Biopure Corporation - Blood Sustitute Decision

BIOPURE CORPORATION - BLOOD SUSTITUTE DECISION

By: Rob Campbell, John Nicolaus, Satya Rao and Jim Zinski

Introduction:

We have reviewed the available information regarding the blood substitute market opportunities facing Biopure.

Based on this review, an analysis of the data, the likelihood of competition, the willingness of each customer to pay

for blood substitutes, the current high-profile product failures, and the desire (by the stakeholders of Biopure) to take

the company public (IPO), we recommend that Biopure go to market immediately with their animal blood substitute:

Oxyglobin. For Oxyglobin to be profitable and in the best interest of the IPO, we propose several key

recommendations and urge Biopure's management to begin steps for immediate implementation.

Recommendations:

* Pricing: Biopure should price their approved animal blood substitute at $400 per unit. Once Biopure secures

phase 3 FDA approval, they should plan to price their human blood substitute at $600 per unit.

* Market & Product Segmentation: We recommend Biopure to focus its sales efforts on the larger primary care

and emergency care practices that handle the majority of surgeries and trauma cases. These potential customers

use, by far, the most blood, and are the most likely to reap much greater revenues (and profits). For the human

blood substitute market, we recommend targeting the emergency care providers with a need for field

administration, such as ambulance providers and paramedics.

* Manufacturing Capacity: Biopure must take steps to increase its capacity pending the results of the first year

sales of Oxyglobin. Once Biopure is confident they will receive FDA approval to market a human blood

substitute, they should increase their capacity to satisfy the field administration segment. Biopure should also

assess the viability and cost of increasing its capacity to sell greater quantities at lower prices in the future.

* Continued Human Blood Substitute Research: We recommend Biopure continue to develop Hemopure, their

human blood substitute and continue to develop marketing strategies that allow them to demonstrate the additional

purity and process steps required to create a higher willingness to pay among human blood substitute buyers.

Basis for Recommendations:

* Pricing: The price for Oxyglobin at $400 per unit is based on: a) the economic value to the customer analysis

(see Appendix 1) establishing value to the larger primary care veterinarians and the emergency care veterinarians,

and b) the willingness to pay surveys done by Biopure which surveyed both veterinarians and pet owners.

The price for Hemopure at $600 per unit based on: a) current market estimates regarding competitive selling

price, and b) Hemopure will be the only product in the market that does not require refrigeration or freezing for

storage. This provides a significant advantage to the field administration segment that we believe will command

20% premium over Baxter's selling price (see Appx. 2 for demand and price analysis).

* Market & Product Segmentation: To persuade vets to overcome their aversion to the price, we must offer a

combination of samples, trial inventory and new product discounts. Once the market demand at $400 is proven,

the potential profits to the vet offices will increase their willingness to pay (see Appx. 1 for Vet Profits and

demand summary). Currently, there is enough human blood donated to meet the demand. However, there is a

greater need for blood (or a blood substitute) at the scene of traumatic situations. It is estimated that field

administration may represent a minimum of 210,000 units each year.

* Manufacturing Capacity: Currently, Biopure has the capacity to produce 300,000 units of Oxyglobin or 150,000

units of Hemopure. Increasing capacity will allow Biopure to reduce its unit costs and benefit from high margins.

* Continued Human Blood Substitute Research: The human blood substitute market is potentially very

significant. As the median age increases and a greater percentage of our population becomes blood recipients

rather than blood donors, there will be an increased demand for blood and blood substitutes.

Assumptions & Uncertainty:

Consumers in our target segments may not appreciate the value we see in our blood substitute products. In the

Oxyglobin market, we may be unable to convince the veterinarians that acting as "gatekeepers" is just hurting their

own bottom-line. Given that most of the consumers feel that the regular blood bank supply is for the most part safe

and sufficient AND cheaper, we may be unable to convince many of the trauma centers (who are already watching

their HMO managed margins shrink) to switch over to our more expensive product

Action Steps:

It is imperative that Biopure quickly market its animal blood substitute product and capitalize on its first mover

advantage. As part of this initiative, they should confirm the economic value added to the target veterinarians and

pet owners.

APPENDIX

...