Biopure HBS case write up

Essay by andersonUniversity, Master'sA+, March 2004

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What price and Why?

To assess what price Oxyglobin should be set at, we must analyze the 4 C's. Firstly, in evaluating the company, we determine that the cost of production is $15 Million per year independent of volume, plus $1.50 per unit variable cost. The current capacity for Oxyglobin is 300,000 units. In exhibits 4 and 5 we determine their break-even cost.

Next, we must determine who the customer is and what their potential is. To do this, we begin by looking at the number of veterinary practices in the US. Exhibit 1 shows the average monthly case load of the 15,000 US veterinary practices. In looking at these averages, we can determine the absolute number of practices and doctors for each class of practice. Taking the average number of animals (dogs, cats, and other) each class of practice treats each month and multiplying that by the absolute number of practices in each class yields the absolute number of animals each practice treats per month and subsequently the annual potential.

Targeting veterinarians in the emergency care segment is the most efficient and effective approach. The potential of this segment is 6,930,000 animals per year. Of this nearly 7 Million animals in need of blood, approximately 7 % of the need blood come from blood banks and the remaining 93% from a very inefficient and costly "donor animal". This 93% (6,444,900) represent the potential market for Oxyglobin and is clearly far above the 300,000 unit annual capacity for Oxyglobin. Conservatively, if we assume 30% of these animals are in critical need of blood then we get 2,079,000 animals. Of this population, we know that 60% of Veterinarians and 65% of pet owners are willing to pay the $200, $400 (vets cost doubled to pet owner) price. Again, being conservative,