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Maker of medical implants creating a low-cost niche

John Seelmeyer

The Orthopaedic Implant Company wants to upset a longstanding paradigm in health-care, convincing orthopedic surgeons and hospitals to embrace a new business model.

Simple enough, right?

Itai Nemovicher, president of the Reno-based startup, thinks that the financial and ethical climates have aligned favorably to create big changes in healthcare that will benefit his company.

In fact, Nemovicher’s big worry at this point is keeping sales growth under control while The Orthopaedic Implant Company gets its feet firmly on the ground.

The company’s big idea: Manufacture and market low-cost hardware screws and the like for use by orthopedic surgeons.

The Orthopaedic Implant Company OIC for short looks for medical-device implants that are coming off patent protection, manufactures identical items in FDA-approved facilities, and tightly controls its marketing and overhead costs as it moves them into the market.

It’s something like the marketing of generic pharmaceuticals that are identical to branded drugs whose patent protection has expired.

The upshot: OIC says its products save 60 to 75 percent on the cost of brand-name orthopedic hardware. The effects on a patient’s bill can be substantial, as Nemovicher notes that a small screw used to repair a broken bone might be priced at nearly $300 by established manufacturers.

When Nemovicher, who has worked in medical device sales for nine years, learned that one patient had been charged $120,000 for medical implants alone, he was motivated to become one of the co-founders of OIC.

The company’s catalog today lists about 500 items, although most represent only small variations within a half dozen product families.

OIC represents a moral crusade as well for physicians Peter Althausen and Timothy Bray of Reno, who joined with Nemovicher to launch the company late last year.

“The cost of implants is outpacing our ability to pay for them,” says Althausen, the company’s chairman who earned a master’s in business along with his medical degree.

Sales and marketing costs account for more than 30 percent of the revenues at established medical-device firms, Bray says, and an increasingly cost-conscious health-care system is looking for lower-cost alternatives.

OIC, by sharp contrast, keeps a tight lid on costs.

Nemovicher is the company’s only paid employee, and it relies on contractors for everything from engineering to distribution to manufacturing.

Bray and Althausen work the phones during their hours away from the surgery suite, talking up OIC’s philosophy and products with compatriots across the nation.

So far, Nemovicher says, the company’s devices are used by surgeons in eight markets.

His worries are two-fold.

First, the acceptance among surgeons and hospital administrators has been so strong that Nemovicher frets that manufacturing systems would be taxed if the company suddenly received a flood of orders.

At the same time, he worries that hospitals and physicians may be slow to change their ways, and he worries that the number of products coming off patent may not be sufficient to feed the market’s demand for low-priced hardware.

The company’s first round of financing involves $1.4 million of equity offered to sophisticated investors. In a filing with the Securities and Exchange Commission in January, the company said it had raised $450,000 to that point. Another round of financing may be needed before OIC becomes self-sustaining, Nemovicher says.

The heaviest start-up expenses, Nemovicher says, involved legal and regulatory costs. Despite the heavy workload, Althausen, Bray and Nemovicher had the company rolling within six months of their initial brainstorming sessions.

They initially kept the lowest possible profile, worried that a major medical-device company could flatten them.

Now, Bray says, OIC’s founders see the possibility that their company might partner with an established supplier to cover the lower-cost end of the market.

“Our vision is not to take over the world,” he says. “We want to be an honorable partner.”