneficial. The buyer power in the human market will probably remain low until other companies manufacture and refine better products. In the United States we believe there is no way to put a price on human life. We expect to consumer any product that will heal us or make our lives better no matter how much it costs.

Supplier power to be considered is in the slaughterhouse market. At present they are highly powerful because they are our only way to make oxyglobin and hemopure. As other companies research and develop, they may come into our suppliers and as demand for cattle blood increases, prices are likely to increase as well to us. That being $8.

00for blood. To sustain a competitive advantage, Biopure is going to need to utilize continuous scanning, at least in the early years after going to market with oxyglobin and then again when they receive FDA approval for Hemopure. Baxter and Northfield are sure to remain as competition given that they are already competition. Baxter has been established since 1956 with over 5.

4 billion in sales and 670 million in net income in 1996. They have also built a 100 million facility with a production capacity of one million units of HemASsist at a cost of 600-800 dollars. Northfield Laboratores have a patent on Polyheme and spent 70 million in developing it with a pilot facility and output capabilitiy of 70 million. While they are not nearly as advanced as Biopure and in Northfield's case it is much smaller, they do have technology available. However, as new companies start-up, new processes are developed, research brings new information, Biopure will need to know what the market looks like in order to remain the leader.

Biopure has great opportunity to become the leader. Because they are ready to launch oxyblobin and no one else is a competitor for veterinary products except whole blood garnered from donor animals, they are able to continue research and development on oxyglobin and help fund hemopure. They are also going to be able to set the price, learn from marketing errors on oxyglobin thus refining it for hemopure. They can use revenues from oxyglobin to market hemopure.Threats to Biopure again, are Northfield, Baxter, and the whole blood donation centers.Blood is less costly but has a short shelf life, Baxter is already well known in the medical industry as a trusted and proven supplier and innovator of medical products.

Northfield, although small, has managed to become part of market and has advanced to phase 3 trials. They have contracted, as has Baxter with the American Red Cross and another blood distributor to purchase red blood cells about to be discarded and remove the hemoglobin protein from it. Baxter, again, known and respected in the blood related medical devices market has proceeded to Phase 3 trials with it's own human blood protein substitute.Whole blood is already available. While there are decreases in donations fromtime to time, blood is usually donated in time for major needs.

With the advent of autologous blood transfusions, where you donate blood for yourself prior to surgeries, people are assured of safety in their transfusions. Whole blood usage has a long and proven history and while there are problems with infectious diseases, transfusion allergy reactions, fluid overload potential, and the need to discard in 42 days, it has been available and at a cost that insurance companies are willing to pay.Strategy of these two companies is likely to be to work diligently to compete with their alternate product by using their name and the fact that rather than using non-human blood, they use human blood to synthesize the protein needed. This could appeal to the masses who may feel uncomfortable with bovine blood proteins being administered into their bodies. These companies will not have to spend time working on perfecting the market in the veterinary arena and can concentrate wholly on the human blood substitute market.Customer AnalysisBiopure will initially focus on the veterinarian market.

Most often the buyer will be the veterinarian/clinic with some force put onto the vet/clinic by the demand pet owners will place on them to carry this product for the health and wellbeing of their pets. The buyerBiopure can develop a marketing positioning and pricing streategy for oxyglobin. Biopure is anticipating marketing oxy for 80 to 100 unit to veterinarians and end users will pay up to 300/unit. Biopure conducted a survey amonth 285 vets and 200 dog owners to establish who will try oxyglobin and what price depdning on the situation .

Pet owners on avaeage pay $60 for primary care and up to $200 for emergenc;y care. ;70% of the veterinarians surveyed were willing to pay $100 for non critical and 95% were willing to pay $100 in critical cases. 40% of dog owners were willing to pay $200 in non critical cases and 85% were willing to pay $200 in critical cases. Biopure can market oxyglobin for 80 to 100 per unit and up to 200 unit for the end user.Problem Identification Based on Situation AnalysisBiopure is in a difficult position. With the FDA approval of Oxyglobin they have an opportunity to be the first company in the market with a blood substitute.

While this does offer some appealing advantages there are also several negatives that need to be addressed as they look to the future. Ultimately the decision that top management of Biopure Corporation faces is whether or not to release Oxyglobin immediately to the market or to postpone the launch until Hemopure has received final FDA approval.Critical IssuesBiopure Corporation is facing several critical issues. The most obvious and pressing decision is whether or not to release Oxyglobin to the market immediately or to postpone the launch until Hemopure as received full FDA approval. The reason that this has become such a pressing issue is the potential impact on the pricing of Hemopure in the future. Hemopure and Oxyglobin are two very similar products, however the markets that they deal with are very different.

The veterinary market is much more price sensitive than the human blood market. If Oxyglobin is released immediately at a lower price for the veterinary market and then Hemopure is released after FDA approval at a higher price will consumers reject the higher pricing of Hemopure stating that they are basically the same product with two different prices?If Biopure Corporation does decide to launch Oxyglobin then they also have to decide on several other issues. First, Biopure needs to decide on the pricing for Oxyglobin. As the first product of its kind in the market Oxyglobin will be able to set the market price, however, if Oxyglobin is priced incorrectly it has the potential to take away from Hemopure's price potential in the future.

Second, they must decide on the marketing channels that they whish to use for Oxyglobin. Do they want to use distributors to market their products or do they want to develop their own sales force and market their product directly to the veterinary market. Do they need to spend money on trade show and trade journal advertising? All of these previously mentioned factors will have an impact on how well Oxyglobin is accepted in the market.Finally, Biopure needs to look at their decisions and measure how they will affect the potential for a possible public offering of the company in the future. Several investors are already pushing for the company to go public. All of the decisions that are made with Oxyglobin and Hemopure will have an influence on how potential investors will perceive Biopure's position for the future.

Financial PositionWhen analyzing the different competitors and pricing decisions in the blood substitute market it is important to have a good understanding of the financial investments of each of the competitors in the market.As of 1998 Biopure had spent $200 million on development of Hemopure and Oxyglobin. With that $200 million investment they had also constructed a state of the art production facility with an expected output of roughly 450,000 units of Hemopure and Oxyglobin. In the production process Biopure expected fixed costs of $15 million per year independent of volume. Biopure received their bovine blood for production at a cost of one dollar and fifty cents per unit.Baxter International has spent $250 million over the last thirty years to develop their blood substitute "HemAssist.

" The recently constructed a $100 million facility that is expected to be able to produce one million units per year of "HemAssist." Baxter receives their old RBC's for production from the American Red Cross at a cost of eight dollars per unit.Northfield Laboratories has also spent a significant amount of money to develop their blood substitute product called "PolyHeme." As of early 1998 they had spent $70 million on development and construction of a production facility. Their initial production facility only had an estimated output of 10,000 units. Northfield does plan to build a new larger production facility with an expected output of 300,000 units.

The cost of this new production facility will be roughly $45 million. They receive their old RBC's for production from Blood Center's of America at a cost of $26 per unit.Alternatives and AnalysisWe have identified a number of alternatives that must be evaluated prior to providing our final recommendation.First of all, the Biopure Corporation is split on what action to take regarding the release of Oxyglobin to the market. Should the company shelf the product until the human version is approved, or should they release the product to the market immediately? If the company decision is to wait until FDA approval for the human version, they not only run the risk of losing market share to their competition, but they also must keep in mind that there is no guarantee that they will receive the FDA approval in the next two years.

There are a few benefits to immediately releasing Oxyglobin that should be considered. The release of Oxyglobin would serve as a test case for Hemopure by providing useful examples of how to enter the markets. It would also provide immediate revenue which can be used toward the launch of Hemopure. Lastly, it would have a positive impact on a possible initial public offering of Biopure stock. The proceeds from the IPO would also be applied to the launch of Hemopure.The second alternative which must be considered relates to pricing.

By immediately releasing Oxyglobin at a price consistent with the veterinary field, they run the risk of creating an unrealistic price expectation for the Hemopure market. The long term risk is that future customers will feel that Hemopure's price is extremely high in comparison to the price of Oxyglobin.Another alternative is to consider is distribution. Should Biopure rely on established distributors willing to add Oxyglobin to their long list of veterinary supplies, or should they hire and professionally train their own staff of sales representatives to sell their product.RecommendationBiopure is stuck with a difficult decision.

The decision has a great economic and ethical impact. We believe that most factors suggest that it is in Biopure's best interest to market the Oxyglobin immediately. By placing Oxyglobin on the market it can generate immediate revenues which can be used for the future launch of Hemopure. Immediate release will also make a greater IPO opportunity which would also provide revenues to be used towards the future release of Hemopure. Biopure could corner the market and become the leader within the veterinary blood supply market, obtaining a virtual monopoly, by immediate launch.

Being the market innovator would bring brand equity, recognition, trust and pride, which would provide a clear advantage over their competition. This could allow them to use their less focused product, Oxyglobin, to test the so-called waters before launching Hemopure, which could be extremely beneficial in executing successful future strategies. If the company waits too long it might face competition and new technology that would make the Oxyglobin not needed. By launching the product now they are taking advantage of a situation that they can control now, as opposed to waiting to see if they will have a similar opportunity again in the future, after the FDA approval.It could also be pointed out that there had not been enough research conducted into understanding the public's acceptability of the projected costs of Hemopure. The field of human blood substitution is fairly new in this regard and research would help the corporation come to a more informed decision.

Also, competitors such as Baxtor International and Northfield Laboratories were on course to be releasing similar blood substitutes at comparable prices in the near future. Although the veterinary market is small and price sensitive and people generally seem stingy when it comes to spending large sums of money on their pets, we believe that Oxyglobin can carry a premium price. Considering that most pet owners do not own health insurance on their animals and Oxyglobin will cost them approximately twice as much as a regular visit to the vet, it has been argued that this would drive the price of Oxyglobin down.This would in turn affect the price of the Human version of the product.

However, it should be noted that even though both products are similar, there exists a greater market demand for the human version. In recent years, there has been a decline in the rate of blood donation, while the demand is expected to rise steadily. It's not uncommon for medical facilities and blood banks to experience periodic shortages. Pricing of any substitutes would be driven up due to the great demand and the short supply.

Therefore, the notion that the lower price of Oxyglobin would drive down the price of the human version is unfounded. It should also be noted that Biopure would be the only company providing an alternative to blood transfusion. This gives the company the benefit of being the pioneer in blood substitutes, and also a competitive advantage, which is sustainable (until there's another competitive product in the market).It would therefore profit the company to market and release Oxyglobin for medical use.

This can be achieved through hiring and training direct independent manufacturer distributors, as well as utilizing trade shows, publications, or direct marketing. With a good marketing strategy, Oxyglobin will not only be profitable but also the pave the way for the human version of the product.