Biopure Case: Questions

Sep 19
Student Name: Miao Wang
Net ID: mxw142330
Case Study 1 Biopure Case Questions:
1. Hemopure:
a. Identify relevant market segments and speculate whether the product is valuable to each segment at the suggested prices ($600-$800)
As the case said the Biopure in human market, sometime the Hemopure could be $600-$800 per unit, which is very higher price than the Oxyglobin. This high price product which relevant market segments should be taken this price level , following the attach Exhibit 5 excel we can Identify four-segment : elective surgery; emergency surgery; in field trauma; chronic anemia.

Both we know that ‘When a thing is rare , it becomes precious .’， so when we analysis the requirement of this 4 –segment , which that we can found maybe we can position the Hemopure price to that.

Exhibit 5 Red Blood Cell Donations and Transfusions in the United States in 1995 Use of Red Blood Cells
Units
(in 000s)

Acute Blood Loss:

Elective Surgery:

Anonymous Donations
5,800
Autologous Donations a,b
1,100
Emergency Surgery (in hospital)
1,000
Trauma (in field administration)
200
Acute Blood Loss Subtotal
8,100

Chronic Anemia
3,200

Not Transfused

Due to Rejection
1,200
Due to Expiration
1,500
Not Transfused Subtotal
2,700

Total:
14,000

Source: Stover & Associates LLC a Autologous donations are in elective surgery only. All other uses of RBCs represent anonymous donations. b Autologous donations include both those units transfused and those unused units discarded.

Transfusions not done Borderline 1000 Trauma 1800
Therefore, the total available human market is 16.8 million units per year.

It’s very small requirement of the Target market for Hempoure (Only 249,750unit).

Target
Trauma (in field)

High Potential
Emergency Surgery

Physicians, public , vets

b. Given the above, what is a reasonable estimate of the market potential (in unite volume) for Hempoure and similar products sold i the $600-$800 range?

Current Usage Change Potential Usage
Trauma (in field) 200,000 *10 2,000,000

Currently only 10% of trauma cases get blood transfusions in the field. With better storage potential and no need for blood typing this could be increased to 100% (a factor of 10!).

This is the potential usage in 1995. In order to project the numbers forward to 2000 (the date of product release), we must estimate population growth. The elderly population (65 and older), which currently receives 40% of all acute blood loss transfusions, is expected to double by 2030. Assuming linear growth, we can expect this age group to grow 14% by 2000.
Similarly, the remaining adult population (under 65), which currently receives 60% of all acute blood loss transfusions, is expected to grow 5.9% by 2030 ((6 – 5.67) / 5.67 = 5.9%). # over 65 # under 65 1995 x 5.67x (85% / 15% = 5.67) 2030 2x 3 * 2x (75% / 25% = 3)

Assuming linear growth, we expect this age group to grow .84% by 2000.

The revised estimates of usage for the year 2000 are as follows:

Potential usage (1995) Change Potential Usage (2000)
Under 65 1,200,000 *1.084 1,300,800
Over 65 800,000 *1.14 912,000

Current Usage Change Potential Usage
Emergency Surgery 1,000,000 *.5 500,000

Due to the fact that many more units will be used in the field, the usage in this category will decline. On the other hand, many more of the trauma victims will survive increasing probability of having emergency surgery. We estimate that the net of those two changes will mean a 50% decline in potential.

Revised estimates of usage for the year 2000 are as follows:

Potential usage (1995) Change Potential Usage (2000)
Under 65 300,000 *1.084 325,200
Over 65 200,000 *1.14 228,000

Current Usage Change Potential Usage
Elective Surgery 6,900,000 *.05 345,000

Evaluating the attractiveness of the Biopure offer compared to that of the generic human RBC competitor is essential to appropriately forecasting demand in the elective surgery segment. A simple analysis of the benefits demanded by elective surgery, the benefits provided by human RBC’s, and the benefits provided by Hemopure would lead one to conclude that Hemopure is poorly suited to elective surgery. In particular, donated human blood is:

• Well entrenched and widely-accepted in modern medicine,
• Readily available through a well-established network of blood collection groups
• Relatively inexpensive, at $125-$225 per unit (vs. the proposed $600-$800 for Hemopure)
• Relatively safe, with little chance of infection (e.g., 1 in 5,000,000 chance of AIDS).

Consequently, Hemopure is probably only appropriate for applications where donated blood is not readily available and where the loss of blood is life threatening. Elective surgery certainly does not fall into this category.

Revised estimates of usage for the year 2000 are as follows:

Potential usage (1995) Change Potential Usage (2000)
Under 65 207,000 *1.084 224,388
Over 65 138,000 *1.14 157,320

Current Usage Change Potential Usage
Chronic Anemia 3,200,000 *0 0

Hemopure is ill-suited for chronic anemia applications because of the short half-life, potential for toxicity, and very high price (would you/your HMO want to spend $600-$800 per unit for the rest of you life if you were afflicted with this condition?).

Finally, there are 1 million “borderline” transfusion surgeries each year, where doctors avoid transfusions for fear of disease transmission or negative reaction. Hemopure could eliminate these fears, resulting in an additional potential of 1.5 million units.

Grand total: 4.65 million units

- 40% of the market is for individuals over 65
- 65 and over cohort is expected to double by 2030
- Risk of disease transmission discouraged rates of donation

c. As of the timeframe of the case , what would be your estimate of the expected profits from Hemopure ( expected annual profits x probability of successful introduction)?

The customs behavior show:

High price sensitivity for animal market
Low price sensitivity for human market
Fear of contracting diseases
In critical cases, 85% of owners are willing to pay $200/unit of Oxyglobin

So we will adjust the price of Hemopure to $450-500 , and up the Oxyglobin to $150-200

Low Potential
Elective Surgery (Autologous) 1100
Chronic Anemia 3200

High Potential
Elective Surgery (Anonymous) 5800
Emergency Surgery (hosp) 1000

Target
Trauma (in field) 200
Rejected 1200
Expired 1500
Borderline (not done) 1000
Trauma (not done) 1800

Numerical Analysis
Assumption：Marketing costs= 10% of max.revenue
Biopure-Hemopure
Pice($)
500
600
800
Capacity Human Per yr
16800000
16800000
16800000
Marketing cost Vet(10%)
840,000,000
1,008,000,000
1,344,000,000
Fix costs
Prodection Costs(Low)
4,620,000,000
4,620,000,000
4,620,000,000
Prodection Costs(High)
7,140,000,000
7,140,000,000
7,140,000,000
Total Fixed Costs(Avg)
6,720,000,000
6,888,000,000
7,224,000,000
Contribution
Blood cost per unit
400
410
430
Distrubution Cost

Total Contribution
100
190
370
(BEP = TFC/(SUP - VCUP) )
Break Even
67,200,000.00
36252631.58
19524324.32
Percentage
400.00%
215.79%
116.22%
Profit=Contribution*Capacity-(Production Cost+Marketing Cost)
Profit
1680000000.00
3192000000.00
6216000000.00

Not know how to evaluate the probability

So if the price will be 500$ maybe need four years to get the revenue, if 600 2years if 800 6years

Because of Cost to Patient of Donated Human Blood is high expensive.

The Oxyglobin in animal marketing is better than Hemopure in human

2. Oxyglobin: What is (roughly) the market potential in product units and the dollar terms,

The calculation of the market cap is defined as follows: The target market volume(rough estimate)= Number of veterinary practices*number of animal in each practice*willingness to trial Oxyglobin*unit each animal needs We estimated the factors as following: 2.1 Number of veterinary practices: 15,000(mentioned in the article) 2.2 Number of animal in each practice: 800/85%( dogs take up 50% of patient volume and cats take up 35% of volume)
2.3Willingness to trial Oxyglobin: (27.5%*70%+2.5%*95%)*(27.5%*60%+2.5%*90%)= Suppose priced at $100, under the probability of 30% of these dogs would have benefited significantly from a transfusion of blood, 2.5% are critical cases and 27.5% are non-critical cases, we can calculate each weighted willingness to trial Oxyglobin of veterinarians and pets owners, the product of the two percentage is the integrated willingness to trial Oxyglobin. Here suppose the percentage in dogs practice can be broadly representative)

2.4 Unit each animal needs: 1 unit

2.5 By entering the estimations above, we get The target market volume =
15,000*800/85%*(27.5%*70%+2.5%*95%)*(27.5%*60%+2.5%*90%)*1=572,426
At last but not least, we must notice that all the figures used above is from 1995.It is very likely that the numbers will rise by the year of Oxyglobin release.

3. How would the inter-relation between Oxiglobin and Hemopure affect your introduction strategy for Oxyglobin?(introduce vs. not and or price higher vs. lower)

Go to marketing

1 step : Don’t Release Hemopure at all
If sufficiently penetrated, the demand for Oxyglobin will consume the majority of the production capacity. We will maximize revenue earlier.
Not releasing Hemopure would be disregarding a proven market.
Hemopure has the potential to revolutionize critical care situations, not releasing Hemopure would be holding back a helpful product from the people.
Not releasing Hemopure would potentially forfeit a bountiful gain in goodwill.
2 step：Release Oxyglobin with Hemopure
We would be able to sell both products for a very high price and make a more profit per unit on both products.
Biopure would not be making any revenue to increase production capacity.
We do not want to have another two years of zero revenue.
Although we would be making more profit per unit, we would not have as many units to sell.

Conlustion:
3.1 Oxyglobin’s pricing for Hemopure price is bound to form a reference and comparison of the role. In the market, pet products and people use the same type of product there is a proportional relationship between, or correlated. The coefficient is generally between 0.3 to 3 times. In other words, if Oxyglobin pricing at $100, then Hemopure in general should be between30 to 300 times. We cannot ignore the presence here of some inherent , although we cannot directly say the pricing of pet products determined that people use the same type of product price must be to what extent . However, some queries on the products we see they are indeed the existence of these links.

3.2 Based on the impact of just said, we also believe that the pricing of Oxyglobin will be a liability to Hemopure. We noted that our pricing for Oxyglobin probably should be between 100-150 (the second question we have detailed presentation of this specific product pricing principles and price). As we mentioned above, Hemopure price should not exceed $450. But, in fact, we want to set a higher price, between $ 600-800. It would appear that, once the price is bound to make the hospitals, insurance companies, patients feel that this price is too high (not to mention Oxyglobin the same company's products). For the price of acceptance will have a direct impact. In contrast, if we are priced below $450, obviously we lost that part of the profits could have had. So we think this is negative impact.