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OEM profile: a non-generic concept: a startup venture looks to transform the healthcare arena with low-cost medical devices.

Dwight Eisenhower once said, "There is no victory at bargain basement prices," but Richard Kuntz might disagree.

The CEO of Generic Medical Devices believes his company has tapped into an underserved market by offering low-cost generic medical products to the healthcare industry, potentially saving the market $360 million with the company's first three products alone, according to Kuntz's estimates.

In an industry that heralds the concept of innovation on a daily basis, Kuntz's idea for the Gig Harbor, WA-based company, which opened its doors in August 2006, actually was based more on practicality than innovation: he was inspired by a simple trip to his local pharmacy.

"I had an ill relative, and I was picking up prescription drugs at the pharmacy," he recalled. "She had excellent insurance, but one of the drugs cost $160. The pharmacist noted you could purchase the generic form for only $10. That's what started me to think, who in our industry is pursuing generic devices? I started doing research and talking with professionals I respected and realized nobody had approached this."

The idea of generic products is nothing new to healthcare. The pharmaceutical industry has been offering generic drugs for three decades, often saving more than $10 billion a year for the healthcare industry, Kuntz said. Although the concept behind Generic Medical Devices has been labeled as nothing more than a marketing ploy by some in the industry--Kuntz acknowledged that the company has been called "the Antichrist of medical devices"--he and his staff firmly believe that delivering a generic device that is equivalent or superior to what's already available on the market will provide quality care to patients who can't afford premium healthcare products.

Setting Up Shop

Kuntz founded the company a little more than a year ago, even though Generic Medical Devices didn't open its doors until August. As a former executive for companies such as Johnson & Johnson and Cyberonics, Kuntz gathered what he called an "all star team" of sales and marketing as well as other professionals. Next he had to decide which products to make.

Product selection must account for a few factors: (1) products under consideration must not have patent protection; (2) they must be approved for reimbursement; and (3) they still must be considered an industry standard for their use.

It didn't take long for the company to finalize a plan and get the ball rolling. In January, the FDA granted Generic Medical Device 510(k) clearance for its GMD Universal Circumcision Clamp, and the product also has since received a CE mark for worldwide distribution. The product will be sold at a price of $150-$160 per unit compared with competitors' prices of $225 per unit average. The company's strategy is to "shock the market" by offering dramatically reduced prices on standard-care products--in this case, a product offered at two thirds the usual price.

In addition, the company is awaiting 510(k) and CE Mark approvals on a number of other generic surgical devices, including a surgical mesh product, and Kuntz said "dozens" of other products are in the pipeline.

"We look at the two top products on the market and incorporate the best characteristics of each into our product," Kuntz explained. "We also look at the surgical technique and the business perspective--there are a number of products that require a purchase of numerous kits and inventory. We have looked at ways to reduce cost and inventory. We want to deliver products at a significantly reduced cost to the market."

Outsourcing to the Rescue

As with most startup ventures, Generic Medical Devices has been relying heavily on supply chain management to get products made. The company, which is certified to ISO 13485:2003, outsources the manufacturing and engineering of products. Although a quality department exists in-house, outside expertise also is leveraged for some regulatory needs.

"We have leading, cutting-edge contractor relationships," Kuntz said. "We aren't training new vendors. We really searched for those with years of experience of particular proven experience. Ours are FDA registered and ISO certified, with a proven track record of quality systems and the ability to meet our needs."

With outsourcing such a large part of the company's strategy for getting products to market, Kuntz added that a large portion of time is spent working with contract service providers early in the product development process.

"We work with them in design and development, getting them involved in our design, looking at manufacturability," he said. "I think that's a key to success--working with them early on."

A well-honed supply chain management system also is crucial to effective outsourcing, he said. The company has set up an enterprise resource planning (also known as ERP) system that helps provide long-term forecasting. The system is available on the company's Web site with a pass-code-protection feature, and every month Generic Medical Devices updates the next few months while adding what's projected 12 months ahead.

"We've established a weekly bucket of shipments that will arrive to us, so there's rhythm," Kuntz said. "They [supply partners] can see the growth coming and order their materials, too. We have become user-friendly and reduced their cost of doing business with us in doing so, and we have established long-term relationships."

Although it's still a new venture, Kuntz believes the sky is the limit for the company's future. He is unsure at this point as to whether the company will stay private, go public eventually or be acquired by a larger organization. All he knows is one thing: "We intend to take a dominant market share."

For now, the company is on its way. Along with its US headquarters, Generic Medical Devices has expanded operations to Europe this month with the opening of an office in Belgium. In addition, the company is in the process of gaining Series C funding.

Jennifer Whitney

COPYRIGHT 2007 Rodman Publishing
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Author:Whitney, Jennifer
Publication:Medical Product Outsourcing
Date:May 1, 2007
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