Indian Institute of Management Kozhikode

Marketing Management
Case Analysis: Biopure Corporation
Submitted to: Prof. Rahul Kumar Sett

Submitted By: PGP/14/258 Alok Kumar PGP/14/279 Lokesh Singh PGP/14/280 Mahtaab Kajla PGP/14/283 Naveen Vyas PGP/14/303 Shruti Kabdal PGP/14/304 Sneha Ramtake

Situation Analysis   Oxyglobin and Hemobpure were Biopure’s entries in the field of blood substitutes, Hemopure targeting the Human Market and Oxyglobin, the animal market. Biopure’s primary goal was the development of a Human Blood Substitute and its entry into the animal market was somewhat opportunistic. However Oxyglobin had received the final FDA approval while Hemopure was about to enter phase III clinical trails. Oxyglobin and Hemopure were almost identical in physical properties and appearance, hence it was possible that launching Oxyglobin, that too at a low price would create an unrealistic price expectation for Hemopure eventually.

Problem Identification   When is the best time to introduce Oxyglobin? What should be the launch strategy for Oxyglobin, that ensures that the potential of Hemopure is not jeopardized?

Qualitative Analysis About Biopure Corp.:      Founded in 1984 by Carl Rausch and David Judelson. In the process of launching two products, namely Oxyglobin:animal blood substitute and Hemopure:for the human market. The primary source of both the products is the blood of cattle. Had a single manufacturing facility with the same equipment being used for either product, thus only product could be produced at a time. Annual capacity 300,000 units of oxyglobin or 150,000 units of Hemopure or some linear combination.

Competitors
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   

As of 1998, Baxter international and Northfield Laboratories were the only other companies in the later stages of development of blood substitutes. Both competitors relied on human blood as their source of hemoglobin, specifically both had developed technologies to extract raw hemoglobin from outdated human RBCs. The products of Baxter and Northfield needed to be frozen orRefigerated until used, while hemopure was Shelf-stable at room temperature. Baxter International: Over $5.4 bn insales, $670 mn net income in 1996, Acknwoldeged leader in development, manufacture and sale of blood related medical products.Their product HemAssist was the first

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Human blood substitute. Anticipated price between $600 and $800. Baxter constructed a $100,000,000 facility with a production capacity of 1,000,000 units per year.  Northfield Laboratories: Northfield was a small 45-person firm founded in 1985. Their entire focus on developing a human blood substitute. Their product ‘PolyHeme’ was similar to Baxter’s HemeAssist in production and usage profile. They had spent $70,000,000 in development of ‘PolyHeme’ and construction of a production facility with output capacity of 10,000 units per year.

Customer   The market for hemopure consisted of customers who had lost blood in large quantities in accidents, gunshots, wounds, etc. Demand for RBCs to treat chronic anaemia was expected to remain stable whereas the demand for RBCs to treat acute blood loss was expected to rise with the aging US population. By the year 2030, the over 65 segment was expected to double in absolute numbers. Biopure conducted two surveys in 1997. The survey of 285 Veterinarians revealed that with increasing the criticality of the case, the customers were willing to try the product at higher price. A similar behavior was seen in the survey of 200 dog owners.

Qualitative analysis SWOT analysis Strengths  Weakness    No distribution channel. Lack of prior experience in launching a product incorporating immense R&D. Stockholders were expecting a good product from Biopure if it resulted, otherwise there could be a dip in the stock.
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Since obtaining FDA approval was a time consuming process, the first player to catch hold of the market had an edge.

Opportunity  Threats   There was little to prevent Biopure’s competitors. Baxter is the torchbearer in innovation and development, manufacture and sale of blood related medical products. The possibility of success of Oxyglobin will bring along an opportunity for Hemopure to take advantage of a brand image built by the former.

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Oxyglobin was likely to create an unrealistic price expectation for hemopure.

Quantitative Analysis The Break Even analysis for $100, $150 and $200 is shown in Appendix – A and profit margin for high price and low price is shown. This shows Biopure should launch as soon as possible and with the price of $200 as the market demand is so high that break even will be achieved early on. Recommendations    Introduce Oxyglobin with the price of $200 As the success of Hemopure largely depends on the image built by Oxyglobin, emphasis should be laid on establishing the latter as a successful brand. Advertisements should be in Vet journals and trade shows.

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Appendix - A Numerical Analysis Assumption: Marketing costs = 10% of max. revenue
Biopure- Oxyglobin calculations

Price Capacity Veterinary per yr Marketing cost Vet (10%) Fixed costs Production Cost Total Fixed Costs Contribution Blood cost per unit Distribution Cost Total Contribution
Break Even

100 300,000 3,000,000

150 300,000 4,500,000

200 300,000 6,000,000

15,000,000.00 15,000,000.00 15,000,000.00 18,000,000.00 19,500,000.00 21,000,000.00 1.50 15.00 83.50
215,569

1.50 15.00 133.50
146,067

1.50 15.00 183.50
114,441

Percentage 71.86% Profit= Contribution* Capacity - (Production Cost+Marketing Cost) Profit 7,050,000 Difference high- low 27,000,000

48.69% 20,550,000

38.15% 34,050,000

t | 7/1/2010

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