Blood Transfusion

BIOPURE INDUSTRIESA Marketing Analysis Based on the data from the case study by Jonn Gourville, Biopure Corporation , HBS, 1998April 20, 2005By Veronica Stepanova Executive  Summary†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 2 Situation AnalysisI. Human  Market†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 3II. Animal  Market†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. 5 Marketing Plan  for oxyglobin†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢ € ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. 6 Final  decision†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 7 Appendix 1 A (Excel documents, separate attachment) Appendix 1 B Executive Summary Many opportunities are available in the human blood market due to several disadvantages of thecurrently available alternatives. Even more opportunities exist in the  animal blood market. †¢Oxyglobin should be positioned as a high-quality product designed for middle- to upper-classbudgets. †¢The price for Oxyglobin should be about $200 for the consumer and around $100 for the supplier(animal hospital) to account for distribution markups and other  carrying costs. †¢Distribution should be oriented in the regional  vicinity of the operation and implement largerclinics.In addition, only emergency clinics are to be targeted. Current opportunities are favorable for Oxyglobin’s launch. Situation Analysis I. Human blood market. †¢Patients with acute blood loss from  trauma  and surgery – 40% individuals aged 65+. †¢Chronic anemia  patients (any age) – 1. 5 million for the year 1995. †¢Blood loss, resulting from trauma (e. g. car accident) and exceeding 2-3 units (1 unit = 10% of  total blood content of human body) needs immediate  blood transfusion. †¢Price is largely cost-based (storage, implementation) – blood donation is free.Existing options. †¢Red  blood cells  and their components (hemoglobin, platelets, and plasma) are  collected viadonations, organized by blood collection centers and  then transfused into patients. †¢Current options allow for storage for 6  weeks in refrigerated conditions, consequently disposed of  if unused. Hemoglobin uses oxygen-carrying efficiency by 50% if not used  within the first few weeks. †¢Blood transfusion is subject to blood typing (A, B,  AB, O, positive, negative) andreception/rejection by the body. Incorrect matching may be fatal  for the patient. Infection risks slow down the process of  testing blood prior to its use and are  greater if blood isnot separated into components. Infections include the risks of AIDS, hepatitis B,  and contamination. †¢Blood transfusion is available on-site only (hospital or emergency room); as a  result, 30% traumapatients die prior to operation. †¢Blood supply is lower than demand, especially during peak periods (summer  months and winterholidays, during which car and other travel increases ? fewer donors and more patients). Blood substitutes. †¢3 companies in final stages awaiting FDA  approval (clinical testing). Entrance into market is difficult (all current processes patented) and  time-consuming – may takeup to 17 years (See case Exhibit 3). Potential to replace current blood drawing process by  component separation and purification, aswell as chemical modification and stabilization of hemoglobin. Reduced risk of contamination and increased storage capability of 2 years. Added benefits for patients with constricted or restricted blood vessels (smaller size improvedaccessibility to organs). Possibility of adapting animal blood cells for use in  humans. Risk of toxicity and body rejection (sped up  excretion). Competitors/industry players .A. Baxter &  Northfield Laboratories. †¢Both rely on human blood supply to  derive hemoglobin. †¢Red blood cells obtained from expired banks. †¢Require refrigeration. Baxter: †¢Leader in development and manufacturing of blood-oriented medical equipment. †¢Large facility – production capacity of 1 million units/year, spent $250  million on R&D. †¢Product – HemAssist – to be  priced between $600-$800. Northfield: †¢ Small facility –  10,000-unit production capability but possible expansion into  300,000 units/year. Focus on single product (PolyHeme), $70 million spent on development. B. Biopure Corporation. †¢Specializes in protein purification for pharmaceutical use. †¢Hemopure 2 years away from final approval. †¢Derived from the blood of cattle. †¢Production capacity of 150,000 but  possible production limitations due to expected concurrentusage of production equipment for animal version. †¢Need for removal of  hemoglobin clusters from product? excess process in  production ability. †¢Cost for Biopure at $1. 50 per unit of animal blood, but plan to match Baxter’s price for finalconsumer product.II. Animal blood market. †¢Mainly cats (35%) and dogs (50%). †¢800 dogs were brought to emergency  treatment due to acute blood loss in 1995,  2. 5% severe. Existing options. †¢15,000 veterinary clinics. †¢5% of vet clinics p erform emergency care, with a 75% referral rate from primary care  clinics. †¢Current blood banks insufficient, demand greatly exceeds supply: 2. 5 out of 30  cases treated. †¢93% blood drawn from donor animals (78%  in emergencies) – an ethically questionable practice. †¢150 units of blood transfused per emergency care, 17 per  primary care center (Appendix A). No effective blood typing or cross-matching systems. †¢Blood collection, storage, and transfusion too costly for proper operation. †¢Current cost of clinical care  to animal owners relatively high, undesirable. ? 84% doctor dissatisfaction with current alternatives. Blood substitutes. †¢Biopure’s Oxyglobin currently the only existing  FDA-approved substitute ready for launch. †¢No evident chemical difference in the  production process between animal and human supplement. †¢Animal supplement approved sooner than human equivalent due to less-strict regulations in theanimal consumer market. Production capacity of 300,000 units, $200 million spent on development (combined withHemopure) Marketing Plan for OxyglobinPositioning strategy. Most animal owners (enthusiasts) can be  assumed to be within the middle to  upperincome class, based on the extraneous costs of owning an animal (refer to case Exhibit 8 for a summary of  average costs of keeping a  pet). However, many consumers proved to be  price-conscious about spendingadditional funds on optional services (this will be analyzed further in the  pricing strategy); therefore, nopremium strategy should be used.The product should be positioned as  a high-quality supplement forblood transfusion, available to (affordable by) most animal owners. Pricing strategy. As cited, animal  owners expect to spend limited amounts of money on  animal care; thisis slightly different for emergency situations, where customers are willing to spend more,  as demonstratedby the survey results (Exhibit 8; Table B). The typical cost of a  blood transfusion to the customer iscurrently $100 for the traditional method; however, this price was  said to have been cost-unjustified.Still,veterinarians were cited as the  trusted source for determining a patient’s treatment selection, which putspressure on the new substitute segment to set  a competitive price standard. While profit margins mayprove higher on a higher-priced item, the  product’s sensitivity to reputation for being a supposedlyâ€Å"better, cheaper alternative† to currently available options, which would satisfy the currently largely-unfulfilled demand for blood transfusion, would pressure Biopure to price its Oxyglobin according tocustomer expectations (See â€Å"Existing options†, page 5 of this report).Those expectations, as  we can seefrom the attached appendix (Appendix 1 A and B), are that the price to the consumer be about $200 ($100to the veterinarian – keeping the  50% markup), which would give the company the largest  marginal gainin revenues (higher prices are actually marginal  losses! ), while still retaining the major demand (weconsider emergency care centers more important here,  since they have, proportionally, a much largerdemand than primary care centers).In terms of the  price difference between Oxyglobin and its competitorin the human segment, Baxter, the latter spent $50 million more on R&D than Biopure, so the pricepremium on Baxter can be  justified by higher costs; in addition, Biopure’s per-unit costs are significantlysmaller because it uses cattle blood. In addition, Biopure may price Hemopure slightly higher because of  the extra processing that goes into making it,  as well as the variation in  the segment and target audience(people are willing to spend more on  themselves than on animals). Distribution.Biopure should only target emergency care  practices. Although those only make up 5% of  the overall industry, 75% primary care specialists will refer  an acute blood loss case (such as a trauma)  toone of these centers. Furthermore, Biopure should target large practices (3+ doctors) through regionaldistributors, both of which account for the largest sales in  the industry. Considering the limited volume of  supplies Biopure is going to have, a  national distribution may not be desirable right away, until thecompany at least increases its production capabilities.A regional distributor would be local enough tounderstand the specific needs of its market (e. g. , New England), and a larger vet practice could provemore efficient (and less costly) in  terms of the availability of materials and  the reduction of transfers,thereby also reducing the consumer’s costs and increasing the rate  of success by providing a quicker  service (in other words, it would have more  cases, but more doctors available to  help overall, fewercases per doctor †“ see Exhibit 7).Of course, the drawback is that a large clinic would not be as personal. The 1 million dollar question: Should Oxyglobin be launched? – Yes. †¢Launching early allows for an audience test:? Achieve acclaim/recognition for a break-through discovery that is beneficial because it-Fulfills an unsatisfied/dissatisfied need (better quality blood  transfusion, availability);-Reduces costs to both suppliers and consumers.? Easier entry into secondary (human) market –  Ã¢â‚¬Å"tested on animals† – more trusted  than untestedcompetitors.?Potential to utilize production to full potential (instead of splitting up with Hemopure); later on, dividebased on larger per-unit profit (and  not necessarily the stated 150:300 ratio).? If fails or doesn’t test well: – Would aid in the decision about improving current human version (complete discontinuation notan option due to  the immense initial investment in R&D);- Reduce the shock of having to change both formulas (processes) simultaneously – longer timespan gives better flexibility and more time for testing and improvement – less drastic. Hemopure and Oxyglobin,  although similar in purposes, are meant for two completelydifferent segments; they should not be compared based on price because price expectations aredifferent for humans than they are  for animal needs; the demand for Oxyglobin  is clear andsignificant, while the demand for the same product in the human market is questionable. Therefore, stick with Oxyglobin – which already has the approval – and launch it.