Medical Device Daily

At a time when rising healthcare costs make headlines almost daily, a new medical device company has set out to respond to the pending Medicare crisis the same way the pharmaceuticals industry has: by offering generics.

Generic Medical Devices (GMD; Gig Harbor, Washington) officially launched this week, touting the honor of being the first to offer what it calls commonly used and efficacious surgical products at generic prices.

GMD plans to follow the same formula used by the generic drug industry to develop and distribute alternatives to standard-of-care devices, offering payors, clinics, hospitals and physician-owned surgical centers the benefit of medical devices with equivalent safety and efficacy, but at lower prices.

Richard Kuntz, president/CEO of GMD, told Medical Device Daily that he got the idea for the company a couple years ago while he was traveling and found a newspaper article slipped under his hotel room door about Medicare predicting bankruptcy by 2019, seven years earlier than previously predicted.

“I didn’t understand why the medical device industry had not followed in the pharmaceutical industry’s path of when a product patent expires offering a generic alternative,” Kuntz said. “It was sort of a ‘duh’ – as my kids say – and a ‘Why not?’”

So that’s exactly what the new company aims to do.

“Many of the medical devices commonly used in today’s healthcare organizations have undergone few, if any, changes in the decades since they were first introduced to the market,” Kuntz said. “Nevertheless, purchasers of medical devices continue to pay a premium for these commoditized products and are demanding alternatives. Like with generic pharmaceuticals, GMD will be offering medical devices that are equivalent, if not better, than their branded counterparts and at prices that will be attractive to hospitals, physician-owned surgery centers, Medicare and third-party payors.”

In the pharmaceutical industry, once the patent on a brand name drug expires, competitors are allowed to develop, market and sell generic alternatives as long as they offer the same safety and efficacy as their branded counterparts, thus avoiding the standard high development costs: R&D expenses, costly clinical trials, protracted governmental approval and marketing costs. As a result, these companies are able to sell equivalent versions of brand name products at significantly reduced prices.

And by reducing the costs of some drugs, generics make room in the system for new products, the generic manufacturers contend.

Likewise, GMD says it will leverage expired patents on standard-of-care surgical devices and bring generic alternatives to market in the $80 billion-a-year industry.

The devices chosen will all have existing 510(k) classification approvals, reimbursement by Medicare and third-party payors, established product safety, efficacy and outcomes, and a trained surgeon/physician base, the company said. As with pharmaceuticals, generic medical devices would be developed based on the specifications for existing FDA-approved products that are becoming a commodity in the marketplace.

The FDA considers generic products to be “substantially equivalent” to the already-marketed devices, meaning the generic versions are considered as safe and effective as the original brand name products, according to GMD.

“With increasing regulatory oversight creating transparency around healthcare costs and high-deductible insurance and rising co-payment charges becoming more common, there is an immediate need in the healthcare system for affordable alternatives to existing treatment options,” said Ron Bromfield, VP sales and marketing for GMD. “Generic medical devices, like generic pharmaceuticals, offer a significant opportunity to deliver all the benefits and safety of branded devices, but at costs that help reduce strains on the healthcare system. In addition, money saved by healthcare providers will enable them to invest in new equipment and infrastructure, further improving patient care.”

GMD reported that it has filed three 510(k) applications and expects its first products to be available to hospitals, clinics and physician-owned surgical centers worldwide in 2007. The company was founded in April and filed for incorporation in the state of Washington July 17. Its office opened Aug. 1.

Kuntz said he firmly believes that for Medicare to continue reimbursements and new technologies continue to be developed, devices have to come down in price.

“The pie is only so big — we can’t keep taking pieces,” Kuntz said. “But we can keep the pie in a constant state by reducing the cost of the devices that have come off patent.”

Kuntz declined to unveil the identity of its first three products but said those chosen will save the healthcare system, Medicare and third party payers more than $360 million a year in the U.S. alone. He did say that the company’s initial product focus is in the pelvic healthcare area.

So far, Kuntz said the concept of GMD has been “very well-received,” both in the U.S. and internationally. He said the company plans to open an office in Europe after the first of the year.

More than half of the Series A funding the company has received have been from surgeons and physicians “which we didn’t expect or foresee,” Kuntz said.

Kuntz has 25 years of executive level experience in Fortune 500 medical device companies including Johnson & Johnson (New Brunswick, New Jersey), Spacelabs Medical (Issaquah, Washington), Cyberonics (Houston) and Northstar Neuroscience (Seattle).

(And he is not to be confused with the Richard Kuntz who is president of neurological businesses at Medtronic [Minneapolis], though the two men have similar backgrounds.)

Kuntz said that as a veteran in the medical device industry he has been able to recruit an “all-star team” to lead the new company including: Louise Tieman, executive VP and CFO of GMD who has provided litigation support and turnaround management to Fortune 1000 companies and has become a financial advisor for companies in the public and private sectors; and Bromfield, who has experience with companies ranging from start-up through Fortune 100 companies including Medtronic and Spacelabs.