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BIOPURE: Situational and Qualitative Analysis (5C): Attribute/ Factor/ Situation Biopure Corporation Baxter International Northfield Laboratories Corporation Founded in 1984, private biopharmaceutical firm specializing in ultrapurification of proteins for human and veterinary use, planning to get listed An acknowledged leader in the development, manufacture and sale of blood related medical products with over $5.4 bill in sales and $670 mil in net income in 1996 A small 45-person firm, founded in 1985, for solely developing human blood substitute Blood Substitutes Oxyglobin for animal market & Hemopure for human market HemAssist for Human Market PolyHeme for Human Market FDA Approval Oxyglobin – Approved Hemopure – Expected by late 1999 (in Phase 3 Clinical Trials) HemAssist – Expected by late 1999 or early 2000 (in Phase 3 Clinical Trials) PolyHeme - Expected by late 1999 (in Phase 3 Clinical Trials) Raw Material Cattle blood Out-dated Human Blood Out-dated Human Blood Variable cost $1.50 per unit $8 per unit $26 per unit Shelf Storage Can be stored at Room Temperature Needs Refrigeration Needs Refrigeration Manufacturin g Facility – Capacity Single Mfg. facility with annual capacity of 300,000 units of Oxyglobin or 150,000 units of Hemopure or linear combination Single $100 mill Mfg. facility with annual capacity of 1 million units Plan to build $45 mill facility with annual capacity of 300,000 units Production cost (Fixed) $15 mill per year $50 mill per year $30 mill per year Expected Pricing Oxyglobin - $100-200 Hemopure - $600 – 800 $600 – 800 $600 – 800 SWOT ANALYSIS FOR BIOPURE CORP:

Biopure Case Solution: Havard Business School case

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Oxyglobin is ready for launch. It’s the first in the animal market and has a big head-start. It can generate the first revenue for the firm which can be used to launch Hemopure and cover operations till Hemopure is launched. It will help Biopure learn the “go-to market strategy” as well. Also, there is a desire to take Biopure public and a proven success of Oxyglobin can improve the IPO. But the low pricing of Oxyglobin will jeopardise our ability to price Hemopure at a high price since the two products look very alike, a 500% price differentiation would be hard to explain.

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BIOPURE:

Situational and Qualitative Analysis (5C):Attribute/Factor/SituationBiopure CorporationBaxter InternationalNorthfield Laboratories

CorporationFounded in 1984, private biopharmaceutical firm specializing in ultrapurification of proteins for human and veterinary use, planning to get listedAn acknowledged leader in the development, manufacture and sale of blood related medical products with over $5.4 bill in sales and $670 mil in net income in 1996A small 45-person firm, founded in 1985, for solely developing human blood substitute

Blood SubstitutesOxyglobin for animal market & Hemopure for human marketHemAssist for Human MarketPolyHeme for Human Market

FDA ApprovalOxyglobin ApprovedHemopure Expected by late 1999 (in Phase 3 Clinical Trials)HemAssist Expected by late 1999 or early 2000 (in Phase 3 Clinical Trials)PolyHeme - Expected by late 1999 (in Phase 3 Clinical Trials)

Raw MaterialCattle bloodOut-dated Human BloodOut-dated Human Blood

Variable cost$1.50 per unit$8 per unit$26 per unit

Shelf StorageCan be stored at Room TemperatureNeeds RefrigerationNeeds Refrigeration

Manufacturing Facility CapacitySingle Mfg. facility with annual capacity of 300,000 units of Oxyglobin or 150,000 units of Hemopure or linear combinationSingle $100 mill Mfg. facility with annual capacity of 1 million unitsPlan to build $45 mill facility with annual capacity of 300,000 units

Production cost (Fixed)$15 mill per year$50 mill per year$30 mill per year

Expected PricingOxyglobin - $100-200Hemopure - $600 800$600 800$600 800

SWOT ANALYSIS FOR BIOPURE CORP:

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?

Complication: Oxyglobin is ready for launch. Its the first in the animal market and has a big head-start. It can generate the first revenue for the firm which can be used to launch Hemopure and cover operations till Hemopure is launched. It will help Biopure learn the go-to market strategy as well. Also, there is a desire to take Biopure public and a proven success of Oxyglobin can improve the IPO. But the low pricing of Oxyglobin will jeopardise our ability to price Hemopure at a high price since the two products look very alike, a 500% price differentiation would be hard to explain.Quantitative Analysis: Assuming a worst case scenario i.e. the market is not growing at allRevenue AnalysisCase ICase IICase III

Sale Price ($) 100 150 200

Capacity Veterinary per year300,000300,000300,000

Non-Critical MarketMarket Size (in Units of Blood) 242,250 242,250 242,250

Oxy Adoption70%25%5%

Sales Potential 1169,57560,56312,113

Oxy Revenue Potential 2 ($) 16,957,500 9,084,375 2,422,500

Critical MarketMarket Size (in Units of Blood) 112,500 112,500 112,500

Oxy Adoption95%80%60%

Sales Potential 1106,87590,000

Oxy Revenue Potential 2 ($) 10,687,500 13,500,000 13,500,000

TotalTotal Sales Potential276,450150,56379,613

Total Oxy Revenue Potential ($) 27,645,000 22,584,375 15,922,500

Revenue Constraint based on production capacity 30,000,000 45,000,000 60,000,000

Production Fixed Cost ($)15,000,000

Variable Cost per unit ($)1.50

Total Units276,450150,56279,612

Total Variable Cost 3 ($)414,675 225,844 119,419

Total Production Cost

Distributor Price ($)30.0 45.0 60.0

Channel ($) 15.0 15.0 15.0

Total Marketing Cost 4 ($) 4,146,750 2,258,438 1,194,188

Total Cost ($)19,561,425 17,484,281 16,313,606

Profit8,083,575 5,100,094 (391,106)

Break Even Sales218,978144,928108,303

Break even sales as a percentage of sales potential72.99%48.30%36.10%

1. Sales Potential = Market Size X Adoption2. Revenue Potential = Sales Potential X Sale Price3. Total Variable Cost = Variable Cost/Unit X Total Units4. Total Marketing Cost = Minimum price (Distributor Price, Channel Price)/unit X Total Units

Recommendations:We should launch Oxyglobin in now for the following reasons1. We will have big headstart and therefore a lot of chances to grab the existing market and grow the market2. It will recover the fixed costs i.e. investment in production facilities etc.3. In case, we take Biopure public, it will help improve the IPO of the firm Also, we will not be jeopardising the Hemopure market :1. It will help understand the market strategy for Hemopure2. It can generate revenues we could use to launch 3. We are pricing Oxyglobin higher to cover the gap4. We will price Hemopure a lower, because we have lower per unit raw material cost5. We can also negotiate a deal with insurance providers, in which case this would not be an out of pocket expense and therefore patient/doctor wont be affectedPlace : We should also use manufacturers sales force because because a. it requires a very sophisticated sales pitchb. if the pricing is more than 50$/unit, this channel would be relatively cheaperPrice : We recommend a price of 150$. Although profits are more in 100$, the difference in profits from 150$ is not significant, we do not want to compromise the positioning of Hemopure in future. Although we expect the FDA approval to come through, in case it doesnt, we can always slash the market prices, to increase adoption anytime we want to. Also, since the calculations are done for market size in worst case scenario, the market size would improve and profits would too. Because the presence of blood substitute would satisfy the demand that was not satisfied earlier due to scarcity.

Promotion: For veterinarians, 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, because they can influence the vets for the artificial blood transfusionOther recommendation:1. Hemopure should be launched towards the lower end of price, say around 600$, a. because of tough market competition, b. explaining a big price difference from Oxyglobin would be difficult2. Production capacity should be increased, because even though our raw material cost is very low compared to competitors, our variable costs are still high because of a very high per unit production costVariable CostsBiopureBaxterNorthfield

Raw material Cost1.58.026.0

Production Cost*100.050.096.8

Marketing Cost**15.015.015.0

Cost/unit116.573.0137.8

*Assuming the production at full capacity**Assuming same across firms