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BCG Hard M&A

OrthoGel

#Healthcare
ProHub Comment

This case tests the candidate's ability to analyze a complex joint-venture M&A scenario involving value capture, pricing strategy, and cost analysis. Strong candidates recognize that the hydrogel (OrthoGel's proprietary product) drives most of the value and should negotiate to capture a larger share of the willingness-to-pay, while critically questioning assumptions about sponge quantities and exploring alternatives.

Estimated Time 15 minutes
Difficulty Hard
Source Duke
50 / 100
Your client is OrthoGel, a medical device company that manufacturers a hydrogel used in surgeries to help patients recovery. The gel is applied with a biodegradable sponge. OrthoGel is considering a deal with a sponge manufacturer, SpongeBob, to combine the gel with a sponge to create a hybrid product. SpongeBob would be in charge of the sales & marketing of the final product. Should OrthoGel make a deal with SpongeBob? If so, what should OrthoGel negotiate?

Clarifying Information

  1. Proposed structure is OrthoGel sells directly to SpongeBob
  2. Financial target is to maintain or improve profitability
  3. Combined product allows for greater efficiency in post-op recovery
  4. Market size is great – not relevant for case analysis
  5. OrthoGel is market leader, has unique IP
  6. Sponges are a commodity with multiple vendors
  7. WTP vial = $50
  8. WTP sponge = $10
  9. WTP increases by 15% for combined product
  10. Clinic needs 3 sponges / vial
  11. Products are single-use
  12. Sponges are a commodity
  13. It costs SpongeBob $2 to manufacture a sponge