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

Current Usage
Emergency Surgery 1,000,000

Change
*1.084
*1.14
Change
*.5

Potential Usage

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

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)

Change

(2000)
Under 65
Over 65

300,000
200,000

*1.084
*1.14

Elective Surgery

Current Usage
6,900,000

Change
*.05

Potential Usage

325,200
228,000
Potential Usage
345,000

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)

Change

(2000)
Under 65
Over 65

207,000
138,000

*1.084
*1.14

Chronic Anemia

Current Usage
3,200,000

Change
*0

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:

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

Potential precompetition Market

Units (in 000's)
$0
$382
$0
$553
$1,500
$2,213
$4,648

Biopure

Baxter

Northfield

NO
NO
NO
NO
YES

YES
NO
YES
YES
NO

YES
NO
YES
YES
NO

Revised
Potential
Market

$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

Critical
90%
8.3%
317,998

Noncritical
60%
91.7%
2,342,201

Total

2,660,199

$266,019,900

At $200 per unit:

Owner willingness
Percentage of cases
Potential recipients

Critical
85%
8.3%
300,331

Noncritical

Total

40%
91.7%
1,561,468

Critical
75%
8.3%
264,998

Noncritical
Total
35%
91.7%
1,366,284
1,631,282
$489,384,600

Critical
65%
8.3%
229,665

Noncritical
Total
30%
91.7%
1,171,101
1,400,766
$560,306,400

1,861,799

$372,359,800

At $300 per unit:

Owner willingness
Percentage of cases
Potential recipients
At $400 per unit:
Owner willingness
Percentage of cases
Potential recipients

(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%.)