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BCG Hard Merger & Acquisition

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 36 minutes
Difficulty Hard
Source Duke
38 / 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
Mock Interview
Interviewer

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?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
Score coming soon
Practice this case with AI Mock Interview

OrthoGel, a medical device company, is evaluating a partnership with SpongeBob, a sponge manufacturer, to create a combined hydrogel-sponge product for surgical recovery. The key analysis involves determining whether the deal creates value, what price OrthoGel should charge SpongeBob, and whether OrthoGel is capturing an appropriate share of the combined product’s value proposition.

Key Insights:

  1. Value creation is driven primarily by OrthoGel’s proprietary hydrogel, not the commodity sponge component
  2. The combined product has 15% higher WTP ($69-$92 vs $60-$80), but pricing must account for SpongeBob’s cost structure ($2/sponge) and margin expectations
  3. Critical assumption testing: the case specifies 3 sponges per vial, which materially changes value distribution and pricing (1 sponge scenario yields different economics than 3-sponge scenario)
  4. Strong candidates calculate OrthoGel’s current margin ($45/unit) and ensure the deal price ($48.50+) maintains or improves this while recognizing SpongeBob’s margin compression from 80% to 36-47%
  5. Non-financial considerations include manufacturing feasibility, regulatory implications, and whether alternative sponge manufacturers offer better terms