As the saying goes, ‘it is better to lose a battle and win the war, rather than ruing the day’, a similar situation awaits Biopure. A solitary decision over a timely product launch would either allow them to capitalize on a market or lose the ‘war’ in the competitive field of blood transfusion substitutes.
The idea of using blood substitutes as a replacement for the existing traditional methods of blood transfusion stemmed from the complications associated with the acquiring, handling and storing of whole blood. Biopure Corporation was one such company which had produced two products, Oxyglobin and Hemopure, both of which were bovine derived hemoglobin products. The advantages of these products over classic blood transfusion techniques included elimination of blood typing, cross matching and refrigeration steps, higher oxygen carrying capacity, increased shelf life of 2 years along with infectious and contamination free products as an end result. In addition, Oxyglobin was approved by the FDA. Owing to the privilege of being the sole supplier of blood substitutes in the veterinary industry, it had a huge potential to monopolize the market. The lack of competitors would generate a significant amount of revenue from which they could recover the development cost and would simultaneously allow Biopure strengthen their position in the market in case Hemopure gets approved by the FDA in the near future. Due to the aforementioned salient benefits, launching Oxyglobin seems logical and at the same time, a strategic fit from the company’s standpoint. On a side note, waiting for the FDA approval of Hemopure will further delay their revenue stream generation.
To begin with, the potential of the animal market has to be analyzed along with the demands and supply of Oxyglobin in the market. Considering the scenario, there were approximately 15,000 veterinarian clinics in the US and each clinic assumed to have 800 incoming dogs (approximately) per year (Exhibit 7). Based on the calculations in Table 1, if Oxyglobin was priced at $150/unit, the market size would have been estimated at an approximate of $12 million. With the potential of market expansion, the market size would be an approximate value of $540 million. In order to justify this pricing, one had to look at the acceptance of the product by veterinarians and simultaneously, the willingness of pet owners to try the product (Table A and B, HBS case study-Biopure). Although the number of blood transfusions that occurred in 1995 were very low, 30% of those cases could have benefited from blood transfusion, i.e. could have been critical cases. However, they weren’t administered blood transfusion due to a lack of resources. Even if Oxyglobin would have been priced at $150, there were 80% and 75% chances that veterinarians and pet owners would accept the product respectively, if the animal would have been in a critical situation. Hence, there is a huge potential for Oxyglobin to generate a steady stream of revenues even after market expansion.
Now considering the market expansion, there were other supplementary factors that could influence the acceptability of Oxyglobin. Approximately, 93% of the transfused blood came from donor dogs and the remainder being from the small number of existing blood banks. Moreover, the lack of time and suitable resources for blood typing increased the recovery time and further complications, further decreasing the feasibility of blood transfusion in animals from an administrative and financial perspective, as per the veterinarians. In addition, 84% of the veterinarians were dissatisfied with the then current transfusion alternatives which served as significant barriers that influenced blood transfusion in animals. Due to this fact, veterinarians deemed it as a last resort. Furthermore, the product could also be used to treat other pets such as cats (approximately 500 potential transfusion cases in 1995 [Exhibit 7]), demonstrating the significant amount of market potential in the veterinarian industry. Therefore, presenting Oxyglobin as an alternative to the traditional donor transfusion would serve as a significant investment for Biopure, even if a fraction of the demand in the feline and canine market is met.
Apart from the above market analysis, the key factors that influenced the decision to pursue Oxyglobin’s commercial release is the FDA approval of the product along with the advantage of being a first in class molecule for the veterinarian blood transfusion market. This gave Biopure an opportunity to enter the market, which would serve as a risk mitigation strategy in case they wished to pursue Hemopure and it fails to get approval in clinical trials for the human market. If Biopure goes ahead with the launch of Oxyglobin, it gives them the chance to develop a sales force, which by the time of launch of Hemopure, would be experienced enough to compete with its current and future competitors. Due to the fact that the animal market is smaller and more price sensitive as compared to human market, if the product proves its efficiency in animals, it would have a positive impact on the company’s reputation. This success would unequivocally ensure Hemopure’s entry into the human market.
In order to justify the launch in human market, we have to consider its potential by analyzing the market size and market expansion. In the year 1995, approximately 11.3 million successful blood transfusions were accounted for. If Hemopure was sold at a reference price of $700, then it would have a market potential of approximately $7.9 billion [Table 2]. Even at full manufacturing capacity, i.e. 150,000 units and considering its market expansion potential in the infield trauma administration (500,000 potential cases) and geriatrics, Hemopure would have a greater chance of success. Although there is a tremendous potential in infield trauma cases, more than 50% of blood units are utilized in elective surgeries (exhibit 5), which are readily available in hospitals due to anonymous and autologous donations that are priced in the range from $125-225 and $275-425 respectively (exhibit 6). If given an option between a whole blood transfusion and Hemopure which is priced at approximately 5 times more than your whole blood transfusion, patients would choose the alternative that is readily available and costs less. To capture this patient population and the chronic anemia patient population, Biopure will require a strategy to capture this particular market. Furthermore, given the circumstances of its limited production capacity, the awaiting FDA approval and current industry competitors makes launch of Oxyglobin a better alternative as well as a prudent decision.
Even if Hemopure gets approved by FDA’s, it still faces strong competition by Baxter and Northfield laboratories, both of which are expecting an approval of their drug at the same time as Biopure. Baxter being a stalwart in blood and plasma products can capture a significant amount of market size, thusly reducing the sales of Hemopure units due to its strong existing sales force that was developed over time. Hence, a simultaneous launch of Hemopure and Oxyglobin increases the risk of losing a significant amount of market share. An alternative scenario would be Baxter competing with Biopure for their animal market. In this case, they will have to go through the regulatory process which will take them approximately 2 - 5 years. If Baxter goes for approval in the animal market while Biopure waits for the approval of Hemopure, there is a significant chance that Biopure will lose its monopoly in the animal market that it could have capitalized upon by an early launch of Oxyglobin. Thus, delaying Oxyglobin’s launch would not only reduce their probability of capturing human market, but also increase the competitor’s chance to enter and dominate the animal market.
In summary, although there is a huge market potential for Hemopure, factors such as the pending FDA approval, potential competitors and high product cost decreases Biopure’s chance to capture the human market. On the other hand, Oxyglobin is a FDA approved product with no competitors, thusly demonstrating a significant need in the market and thereby, a higher percentage of acceptability among veterinarians and pet owners alike. These factors demonstrate that launching Oxyglobin will serve as a good alternative until Hemopure receives approved and generate a revenue in the future to cover their development cost.
Table 1: Animal Market size
Number of clinics: 15,000
Type of care Number of Patients Total units = No. of Patients* No. of clinics (a) Price to vets ($) (b) share that required transfusion (c) Actual market size
(a*b*c) share that could have benefited from transfusion (d) total units that could be sold after expansion (a*d) Market expansion (a*d*c)
Average Primary Care 412 6,180,000 150 2.50% 23,175,000 30% 1,854,000 278,100,000
Average Emergency Care 400 6,000,000 150 2.50% 22,500,000 30% 1,800,000 270,000,000
Total units 12,180,000 3,654,000
Total market size 45,675,000 548,100,000

Table 2: Human market size
Conditions Total units Unit pricing ($) Market size
Elective surgery: anonymous donations 5,800,000 700 4,060,000,000 autologous donations 1,100,000 700 770,000,000 Emergency surgery (in hospital) 1,000,000 700 700,000,000
Trauma (In field administration) 200,000 700 140,000,000 chronic anemia 3,200,000 700 2,240,000,000 Total units 11,300,000
Total market size 7,910,000,000