Biopure Case

BioPure Corporation, which was founded in 1984 by entrepreneurs Carl Rausch and David Judelson, is a privately owned biopharmaceutical firm specializing in the ultra purification of proteins for human and veterinary use. In 1998 Biopure pioneered the development of oxygen therapeutics using "Hemoglobin", a new class of pharmaceuticals that are intravenously administered to deliver oxygen to the body's tissues. Biopure's two products, Hemopure for human use, and Oxyglobin for animal veterinary use, both represented a new Oxygen based treatment approach for managing patients' oxygen requirements in a broad range of potential medical applications. The factor distinguishing Biopure's two products from other blood substitute products being developed by two possible rivals, Baxter International and Northfeild Laboratories, is that its hemoglobin based source is bovine rather than human and was derived from the blood cells of cattle. Both of Biopure's blood substitute products were in the final stages of the approval process of the Food and Drug Administration (FDA) in 1998. Oxyglobin had just received the FDA's approval for commercial release declaring it safe and effective for medical use. Hemopure was entering final Phase 3 clinical trials and was optimistically expected to see final FDA approval for release in 1999. The FDA approval of Oxyglobin and its possible subsequent release into the veterinary market caused concern over whether the early release of Hemoglobin would impinge BioPure's ability to price Hemopure when the product finally received approval. Given that the two products were almost identical in properties and function, it was thought that the early release of Oxyglobin would create an unrealistic price expectation for Hemopure if released first.

Although blood transfusions in the veterinary market are infrequent and the market scope is limited, Oxyglobin has the potential to become a lucrative investment for Biopure. Based on the approximate 355,000 blood transfusions (please see Exhibit 1 for the calculations behind this estimate) performed on animals in 1995, a definite opportunity exists for Oxyglobin within the veterinary blood market. Since the number of blood transfusions conducted in 1995 represented on average only 2.5% of animals suffering from acute blood loss, increased availability of animal blood could possibly stimulate the market.

In order to estimate the possible impacts of introducing Oxyglobin as a major product, it was assumed that Biopure would be able to produce and sell its full capacity of 300,000 units per year. As can be seen in Exhibit 1, the results of such an aggressive marketing strategy would yield a positive gross margin of between 49% and 66%, assuming the product was sold at a price of $100 to $150 per unit. If the company was not able to sell as much of its product as anticipated, it could potentially lose money. Since the average current price charged by veterinary clinics across the country is $100 for a blood transfusion, the clinics would have to raise their prices in order to make a profit on the procedure; this could reduce sales for Biopure. While marketing Oxyglobin has the potential for success, Biopure will have to be extremely careful to create enough selling power to cover the $15 million in fixed costs that the product will cost them.

Biopure's HemoPure product on the other hand is in a unique market position. Looking at Exhibit 5 in the case we see that approximately 14 million units of blood were donated in 1995. We must first adjust this number for patients and uses for which Hemopure would not be a good substitute. If Hemopure only stays in the human system for 2 to 7 days than it is not of much use to patients with Anemia. Also, unused units would have no market potential. Autologous uses can be removed because of the obvious benefits of using one's own blood in elective surgery. So what remains are approximately 7 million units used for acute blood loss. It is also important to remember the 100% efficiency of Hemopure, so the total unit market potential is about 3.5 million units per year. Given this potential it can be assumed that Biopure will sell 100% of its current yearly capacity of Hemopure, 150,000 units. Since Biopure has little information on the price sensitivity of the human market, the multiple prices were explored (See exhibit 2). It can be seen from exhibit 2 that Hemopure will be profitable across a range of prices. Even at half capacity and a price of $400 Biopure will make a gross margin of 50%. This scenario also assumes that Biopure can produce Oxyglobin on a second production line that is not yet built. If the market is more price sensitive, Biopure will be able to lower prices given their low cost of production compared to their competitors.

Oxyglobin is the only blood substitute approved by the FDA for the small-animal verterinary market, the expectation of competition from similar products in the market is small. It has been estimated that it would take 2 to 5 years for another blood substitute producer to bring a product to the veterinary market. The veterinary market willingness and ability to accept a high price for the product is less than that of the human medical market, and because of this Biopure has a great deal of pressure to price Oxyglobin lower than the human blood substitute product. The challenge for marketing Oxyglobin will be in gaining the mindshare of the veterinarians that act as gatekeepers to the product. The current source of blood for animal transfusions comes from donor animals. This method generally does not include blood typing and cross matching and has been shown to prolong the recovery of the animal because of this lack of preparation. The potential for Oxyglobin lies in teaching the veterinarians the prospective benefits from using it.

Competition from Baxter International and Northfeild Laboratories both threaten the profitability of Hemopure.