Generic Devices: New Concept or Clever Marketing?

FROM THE EDITORS

The generics concept has existed in pharmaceuticals for about 30 years and has received a lot of attention recently, given the spiraling costs of healthcare worldwide. Now comes a firm that claims to be the world's first generic medical device company.

It can be argued that the generics concept has been around in the device industry, too, just not by that name. The 510(k) process, which declares a new product “substantially equivalent” to an existing device, can be used to get lower-cost devices on the market that are virtually identical to their predecessors. But this generic equivalent practice is seen more often overseas than in the United States.

Generic Medical Devices (GMD; Gig Harbor, WA) is trying to change that. Is it a new business model that parallels generic drugs, or is it a case of putting a new name on an old practice? At the very least, it's a case of good timing and good marketing. It could get the device industry thinking more about how to shake costs out of the healthcare system at a time when the public and policymakers are demanding it.

Industry veteran Jonathan Kahan, a partner at the Washington, DC, law firm Hogan & Hartson, doesn't believe GMD's model is new— just rare in the United States. “Some companies have been doing that for 30 years, particularly in Israel,” he says. “It's not a generic device concept, but a competition concept. But it's perfectly legal and appropriate.”

GMD's story begins about a year and a half ago, when Richard Kuntz, a veteran of device companies such as Johnson & Johnson and Cyberonics, had a revelation while at a pharmacy. “I was told that I could get a name-brand drug that, with insurance, cost $160, or a generic version that cost $10,” he says. “I asked what the difference was, and the pharmacist said there was none. That started me thinking, what companies do generic devices? Surely someone had thought of it. But I couldn't find any. I started reading up on the impending bankruptcy of Medicare and how healthcare costs are getting out of control.”

Last August, GMD, with Kuntz as CEO, opened its doors. And this January, it received FDA approval for its first product, a circumcision clamp. At press time, the firm was awaiting approval for its second product, a surgical mesh, and seven more products were in development.

GMD's business model is not simply a reliance on reverse engineering. First, the firm has to find products that could be sold as generics. They must be off patent, already be approved for reimbursement, and still be the state of the art for their fields. In addition, the devices must not require much, if any, technical training and must not have safety issues. Given the short product life cycles in the device industry, such products are difficult to find. But these, Kuntz says, are the products sold for needlessly high prices. They may have been on the market for 20 years or more, but their manufacturers continue to raise prices each year, because there is no competition.

Kuntz estimates that the company's first three products will bring an immediate savings of $360 million to the healthcare system. Community hospitals that are struggling to stay afloat have expressed strong interest in GMD's first products, he says, as have surgeons concerned about the structure of healthcare.

In the United States, Kahan says, the largest OEMs are so well established that potential copycat firms have been reluctant to go up against them. “But it could work, depending on the product, if you go after a commodity market like tracheal tubes.”

Even if GMD's innovation is in its marketing, not in its business model, it may have great potential, because the need to drive down healthcare costs has become so urgent.

Erik Swain for the Editors