Medical Devices Co.

Medical Devices Co., the maker of a blood-clotting product called 'BloodStopper', is evaluating a potential partnership with a sponge manufacturer, Spongy's. The goal is to create a hybrid product (a dry tablet integrated into a sponge) to increase operating room efficiency. The case requires analyzing price potential, cost shifts, and the optimal deal structure to ensure long-term profitability and market access.

• Product: BloodStopper is currently a liquid vial applied with a sponge post-op. • Proposed Innovation: A dry tablet form of BloodStopper combined with a sponge into a single-use hybrid product. • Market Context: Medical Devices Co. owns the IP for BloodStopper; sponges are a commodity with at least 10 major manufacturers. • Target Customers: 1,000 U.S. hospitals with operating rooms.

Should Medical Devices Co. proceed with the deal with Spongy's as currently proposed? Specifically, if Spongy's sells the final product, can Medical Devices Co. maintain its high margins without making the cost of goods sold (COGS) prohibitive for Spongy's?

• Reject Proposed Structure: Do not allow Spongy's to be the final distributor if it squeezes their margins too tightly, as this risks poor market penetration. • Vertical Integration: Medical Devices Co. should acquire a sponge manufacturer or buy sponges as a raw material. Since BloodStopper is the 'special' IP-protected component, they should control the final product. • Alternative Pricing Models: If the partnership proceeds, explore revenue sharing or volume-based discounting to align incentives between both parties.