What price and Why? To assess what price Oxyglobin should be set at, we must analyze the 4 C's. Firstly, in evaluating the company, we determine that the cost of production is $15 Million per year independent of volume, plus $1.50 per unit un it variable cost. The current capacity for Oxyglobin is 300,000 units. In exhibits 4 and 5 we determine their break-even cost. Next, we must determine who the customer is and what their potential is. To do this, we begin by looking at the number of veterinary practices in the US. Exhibit 1 shows the average monthly case load of the 15,000 US veterinary practices. In looking at these averages, we can determine the absolute number of practices and doctors do ctors for each class of practice. Taking the average number of animals (dogs, cats, and other) each ea ch class of practice treats each month and multiplying that by the absolute number of practices in each class yields the absolute number of animals each practice treats per month and subsequently the annual potential. Targeting veterinarians in the emergency care segment is the most efficient and effective approach. The potential of this segment is 6,930,000 animals per year. Of this nearly 7 Million Million animals in need of blood, approximately 7 % of the need blood come from blood banks and the remaining 93% from a very inefficient and costly "donor animal". This 93% (6,444,900) represent the potential market for Oxyglobin and is clearly far above the 300,000 unit annual capacity for Oxyglobin. Conservatively, if we assume 30% of these animals are in critical c ritical need of blood then we get 2,079,000 animals. Of this population, we know that 60% of Veterinarians and 65% of pet owners are willing to pay the $200, $200 , $400 (vets cost doubled to pet owner) price. Again, being conservative, if...
The case explained the current situation of the Biopure Corporation at the point of making a strategic decision. The company is evaluating the risks and benefits of launching an ancillary product, the Oxyglobin, which could affect the pricing of their major product, the Hemopure, which they need to wait for another two years for approval. The case also analyzed the demand and supply of both human and small animal markets to aid the evaluation. The major risk of launching the Oxyglobin two years before the human product is the potential to bring down the market value of the Hemopure. The effect could diminish the potential profit from the human market, which is considered to be the company’s major market. My opinion is to hold the launch of Oxyglobin. First of all, although the market for the Oxyglobin is significant and the competition is relatively low, the little margin on the pricing of such product cannot bring the company sufficient revenue. The company is considering pricing the Oxyglobin at $80-$100 per unit due to the high price elasticity of the small animal market. After the 30% distribution commission for new products and physical distribution cost of $10-$15 per unit, the revenue per unit comes down to $41$60. In order to even the fixed production costs of $15 million per year, Biopure need to sell as much as 366,000 units. But the annual capacity of the current facility is only 300,000 units for Oxyglobin. Not counting in other major costs like labor costs and marketing activities, it is impossible to break even. So by launching and producing Oxyglobin, the company will suffer substantial loses in their financial reports, which isn’t good for their IPO at all. Secondly, the psychological effect might decrease the demand for Hemopure at later launch. When people used to consider the product to be used on animals, it is hard to accept the identical product to be used on them. Finally, the low pricing for...
Decision Sheet – Biopure Corporation Marketing Objective – Whether to launch Oxyglobin now or delay it till the approval of Hemopure. If yes, then devise a marketing plan for Oxyglobin. Options – 1. Launch Oxyglobin in the market immediately. 2. Defer the launch of Oxyglobin now till Hemopure release. Recommendation – Biopure Corporation should immediately launch Oxyglobin priced at $200. Rationale – Applying SWOT Analysis to the situation: Strengths 1. FDA approval has already come for Oxyglobin. 2. First product-of-its-kind in the market. 3. Product shelf life of 2 years at room temperature. 4. Doctors and customers are willing to try the new product. | Weaknesses 1. Production capacity of the plant is not at all being utilized. Due to production limitations, only one of the products, Oxyglobin or Hemopure can be manufactured at a time. 2. Since this is first product for blood substitutes, the social acceptance of such products is unpredictable. | Opportunities 1. No other company is producing the substitute for animal blood right now and will not do it for another 2 to 5 years. 2. There is no market for blood substitutes currently. With Oxyglobin, Biopure Corporation will get an opportunity to analyse the market for blood substitutes. 3. If the product Oxyglobin is successful, it will help build a brand image for Biopure Corporation, which can then easily market its human blood substitute in future. 4. The brand image built will help the company to go for an IPO. | Threats 1. FDA has yet not given permission to begin Phase 3 for Hemopure. There is a possibility that the product is rejected outright. 2. Competitors’ human blood
substitutes, if approved, will also be launched at almost the same time as Hemopure. 3. Low price of Oxyglobin will require a justification for high price of Hemopure, which requires just an additional step of purification. |
BIOPURE Biopure Case Study Biopure Corporation Case Analysis Issues: A. How do we best market Oxyglobin? (promotion) Alternatives:
1. Go with an independent distributor with their own sales force · Pos: infrastructure already in place (database contacts, etc) · Neg: They also distribute for other manufacturers (what’s to stop them from distributing directly competitive product? · Neg: 15 minute visit per salesperson- focus is divided among all the other products they sell · Pos: They are able to set up a centralized training session for distributors (?? Time/money, etc) · Pos: Experienced salespeople- if it’s a good product, they can/will want to sell them 2. Manufacturer sells products directly · Control over sales practices · Cost of maintaining the sales force · Cost to physically distribute ($10-$15 more) per unit (should go under distribution?) 3. Use trade publications 4. Market Trade Shows (could be combined or separated) · Taken seriously by attendees · Only 5 publications, easy to advertise to · Journals are effective vehicles to communicate the product · Taken seriously by attendees (6 TS/year) B. Whether and when do we launch Oxyglobin? (Product) 1. Launch Oxyglobin first · Get immediate revenue · Will add value to the public release of company because they already have a working profitable product · There is currently a need for veterinary use (it will help save animals’ lives) · Spent almost nothing to develop Oxyglobin · Lower manuf cost, can make more for the same resources · Large capacity · Already have a C.S,, Tech team to support it · Studies on $$ and · No foreseable competition (2 years behind) · They can learn from potential mistakes · May find additional benefits · Will be good for Hemopure later on because people would already be comfortable with the idea of using a substitute
· There was already a press release from The Boston Glove in 2/5/98 · Pricing structure of Oxyglobin will make customers question Hemopure pricing structure later 2. Launch Oxyglobin after Hemopure · Won’t jeopardize Hemopure · Need will still be there · Low price will be explained explained by the application (psychological aspects) · There was already a press release from The Boston Glove in 2/5/98 · Will open room for competitors to start doing clinical trials for veterinary usage · Production infrastructure already in place · Will give available capacity to Hemopure which is more expensive · Oxyglobin release will be easier (less cost to market) because people will already be more familiar and hopefully trust the idea of a blood substitute 3. Do not launch Oxyglobin · Idle capacity not being used · Spent $200 million to make Hemopure- can’t take the chance · Spent $200 million to develop the product- get some of the up front cost first · Idea of a company with no released product- harder to sell to the public · Launching Hemopure would be the first time people will be universally exposed to the idea of substitutes · People will be hesitant to the idea if it wasn’t sufficiently tried on animals first · If people find out- they will be enraged that the launch was delayed (i.e. not be able to save lives of animals) for the sake of marketing · Press has already been informed- anticipation is out there C. How do we launch Oxyglobin without jeopardizing the potential for Hemopure (Promotion) D. How do we best distribute Oxyglobin? (Place) 1. National Distributors 2. Regional Distributors 3. Trade Shows 4. Publications E. How much should we sell Oxyglobin for given that it is similar to Hemopure? (Price) 1. $200: Higher than donor blood
2. $100: same as donor blood 3. Lower than animal blood F. When introduced, should Hemopure's price be equivalent to its competitors, or should it be reduced in consideration of the price paid of Oxyglobin? G. What promotional tools should Oxyglobin use to reach the veterinary markets? H. What promotional tools should Hemopure use to distinguish itself from its competitors? Strengths and Weaknesses Strengths Weaknesses Sales Organization already in place for Oxyglobin HR Biopure is going public in the near future Biopure is going public in the near future $200 million dollars in development (high compared to competitors) FINANCIAL The public has already been informed (Boston Globe Article) Short half life Oxyglobin and Hemoglobin are bovine sourced- more abundant and less expensive resource COST Potential for higher toxicity Already has a manufacturing facility MANUFACTURING Internal strife (sales vs VP) and discussion regarding whether of not product should be released Oxyglobin has just received final FDA Approval They have to price Oxi on the low end due to the therapeutic use Oxyglobin is shelf stable Internal arguments re: pricing (value vs therapeutic use) Oxi eliminates the shortcomings associated with transfused blood Does not have pricing data on Hemopure Oxi is the FIRST blood substitute approved for any use Product will be completely new and revolutionary, will have to spend more to educate the public Oxi has a shelf life at room temperature They already have a sales team ready, cost has already been incurred- whether they decide to scrap the project or not Universal substitute- decreasing the risk of rejection Will be going Public soon and records will be open to the public Northfield is susceptible to competitive pressure. COMPETITIVE Northfield is looking to specialize. COMPETITIVE Easily accessible and administered to dying animals Privately held firm Oxi requires less purification- thus it costs less to manufacture Has to rely on outside sources for financing FINANCIAL Conducted surveys on pricing for OxiglobinMARKETING, exhibit 9 Can only produce 300,000 of Oxyglobin Privately held firm with no debt Can only produce 100,000 of Hemopure
List advantages of Hemopure Has not conducted surveys on pricing for Hemopure MARKETING, exhibit 9 First to market position for Biopure MARKETING Struggle between Oxiglobin and Hemopure within the organization. ORGANIZATIONAL COMPETENCIES Organizational Chart - ORGANIZATIONAL COMPETENCIES Hemopure and Oxiglobin are made from animal (cow) blood. Oxiglobin and Hemopure is not made from human blood. Sales are limited by production capacity and can only manufacture one prod uct at a time. MANUFACTURING Well defined target market for animal uses. EDUCATIONAL GROUPS Durable product makes product readily available Baxter has deep pockets. COMPETITIVE Lower fixed costs than competitors Patents. IPO will increase cash for infrastructure and other expansion. Immediate revenue generation for Oxiglobin Imposing pressure of IPO may cause bad or poorly considered decisions. Just received extra $50 million in funding Organizational Chart - ORGANIZATIONAL COMPETENCIES Opportunities and Threats Opportunities Threats Human Blood Transfusions have major shortcomings FDA Approval process is long and uncertain Human blood has a limited shelf life Changes to the Sources/Development have to be resubmitted to the FDA Autologous Transfusions are expensive Human blood actually costs less Potential market exists for non-trauma cases (loss of 1-2 pints of blood) There is not a way at the moment to determine the price of keeping donor animals Potential market for trauma cases that can now be transfused on site No cost tracking of animal donor system but blood itself costs less ($50-$100) than Oxyglobin Availability and transfusion of blood is more constrained in the vet market Availability and transfusion of blood is more constrained in the vet market System in place for Veterinary Blood donation is not very efficient Veterinarians tend to always offer the “low cost” alternatives Lack of adequate blood supply for animal use Vet market is relatively small (5% are emergency care) Veterinarians consider transfusion as a last resort due to fear of complications Baxter Int and Northfield Labs Baxter and Northfield products use human blood as the source Strict FDA regulation for Human consumption products
Only one in the vet market Baxter and Northfield products use rejected human blood as the source Northfield high raw material cost ($26 for rejected blood vs Baxter’s $8) COMPETITIVE Baxter is an established leader in the field of blood related medical products Northfield and Baxter are bound to compete against each other (not against Biopure) COMPETITIVE Has a $100 million dollar facility that can produce 1 million units (more capacity than Biopure) COMPETITIVE Baxter and Northfield are susceptible to the public’s perceptions (stock fluctuations) Distributors have an established and experienced sales force Delays in the approval process for Baxter COMPETITIVE Distributors already have an established market for other products Vets are gatekeepers- educate them and the product will be used Distributors are not exclusive- they also market other competitors’ products Distributors already have an established market for other products Informing the public made them a target for competition in the vet market Raw materials readily available and stable. SUPPLIERS No formalized supply process for mass production SUPPLIERS Population increase NATURAL Lack of data on costs associated with donor puppies. ACCOUNTING Excellent PR opportunity by saving the dogs and cats that would normally have died. POLITICAL Suppliers may increase price of supplies once they realize there is a market for their product. SUPPLIERS/ECONOMIC Inelastic demand ECONOMIC PETA POLITICAL Socially responsible use of product that is normally thrown out. SOCIAL Technological advances may allow competitors to catch up. TECHNOLIGICAL Technological advances in blood storage may decrease competitor's competitor's raw materials supplies. Technological advances in blood storage may decrease demand. Increasing demand from aging population DEMOGRAPHICS, page 650 Undetermined approval date by FDA, LEGAL Northfield doesn't have a facility. COMPETITIVE. Baxter is strongest player. COMPETITIVE Baxter's R&D budget is dependent upon stock price. VARYING R&D BUDGETS Baxter has more net losses to recoup. Offer growth capability for investors. FINANCIAL MARKETS Some segments of population may oppose and refuse the use of animal (cow) products. DEMOGRAPHICS Seasonal cycles of shortage in blood supplies increases demand for this product. Negative public reaction if we decide to withhold blood substitue for animals for reasons of profit. SOCIAL Competitior products require refrigeration. TRANSPORTATION Mad cow disease. NATURAL Competitor products have shorter shelf-lifes. COMPETITION
Perpetual market demand. 5 journals to choose 6 Trade shows a year-valued source of info Immediate revenue generation for Oxiglobin
