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Case Report

Biopure Corporation – Pricing Strategy for “blood substitutes” market

Group Number – 9 Priyanka Napnekar – 0211/50 Manpreet Singh – 0189/50 Nipun Jain – 0222/50 Mahak Gupta – 0178/50 Kongkan Saikia – 0167/50 Mukul Mathur – 0200/50 Partha Biswas – 0233/50

Production capacity low as compared to one of its main competitors. manufacture and sale of blood related medical products with over $5. ahead of competitors in animal market by atleast 2 years .$100-200 Hemopure .Free of infectious agents and contamination -Increased shelf life (2 years).Short half life.FDA approval awaited for Hemopure SWOT ANALYSIS OPPORTUNITIES: .Expected by late 1999 (in Phase 3 Clinical Trials) Out-dated Human Blood $26 per unit Needs Refrigeration Plan to build $45 mill facility with annual capacity of 300.Tough competition from PloyHeme and HemAssist.000 units of Oxyglobin or 150.Situational and Qualitative Analysis (5C): Attribute/Factor/ Situation Biopure Corporation Founded in 1984. founded in 1985. excreated from the body within 2-7 days .000 units $30 mill per year $600 – 800 Corporation Blood Substitutes FDA Approval Raw Material Variable cost Shelf Storage Manufacturing Facility – Capacity Production cost (Fixed) Expected Pricing SWOT ANALYSIS FOR BIOPURE CORP: STRENGHTS: .Delay in the FDA approval.Can Build a strong brand name with Oxyglobin before the launch of Hemopure .Since products are shelf stable. shelf stable at room temperature WEAKNESSES: . for solely developing human blood substitute PolyHeme for Human Market PolyHeme . facility with annual capacity of 1 million units $50 mill per year $600 – 800 Northfield Laboratories A small 45-person firm.No other blood substitute available in the animal market. transfusion levels of only 5-10 units .Oxyglobin was likely to create an unrealistic price expectation for hemopure 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? .$600 – 800 Baxter International An acknowledged leader in the development. if Hemopure fails to pass the FDA tests then can it will cost the compnay heavily .Potential for high toxicity. both expected to get FDA approval by the same time . are better suited for emergency cases . private biopharmaceutical firm specializing in ultrapurification of proteins for human and veterinary use.50 per unit Can be stored at Room Temperature Single Mfg.000 units of Hemopure or linear combination $15 mill per year Oxyglobin .4 bill in sales and $670 mil in net income in 1996 HemAssist for Human Market HemAssist – Expected by late 1999 or early 2000 (in Phase 3 Clinical Trials) Out-dated Human Blood $8 per unit Needs Refrigeration Single $100 mill Mfg.Baxter . planning to get listed Oxyglobin for animal market & Hemopure for human market Oxyglobin – Approved Hemopure – Expected by late 1999 (in Phase 3 Clinical Trials) Cattle blood $1.Only products with cattle based primary source .Oxyglobin-first blood substitute in veterinary market with full government approval . facility with annual capacity of 300.Lower Production variable costs since production uses cattle blood unlike competitors THREATS: .

500.084.612 119.844 45.50 276.450 414.000 Case III 200 300.000 1.750 19.094 144.083.99% 150. It can generate the first revenue for the firm which can be used to launch Hemopure and cover operations till Hemopure is launched.0 15.500 80% 90.0 2.0 4.584.146.313.188 16.422.419 60. Quantitative Analysis: Assuming a worst case scenario i.375 112.500 95% 1 2 Case II 150 300.0 15.563 9. Also.000 Oxy Revenue Potential ($) Market Size (in Units of Blood) Critical Market Oxy Adoption Sales Potential Oxy Revenue Potential ($) Total Sales Potential Total Total Oxy Revenue Potential ($) Revenue Constraint based on production capacity 106.000 242.000.922.303 36.e.978 72.957.000.561.258.500.Complication: Oxyglobin is ready for launch.375 45.000 242.000. But the low pricing of Oxyglobin will jeopardise our ability to price Hemopure at a high price since the two products look very alike.575 16.450 27.30% 79.500 60% 13. Sales Potential = Market Size X Adoption 2. It’s the first in the animal market and has a big head-start.000 242. a 500% price differentiation would be hard to explain.000 79.563 22.500 276. Total Variable Cost = Variable Cost/Unit X Total Units 4. Revenue Potential = Sales Potential X Sale Price 3.562 225.500 60.000 30.250 5% 12.000 150. there is a desire to take Biopure public and a proven success of Oxyglobin can improve the IPO.645.687.100.928 48.0 15.438 17.106) 108.0 1.281 5.606 (391.250 25% 60.425 8. It will help Biopure learn the “go-to market strategy” as well.000 Production Fixed Cost ($) Variable Cost per unit ($) Total Units Total Variable Cost 3 ($) Total Production Cost Distributor Price ($) Channel ($) Total Marketing Cost ($) Total Cost ($) Profit Break Even Sales Break even sales as a percentage of sales potential 4 15.675 30. the market is not growing at all Revenue Analysis Sale Price ($) Capacity Veterinary per year Market Size (in Units of Blood) NonCritical Market Oxy Adoption Sales Potential 1 2 Case I 100 300. Total Marketing Cost = Minimum price (Distributor Price. Channel Price)/unit X Total Units .250 70% 169.113 2.000.484.000 13.613 15.575 218.194.500 112.10% 1.875 10.500 112.

we will not be jeopardising the Hemopure market : 1.Break Even Sales 80% % of sales potential 60% 40% 20% 0% 100 150 Price ($) 200 Recommendations: We should launch Oxyglobin in now for the following reasons 1.e. in which case this would not be an out of pocket expense and therefore patient/doctor won’t be affected Place : We should also use manufacturer’s sales force because because a. b. to increase adoption anytime we want to. Because the presence of blood substitute would satisfy the demand that was not satisfied earlier due to scarcity. Also. since the calculations are done for market size in worst case scenario. we take Biopure public. We will have big headstart and therefore a lot of chances to grab the existing market and grow the market It will recover the fixed costs i. 3. it requires a very sophisticated sales pitch if the pricing is more than 50$/unit. the difference in profits from 150$ is not significant. In case. because we have lower per unit raw material cost We can also negotiate a deal with insurance providers. 5. 3. this channel would be relatively cheaper Price : We recommend a price of 150$. . 2. It will help understand the market strategy for Hemopure It can generate revenues we could use to launch We are pricing Oxyglobin higher to cover the gap We will price Hemopure a lower. Although profits are more in 100$. we do not want to compromise the positioning of Hemopure in future. in case it doesn’t. investment in production facilities etc. we can always slash the market prices. the market size would improve and profits would too. 4. 2. it will help improve the IPO of the firm Also. Although we expect the FDA approval to come through.

0 15.0 Northfield 26. because even though our raw material cost is very low compared to competitors. a. 2.5 Baxter 8.0 137. promotion should be done through the 5 big journals of the vet market and the six large trade shows Promotion should also be done for the pet owners.8 15. our variable costs are still high because of a very high per unit production cost Variable Costs Raw material Cost Production Cost* Marketing Cost** Biopure 1.8 Cost/unit *Assuming the production at full capacity **Assuming same across firms .0 15.5 100. b.Promotion:   For veterinarians.0 96. because they can influence the vets for the artificial blood transfusion Other recommendation: 1. Hemopure should be launched towards the lower end of price.0 73. say around 600$.0 116. explaining a big price difference from Oxyglobin would be difficult Production capacity should be increased.0 50. because of tough market competition.

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