BIOPURE CORPORATION

Pricing of Oxyglobin

5th December 2018

 Context
Biopure has developed two blood substitute
products :
1. Oxyglobin for the veterinary market
2. Hemopure for the human market
Oxyglobin has the FDA approval, whereas the
approval for
Hemopure is at least two years away

1/3
 Context
According to Ted Jacobs,

• the veterinary market is small and price sensitive,

and Biopure would be lucky to get $150 per unit.

• the human market is many times larger and

price points of $600 to $800 per unit were
realistically achievable.

2/3
 Context
Because the two products were almost identical in
physical properties and appearance, it was feared
that

Oxyglobin will create an unacceptably

low price expectation for Hemopure.

3/3
 Problem
Pricing of Oxyglobin

ensuring that its price does not

create an unacceptably

low price expectation for Hemopure

How would you price
Oxyglobin???
Which Pricing Method
would you use???
Reference Prices for Oxyglobin
1. Price of animal blood obtained from banks

Price to
Vet Pet Owner
Primary care practice $50 – 100 $ 80 – 120
Emergency care practice $50 – 100 $130 – 170

2. Price of human blood for transfusion

Average cost of donated RBCs ($125 to 225) $175
Average cost of autologous RBC ($275 to 425) $350
 Cost of Goods
Annual capacity Units 3,00,000
Overall production costs per year $ 1,50,00,000
Cost of bovine blood per unit $ 1.50
Cost of physical distribution per unit
$ 10 to 15 say, $ 12.50

Cost per unit of Oxyglobin

$ 1,50,00,000 + 1.50 + 12.50 $ 64.00

3,00,000
* Presuming no amortization of the development costs of $200m for Hemopure
 Pricing Methods
1. Markup Pricing

Price = Unit cost

(1 – desired return on sales)

2. Target Return Pricing

Price = Unit cost + (desired return X Investment)

Unit sales
1/2
 Pricing Methods

3. Going rate pricing

The firm bases its price largely on competitors’ price

4. Perceived Value Pricing

Putting a price tag to each benefit bundled in the
product

2/2
 Alternatives :
Pricing of Oxyglobin
1. Price low (e.g. $100) in response to high price
sensitivity of the broad market

2. Price high (e.g. $200), in response to the lower

price sensitivity in the emergency care market

3. Price very high (e.g. $400) so as to limit sales to

all but the most price insensitive customers and, in
the process, eliminate any lingering fears of
negatively impacting Hemopure.
 Recommendations of the
Price Sensitive Proponents

Oxyglobin to be priced at $80 - $100/unit

Because :
• The vet market is price sensitive
• Few pet owners carried health insurance
• Avg. cost of a visit to a vet was $60
• ‘Doubling rule’ brought the price to the
end user to $160 to $200per unit
 Recommendations of the
Premium Price Proponents
Oxyglobin to be priced up to $200/unit because :

• Cost of a visit to an emergency could easily run

from $200 to over $1000

• The many advantages of Oxyglobin relative to

donated animal blood
 Recommendations of the
Premium Price Proponents
Oxyglobin to be priced up to $200/unit because :

• Doubt whether the vets would blindly apply the

‘doubling rule’ without regard for the high dollar
contribution

• At a low price, Biopure could never hope to

recoup the massive cost of product development.
 Results of the
Veterinarian Survey
Table A

% Veterinarians
Price to who would try the Product
Veterinarian
Non Critical cases Critical cases

$ 50 per unit 95% 100%

$100 per unit 70% 95%
$150 per unit 25% 80%
$200 per unit 5% 60%
 Results of the
Owner Survey
Table B

% of Pet Owners
Price to Pet who would try the Product
Owner
Non Critical cases Critical cases

$100 per unit 60% 90%

$200 per unit 40% 85%
$300 per unit 35% 75%
$400 per unit 30% 65%
Analysis of Tables A & B Data

Price to % Who Would Try the Product

Noncritical Cases Critical Cases
Pet
Vets Pet Pet
Owner Vets Vets
Owner Owner
$ 50/unit $100/unit 95% 60% 100% 90%
$100/unit $200/unit 70% 40% 95% 85%
$150/unit $300/unit 25% 35% 80% 75%
$200/unit $400/unit 5% 30% 60% 65%
Analysis of Tables A & B Data

Price to % Who Would Trial Product

Noncritical Cases Critical Cases
Pet
Vets Pet Pet
Owner Vets Vets
Owner Owner
$ 50/unit $100/unit 95% 60% 100% 90%
$100/unit $200/unit 70% 40% 95% 85%
$150/unit $300/unit 25% 35% 80% 75%
$200/unit $400/unit 5% 30% 60% 65%
Analysis of Tables A & B Data

Price to % Who Would Trial Product

Noncritical Cases Critical Cases
Pet
Vets Pet Pet
Owner Vets Vets
Owner Owner
$ 50/unit $100/unit 95% 60% 100% 90%
$100/unit $200/unit 70% 40% 95% 85%
$150/unit $300/unit 25% 35% 80% 75%
$200/unit $400/unit 5% 30% 60% 65%
What price should
Oxyglobin
be marketed???
 Would the price of Oxyglobin
impact the price of Hemopure???
This would be dependent on :
1. Relative size of the markets for human
and animal blood substitutes
2. Price sensitivity of the segments targeted
3. Scarcity of blood available for transfusion
4. …………….
5. ……………..
 You may like to first consider
whether the
anticipated demand for Hemopure
is as large as being made out by
Ted Jacobs
 Blood Substitutes Market
Veterinary Blood Market
Blood Substitutes
Market
Human Blood Market

Chronic Anemia

Acute Blood Loss

Trauma Cases
 Who were the
recipients of human
blood transfusion in
1995???
• 1.5 million patients of chronic anemia
• 2.5 million patients who suffered from acute
blood loss
 Size of the Market for
Human Blood Substitutes - 1995
14 million units of RBC donated in 1995
Units
1.5 patients of chronic anemia 3.2 m
2.5 patients who suffered from acute blood loss 8.1 m
Discarded due to contamination or expiration 2.7 m

TOTAL 14.0 m
(Source : Human blood demand, pg. 4)
 Size of the Market for
Human Blood Substitutes - 1995
14 million units of RBC donated in 1995

Units
1.5 patients of chronic anemia 3.2 m

2.5 patients who suffered from acute blood loss 8.1 m

TOTAL 11.3 m
Potential Market for Human Blood
Substitutes - 1995
Units required in 1995 Units

Patients of anemia 3.2 m

Potential Market for Human Blood
Substitutes - 1995
Units required in 1995 Units

Patients of anemia 3.2 m

Acute blood loss cases 8.1 m
If 90% of 500000 trauma cases are
transfused in the field @ 4 units
additional requirement is 1.8 m
Potential Market for Human Blood
Substitutes - 1995
Units required in 1995 Units

Patients of anemia 3.2 m

Acute blood loss cases 8.1 m
If 90% of 500000 trauma cases are
transfused in the field @ 4 units
additional requirement is 1.8 m
Transfusion for borderline cases, 1 m
@ 1.5 units per patient 1.5 m
Total Potential 14.6 m
Potential Market for Human Blood
Substitutes - 1995
Units required in 1995 Units

Patients of anemia 3.2 m

Acute blood loss cases 8.1 m
If
Bull Crap
90% of 500000 trauma cases are
transfused in the field @ 4 units
additional requirement is 1.8 m
Transfusion for borderline cases, 1 m
@ 1.5 units per patient 1.5 m
Total Potential 14.6 m
 Market for Human Blood
Substitutes - 1995
Units
Acute blood loss cases 8.1 m
If 90% of 500000 trauma cases are
transfused in the field @ 4 units
additional requirement is 1.8 m
Transfusion for borderline cases,
1 m @ 1.5 units per patient 1.5 m
Total Potential 11.4 m
@ US$ 700 per unit, valued at US $ 7.98 bln
Note : Hemopure with a short half life is unsuitable for anemic patients
Transfusion of Animal Blood - 1995
Small veterinary practices in US 15,000
Of which,

Primary care centers 95% 14,250

Emergency centers 5% 750
Volume of blood transfused/year

Primary care centers @ 17 units 242,250

Emergency care center @ 150 units 112,500
Total units transfused in 1995 354,750

Dollar value if Oxyglobin transfused @ US $ 150/unit 53.21 m

Potential for Oxyglobin – 1995…1/2
No. of veterinary practices 15,000

Dogs/yr/practice – acute blood loss 800

% of dogs who receive transfusion 2.5%

Dogs who receive transfusion 300,000

Potential for Oxyglobin – 1995 …2/2

Actual
at 2.5% dogs transfused
(300,000 dogs) 354,750 units
Potential
at 30% dogs which need
transfusion (30% ÷ 2.5%) 4,257,000 units

@ US $ 150/unit valued at US $ 638.50 m

i.e., 0.64 bln
 Market Potential for :
US $

Animal blood substitute, Oxyglobin 638.50 m

i.e., 0. 64 bln

Human blood substitute, Hemopure 7.98 bln

How correct is this???

 Reference Prices for
Hemopure
The reference prices for Hemopure are :

a. Blood from voluntary donors @ $125 to 225/unit

b. Autologous donors @ $275 to 425/unit

c. The price of alternatives @ $600 to 800/unit

d. The emergency situation of trauma patients in the

field, in which case there is an insensitivity to
price
 Price Sensitivity of Recipients of
Human Blood Substitutes
Blood substitutes priced at US $ 600 to 800 will
be expensive and may be unacceptable in the
case of planned surgeries. The acute blood
loss patients could still rely on donor
transfusions.

Donated blood is
• inexpensive, and
• relatively safe with little chance of infection (1
in 500,000 chances of AIDS)
 Potential Market for Hemopure

The only certain users of Hemopure

are the TRAUMA CASES

The size of this market is 2 m units*

And, this market is not price sensitive!!!

 Competitor Analysis
Human Blood Market
1. Baxter and Northfield have entered Phase 3 trials

2. Baxter is acknowledged as the leader in blood

related medical products – expected to assume
market leadership

3. Baxter and Northfield are human sourced whereas

Biopure is bovine sourced

4. Baxter has installed a facility for 1m units/yr

Northfield plans a capacity of 300,000units

 Would the price of Oxyglobin
impact the price of Hemopure???
This would be dependent on :
1. Relative size of the markets for human
and animal blood substitutes
2. Price sensitivity of the segments targeted
3. Scarcity of blood available for transfusion
4. …………….
5. ……………..
 The price of Oxyglobin
will have minimal impact on
the price of Hemopure
1. For most recipients of human blood transfusion,
the most pertinent reference price will be that of
donated human blood - $175 approx.
2. For risk averse blood recipients, the more
appropriate benchmark will be autologous blood
priced at $350 approx.
3. For trauma victims, there is no alternative to
Hemopure. The risk of death blunts the price
sensitivity.
THAT’S ALL FOR
TODAY!!!