Biopure Market Potential Exercise Suggested Solution

Question 1) How would you revise the market potential for Hemopure? The best four-segment solution to the usage problem includes these categories: elective surgery; emergency surgery; in field trauma; and chronic anemia. Trauma (in field) Current Usage 200,000 Change *10 Potential Usage 2,000,000

Currently only 10% of trauma cases get blood transfusions in the field. With better storage potential and no need for blood typing this could be increased to 100% (a factor of 10!). This is the potential usage in 1995. In order to project the numbers forward to 2000 (the date of product release), we must estimate population growth. The elderly population (65 and older), which currently receives 40% of all acute blood loss transfusions, is expected to double by 2030. Assuming linear growth, we can expect this age group to grow 14% by 2000. Similarly, the remaining adult population (under 65), which currently receives 60% of all acute blood loss transfusions, is expected to grow 5.9% by 2030 ((6 5.67) / 5.67 = 5.9%). 1995 2030 # over 65 x 2x # under 65 5.67x (85% / 15% = 5.67) 3 * 2x (75% / 25% = 3)

Assuming linear growth, we expect this age group to grow .84% by 2000. The revised estimates of usage for the year 2000 are as follows: Potential usage (1995) (2000) Under 65 Over 65 1,200,000 800,000 *1.084 *1.14 Change *.5 Change Potential Usage

1,300,800 912,000 Potential Usage 500,000

Current Usage Emergency Surgery 1,000,000

Due to the fact that many more units will be used in the field, the usage in this category will decline. On the other hand, many more of the trauma victims will survive increasing probability of having emergency surgery. We estimate that the net of those two changes will mean a 50% decline in potential.

Revised estimates of usage for the year 2000 are as follows: Potential usage (1995) (2000) Under 65 Over 65 300,000 200,000 Current Usage 6,900,000 *1.084 *1.14 Change *.05 Change Potential Usage

325,200 228,000 Potential Usage 345,000

Elective Surgery

Evaluating the attractiveness of the Biopure offer compared to that of the generic human RBC competitor is essential to appropriately forecasting demand in the elective surgery segment. A simple analysis of the benefits demanded by elective surgery, the benefits provided by human RBCs, and the benefits provided by Hemopure would lead one to conclude that Hemopure is poorly suited to elective surgery. In particular, donated human blood is: Well entrenched and widely-accepted in modern medicine, Readily available through a well-established network of blood collection groups Relatively inexpensive, at $125-$225 per unit (vs. the proposed $600-$800 for Hemopure) Relatively safe, with little chance of infection (e.g., 1 in 5,000,000 chance of AIDS).

Consequently, Hemopure is probably only appropriate for applications where donated blood is not readily available and where the loss of blood is life threatening. Elective surgery certainly does not fall into this category. Revised estimates of usage for the year 2000 are as follows: Potential usage (1995) (2000) Under 65 Over 65 Chronic Anemia 207,000 138,000 Current Usage 3,200,000 *1.084 *1.14 Change *0 Change Potential Usage

224,388 157,320 Potential Usage 0

Hemopure is ill-suited for chronic anemia applications because of the short half-life, potential for toxicity, and very high price (would you/your HMO want to spend $600$800 per unit for the rest of you life if you were afflicted with this condition?). Finally, there are 1 million borderline transfusion surgeries each year, where doctors avoid transfusions for fear of disease transmission or negative reaction. Hemopure could eliminate these fears, resulting in an additional potential of 1.5 million units.

Grand total: 4.65 million units Question 2) Given Baxter and Northfields relative strength in the market, to what would you revise the forecast? Baxters Hemassist and Northfields PolyHeme would both take market-share when they are introduced. Both of these products are made with human blood, which may prove an advantage. In addition, Baxters history of product success may make it a formidable competitor. The best responses to this question account for the relative strength of the competing organizations and offers. Here is a suggested solution: Biopures real competitive advantages are its shelf life and storage requirements. Baxter and Northfields products, since they are made with human blood, do not have these advantages. Therefore, while Baxter and Northfield will probably take the emergency and elective surgery segments, Biopure can be expected to win the trauma segment. Our market potential is therefore 2,212,800 units. At $600.00 per unit our market potential is $1.33 billion. A table such as follows could help with this:
Potential precompetition Market Units (in 000's) $0 $382 $0 $553 $1,500 $2,213 $4,648 Revised Potential Market

Biopure

Baxter

Northfield

Anemia transfusions Elective surgery patients Anonymous donated Autologous donated Emergency surgery patients Borderline transfusion cases Trauma Field administration

NO NO NO NO YES

YES NO YES YES NO

YES NO YES YES NO

$2,213 $2,213

Note that answers that rely strictly on production capacity ignore the likelihood that forward-looking organizations will choose to invest in additional production facilities if demand, which can be profitably served, is believed to exist. Supply is not an unreasonable way to look at satisfying demand, but alone does not answer the DEMAND or potential question.

Question 3) Current usage of blood transfusions= 5% of 15,000 vets use average of 150 units/year .05*15,000*150=112,500 95% of 15,000 vets use average of 17 units/year .95*15,000*17=242,250 Total current usage = 354,750 In calculation of potential market it is important to note that 2.5% of animals treated get transfusions while 30% could have benefited from them. Assuming 2.5% is built into the current usage numbers: 354,750 * .3/.025 = 4,257,000 potential market in units At $100 per unit: Owner willingness Percentage of cases Potential recipients At $200 per unit: Owner willingness Percentage of cases Potential recipients At $300 per unit: Owner willingness Percentage of cases Potential recipients At $400 per unit: Owner willingness Percentage of cases Potential recipients Critical 65% 8.3% 229,665 Noncritical Total 30% 91.7% 1,171,101 1,400,766 $560,306,400 Critical 75% 8.3% 264,998 Noncritical Total 35% 91.7% 1,366,284 1,631,282 $489,384,600 Critical 85% 8.3% 300,331 Noncritical 40% 91.7% 1,561,468 Total $372,359,800 Critical 90% 8.3% 317,998 Noncritical 60% 91.7% 2,342,201 Total $266,019,900

2,660,199

1,861,799

(Note: The 8.3% of cases that are considered critical comes from the original 2.5% of cases that actually received transfusions 2.5% / 30% = 8.3%.)