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Monday, April 18, 2011

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Biopure, a biopharmaceutical company started in 184, specializes in the purification of animal and human proteins. Among other products, the company has been generating two forms of blood substitutes one for human, and another for animals. These substitutes are designed as an alternative to the use of fresh blood in transfusions. Using a blood base derived from cattle, the company purifies the blood of foreign antigens and modifies the hemoglobin proteins in the blood to improve the shelf life and improve the acceptability to the recipient. Unlike the human blood substitutes offered by its two main competitors Baxter International and Northfield Laboratories, Biopure’s Hemopure and Oxyglobin product lines can be stored without refrigeration.


Biopure was faced with the problem of devising methods of preventing its two products from indirectly and adversely affecting each other in the market, as well as compete actively and effectively with its two competitors in the human blood substitute market. Biopure’s human blood substitute offering (Hemopure) was nearing phase three of the FDA approval process when its Oxyglobin product line for animals had achieved final FDA approval. The Hemopure product was scheduled for final FDA approval in 1.


Oxyglobin, Biopure’s flag ship veterinary blood substitute, faces an open though small market for artificial animal blood substitutes. At the time of its inception, there were no active competitors and no promise of competition in the near future. Veterinarians obtained blood for animals in emergency and trauma cases through whole blood transfusion from donor animals or packaged units of blood. Estimating approximately 1,450 primary and 750 emergency veterinary practices each use an average of 17 and 150 units of packaged blood per year. With prices per unit ranging from 80 to 00 dollars per unit, the high and low market values for Oxyglobin are $70.5 million and $8.8 million respectively. Said market totals were generated assuming that Oxyglobin will eventually replace whole blood transfusions, market demand in the future is the same as in 15, no new competition in immediate future years, and Biopure has a facility capable of handling the entire demand.


Two factors in particular, may prove to expand or contract the market for Oxyglobin the willingness of veterinarians to use the product, and their eagerness to replace direct donor animal transfusion with packaged blood transfusions. Based on the results of two surveys conducted in 17, it was found that veterinarian willingness to use the product in critical cases decreased by 5, 15.8, and 5% from the last previous data point for a series of prices ranging from $50 per unit to $00 per unit in increments of $50 per unit. In contrast, pet owners themselves were much less sensitive to price. In the same study, pet owner willingness to try the product reduced by 5.6, 11.7, and 1.% based on blood unit prices of $100 to $400 in measured increments of $100. Veterinarian rejection of the product could prove to contract the market. On the other hand, if veterinarians chose to substitute the use of direct transfusion from donor animals with packaged blood units, the market would expand considerably. Assuming 85% of practices have donor animals, the total number of units used annually by primary and emergency practices would increase by 1 and 5 units. The low and high estimates of the market, assuming per unit costs ranging from $80 to $00, would increase by 77 million and 1. billion dollars respectively.


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Hemopure is Biopure’s primary focus for the future of its blood substitute product lines. It faces direct competition with human blood substitute products generated by Baxter International and Northfield Laboratories. Assuming approximately 11. million units will be used in the market and a high and low cost per unit of $800 and $600 respectively, the low and high estimates for the market are $6.78 billion and $.04 billion. These estimates were generated assuming all blood donations will eventually be replaced with packaged blood substitutes, no increases or decreases in market demand for blood units from 15, and units not transfused should not be incorporated into the unit usage total.


Biopure lacks sufficient facilities to take full advantage of the 11. million units that could possibly be sold per year. With the current facilities in place, it will be able to capture only 150,000 units per annum. Assuming fixed costs of $15 million and a cost per unit of $1.50, the cost to produce one unit of Hemopure is $101.50. Factors such as public attitude towards the use of bovine blood, low production capacity and price referencing with its sister product Oxyglobin may prove to decrease its market position.


Baxter International’s HemAssist, generated from used red blood cells (RBC’s), is the strongest competitor to Hemopure. With fixed costs of $50 million, a maximum number of units of 1 million, and cost per unit of $5.00, Baxter international can produce HemAssist for $55.00. Its recent construction of a $100 million facility and agreements with the American Red Cross may prove to strengthen its projected hold on the market.


Northfield Laboratories may command only a minor share in the future market for human blood substitutes. Based on preliminary data including a fixed cost of operation of $0 million, a maximum production capacity of 10000, and cost per unit of $7.00, the cost to produce each unit of their product PolyHeme is abnormally high at $07.00. Plans to build a $45 million facility to produce 00,000 units may drastically increase their market influence.


The success of Hemopure in the market may be directly and inversely related to the success of Biopure’s veterinary blood substitute Oxyglobin. To effectively enable usage in the veterinary market, Oxyglobin is priced much lower than Hemopure ($80-$00 vs. $600-$800). Despite the addition of a single step in the production process to remove small hemoglobin clusters for Hemopure, the difference in price may appear unwarranted to those referencing the costs of the two products. This may serve to generate a “global” drop in price of what doctors would pay for the Hemopure or any human blood substitute product. Assuming 150,000 units of Hemopure are produced for every 00,000 units of Oxyglobin, the total revenue generated by Hemopure (not considering the extra processing costs of the additional step) will be approximately half that of Oxyglobin. Additional factors such as the need to raise capital through an IPO may require that Oxyglobin enter the market before Hemopure.


Despite the possibilities of competition and price cannibalization from a sister product line, the market for Biopure’s Hemopure and Oxyglobin products looks promising. Indeed, the lessons learned from the initial release of the product Oxyglobin may provide valuable marketing information that can be used for the later Hemopure release. With market prospects of $70.5 million for Oxyglobin and $.04 billion for Hemopure, as well as a head start in the FDA approval process, the tiny company Biopure has the opportunity to make significant gains in the future when it does decide to go public.





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