What, you have never heard about generic medical devices? Welcome to a new, hitherto unknown territory that is now being bravely explored by a company, appropriately called Generic Medical Devices Inc.
Medgadget editors got a chance to interview Richard Kuntz, the company’s President and CEO.
1. How long has the company been around?
I founded Generic Medical Devices (GMD) in April 2006 along with co-founders Dr. Raymond Rackley, Al Aladwani and Ron Bromfield and we officially launched the company on December 11, 2006. GMD received ISO 13485:2003 certification in November 2006 and 510(k) market notification from the FDA for our first product in January 2007.
2. What were the motivations to found the firm?
I have spent over 25 years in the device industry with industry-leading companies including Johnson & Johnson, Spacelabs Medical, Cyberonics and Northstar Neuroscience. Throughout my industry tenure, I have witnessed prices of branded medical devices consistently rise despite a financial crisis in the healthcare industry and impending bankruptcy of Medicare.
About two years ago, I was at a pharmacy picking up a prescription for my mother when I was told that I could get either a name-brand drug that would cost $160 with insurance or a generic version that cost $10. When I asked what the difference was, I was told “there is no difference.” You might call it my “ah ha” moment because I started thinking about my own industry and wondered whether any companies were manufacturing generic medical devices. I did some initial research, and to my surprise, found none.
It also became clear that the model used by the generic pharmaceutical industry could be replicated for medical devices. In the past, introducing generic surgical devices had been stalled by patents protecting brand-name products, some lasting for as long as 17 years. However, many of these standard-of-care products are now seeing their patents expire, providing a significant opportunity for high quality, lower cost alternatives.
3. What devices are you going to focus at first, and why?
For each device we plan to bring to market, GMD uses strict evaluation criteria to determine if a device has existing 510(k) product classification, existing reimbursement by Medicare and third-party payors, established product safety, efficacy and outcomes, a trained physician and surgeon base, and available supply chain opportunities.
Our initial focus will be on Class II implantable and surgical implementation devices in the area of pelvic health where there is a wealth of standard-of-care, off-patent devices that have continued to go up in price despite little innovation. GMD’s first three products include: a Universal Circumcision clamp, which received 510(k) clearance in January 2007 and CE Mark approval in February; general surgical mesh for a variety of surgical uses, including hernia repair and dural, cardiac and orthopedic procedures; and a universal mid-urethral sling system to treat stress urinary incontinence.
Circumcision clamps, for example, have a proven record of efficacy and utility, with a large market cap that will be positively impacted by a reduction in costs with the availability of a generic substitute. We will begin to market and sell the Universal Circumcision Clamp in the second quarter of 2007.
4. What about in the long run?
The Circumcision Clamp is only one of several thousand potential products that can be replicated with a generic alternative, but we plan to focus on one area at a time and saturate that market before moving on. Following pelvic health, we will likely explore opportunities in orthopedics, cardiology and/or neurology.
Currently, GMD occupies an industry of one, but there is plenty of room for other generic manufacturers. Ideally, each new generic manufacturer would focus on a unique device segment in order to best meet increasing demand and maintain the highest levels of safety and efficacy.
5. What market are you focusing on? Domestic/overseas?
We have a duel focus on both the U.S. and international markets. We founded the company domestically out of Gig Harbor, Washington, but our initial products will be available in both the United States and Europe. We are in the final stages of opening an office in Belgium to serve our European Union customers. Given Europe’s socialized health care systems, they will immediately recognize the benefits of lower cost alternatives, and we expect the market for generic surgical products to grow rapidly in Europe. We are also hoping to partner with humanitarian organizations to make generic devices available to developing nations.
6. What, if any, are the unique regulatory issues do you face?
GMD’s products are based on existing FDA-approved devices and do not entail significant modifications. However, we still have to submit any product we intent to market for 510(k) clearance in the United States or CE Mark approval in Europe. As a result, we are held to the same standards of quality, safety and efficacy as any other medical device brought to market.
We benefit tremendously by manufacturing devices that are substantially equivalent to pre-amendment devices and products currently on the market. Because all of our products have a long history of efficacy and clinical use, the expensive clinical trials, extensive physician training and marketing required to bring a brand new device to market are not needed. This allows us to design, produce and market products in months instead of years and sell our products at significantly lower prices.
7. What are you learning from the generic drug industry?
The pharmaceutical industry’s two decades of successful execution of generic pharmaceuticals gives us an incredible blueprint to follow and a model of how generic substitutes can help reduce healthcare costs and increase the availability of life-saving products to healthcare providers. By simply offering equivalent alternatives at substantially reduce prices, the Congressional Budget Office estimates that generic drugs save consumers an $8 to $10 billion a year at retail pharmacies, helping to curb escalating prices that were quickly making healthcare unaffordable to millions of patients.
With generic devices we hope to achieve a similar impact. We believe that just one of the products in our pipeline could save the healthcare industry upwards of $360 million a year. Our hope is that these savings will create capital for organizations to reinvest in new equipment and infrastructure, such as new MRI machines, the latest surgical devices and even additional nursing and medical support staff, and help provide greater access to affordable healthcare. Ultimately, our goal is to increase the ability for hospitals and other healthcare providers to serve more patients without expanding the overall healthcare budget of countries throughout the world.
8. Do you think the acceptance of generic devices will be easier by consumers than generic drugs, since the generic drug choice is often left to the patient, while device choices will probably be left entirely to the physician?
The acceptance should be significantly easier for the very reasons you presented in the question. Consumers typically have a choice between generic and branded pharmaceuticals, but with devices, most of the decision making process occurs behind the scenes and through the physician. Hospitals, surgical centers, and third-party payors well understand that 510(k) and CE Mark approval signifies that a product is substantially equivalent in both quality and efficacy when compared to existing products. In some cases, such as with the Circumcision Clamp, Generic Medical Devices will even improve on existing products based on direct physician feedback, providing extra incentive for physicians to use and trust the generic alternative.
9. Reverse question from #8. In terms of perception from patients, do you think generic drugs are “easier to swallow” than generic devices? (A patient may be OK taking generic Prozac but would hate to think their vagal stimulator is anything but Medtronic’s).
In most cases, patients don’t know the brand name of the device physicians are using and are unlikely to know that a device is “generic” versus “brand name” so we expect very little if any negative reaction to the use of a generic alternative. We trust that if consumers do inquire about the genesis of a surgical device, the practicing physician will be able to clearly explain the advantages in terms of cost without compromising quality or efficacy. Our first priority as a medical device company is patient safety, and we will never be associated with a product that is not at least as safe as its branded counterpart.
10. How do you plan to market your products? Direct to the physician/hospital?
We plan to market all our products directly to hospitals, and ambulatory surgical centers. Due to a level of inevitable bureaucracy, we expect slightly slower adoption of generic devices in hospitals, while we know surgical centers will immediately recognize and want to take advantage of the cost savings our products offer. Over time we expect to gain a significant amount of market share as customers recognize the savings we provide on standard-of-care products.
11. We’d be curious to know how much of a saving you think you could offer. We presume its totally specific for each device, but are you expecting a 5% or a 95% reduction in price overall? How will you make it cheaper? Is it because the patents are up and you can ‘virtually copy’ Medtronic’s design?
We plan to market our products at two-thirds the cost of existing brand name counterparts. We can achieve this substantial price reduction because we do not need to conduct costly clinical trials, because physicians have been preciously trained on these devices and because we do not need to spend the marketing dollars required to introduce a new product to the marketplace and secure customer adoption. In addition, we are bringing our sales order process online and establishing partnerships with firms in the regulatory, engineering and marketing industries, enabling us to further reduce operating costs and create savings that we can then pass on to our customers.
In essence, our pricing scheme is meant to “shock the market.” The idea is that with few upfront costs, we can afford to offer our products at greatly reduced prices while still maintaining a respectable revenue stream. What will be interesting to observe is how the market, and in particular brand name companies, will respond to this new competition–these companies will need to decide whether to introduce lower cost alternatives of their own or adjust to the new market prices. Either way, the healthcare industry wins as brand name companies compete to match their generic counterparts and overall prices on expensive surgical devices drop.
12. Could you comment about the following passage:
We can see how in some areas, generics would make a lot of sense. Ortho, for instance, where a Synthese titanium screw could go for like $400 ea, but the design is easy to copy. The marginal cost to produce and design each element is pretty low, and a large portion of the purchase price goes to overhead of the supply chain as well as future screw development. If you’re just doing generics and no development, then there’s no reason it should cost more than like $50/ea, with most of that really being processing. Things that are a lot more challenging to even get to function correctly, such as a vagal stimulator, might not be so easy to just crank out. In that case, even if you were to copy something or reverse engineer it, it’d still take a ton of engineering hours to get right. Thus, there’s less of an advantage there.
We completely agree and are not setting our sights on devices that are considered life critical, highly complex from a technology stand point, consistently being improved upon or regularly replaced by new iterations. Medical devices that require years of engineering and development are not products for which generics should be manufactured. Instead, GMD is focused on devices considered standard of care in their respective categories, devices that have undergone few it any innovation since first being introduced to the market, and devices which are easily replicated and for which we can dramatically reduce costs.
What we expect to see as the generic device market expands is that new companies will enter the fray and focus on a different segment of the market. This specialization will help alleviate the costs of producing complex medical devices, minimize operating costs for each company and potentially reduce the chance that product will be cannibalized by a competing generic company.
Only time will tell how the market will respond to generic medical devices as a viable strategy to helping reduce healthcare costs, but so far the interest in GMD from physicians and healthcare organizations alike has been remarkable. Our goal from the beginning has been to help the medical device industry grow by reducing costs on established products and making room in the system for new innovations, and we believe we are well on our way.
Generic Medical Devices website…