Medical Devices Co. considers a deal with Spongy’s to create a hybrid product combining their BloodStopper with a sponge. The case analyzes potential pricing, cost structures, and deal terms. Key points include:

1. Combined product WTP is $104.50, a 10% increase over individual components.
2. Medical Devices Co. needs to charge $83.50 to maintain its $80 margin.
3. Spongy’s would have a $19 margin on the combined product.
4. The proposed deal structure may not be favorable for Spongy’s due to high COGS.
5. Alternative strategies include vertical integration, volume-based discounting, or revenue sharing.
6. Recommendation: Medical Devices Co. should consider vertical integration by acquiring a sponge manufacturer instead of the proposed deal.