In the generic pharma world, most companies focus on high-volume, crowded markets. It’s a safe approach. But what about the opportunities that are often overlooked?
High-barrier APIs — those with significant challenges to development or commercialization — hold unique potential for companies willing to take a calculated risk.
This post explores some of the key aspects of spotting, evaluating, and tackling these opportunities, offering a foundation for a broader discussion.
What Are High-Barrier APIs?
High-barrier APIs are active pharmaceutical ingredients with technical, regulatory, or market complexities that discourage most companies from entering the space. They demand more time, resources, and expertise — and come with higher risks — but they also offer unique opportunities.
Examples of High Barriers:
- Technical: APIs requiring innovative processes, extreme handling/storage conditions, or rare, highly specific and costly equipment or raw materials.
- Regulatory: APIs with complex compliance requirements or residual intellectual property challenges.
- Market: APIs with prices deliberately set by innovators so low that they leave little room for generic competition unless the API can be manufactured much more efficiently.
These APIs are often overlooked due to the prioritization of high-volume, low-barrier markets and the perception that the challenges they pose aren’t worth the investment. But for those willing to dig deeper, these APIs can offer interesting opportunities.
Spotting Opportunities in High-Barrier APIs
So how do you identify under-served opportunities?
Why Many Opportunities Go Unnoticed:
- Overreliance on conventional market analysis tools.
- Misjudgment that the barriers outweigh the rewards.
- Assumptions that the innovator’s monopoly is unbreakable.
Tips for Identifying Under-Served Products:
- Look for out-of-patent innovator products without generic competition. Yes, such “gems” still exist, even in developed markets.
- Analyze sales data for steady, niche markets.
- Explore products priced high due to an innovator monopoly, where a cost-efficient API could disrupt the market.
- Examine region-specific products marketed nowhere else due to unique local demand. Check for little or no competition in these cases.
Red Flags to Watch Out For:
- APIs with scalability limitations.
- High upfront investment requirements, unless tied to multiple APIs with similar challenges. Partnerships or co-developments can help mitigate this.
- Shrinking demand due to evolving medical guidelines or alternative therapies.
Once such opportunities are identified, the next step is evaluating their feasibility.
Assessing Viability
Not every high-barrier API is worth pursuing. Once you’ve identified a potential opportunity, it’s time to ask questions and balance the risks with the rewards.
Key Questions to Ask:
- Is the demand sizeable and sustainable?
- Can the API be developed and manufactured cost-effectively?
- Will the finished product allow for competitive margins against the innovator?
Balancing Risks and Rewards:
- High barriers often mean higher rewards if the project succeeds.
- Understanding your risk tolerance and creating mitigation strategies is critical.
Real-World Example — Old Drugs with New Life
A generic company identified an older drug with declining demand as a high-barrier API opportunity. Previously considered “out of fashion,” this drug found a new path due to its off-label use for a chronic condition in certain markets. By identifying this potential and partnering with an API manufacturer ready to revive this molecule, the generic company filled a supply gap and captured an underserved segment.
Partnering with the Right Developer
The Role of Partnerships:
High-barrier APIs often require innovative manufacturing paths, beyond the typical chemical synthesis — and this is why partnering with a capable and innovative developer is key.
What to Look for in a Developer:
- Proven experience handling complex APIs.
- A collaborative approach to innovation and problem-solving.
- Transparency in pricing, processes, and timelines.
When to Work with Emerging Developers:
- Established developers may dismiss smaller or niche markets as unprofitable.
- Partnering with new or smaller developers can create opportunities for specialization and mutual growth.
Success Story: Overcoming a Costly and Inefficient Chemical Synthesis
Many generic companies had dismissed one innovative product, off-patent for years, due to the impossibility of sourcing a competitively-priced generic API. The innovator’s low pricing, coupled with failed attempts by API manufacturers to improve the known synthetic route or redesign new ones, made the API seem unviable.
One generic company decided to dig deeper, partnering with us to explore alternative manufacturing paths. We identified a developer with fermentation expertise who was willing to explore this project. After significant effort, the three-way collaboration produced a scalable fermentation process, yielding a high-purity, compliant API at a fraction of the cost of chemical synthesis.
This breakthrough allowed the generic company to successfully launch the product, breaking the innovator’s monopoly, while the developer gained recognition for a pioneering approach.
Lessons from High-Barrier APIs
Challenges:
- Longer development timelines.
- Potentially significant initial investments.
- Regulatory uncertainties or supply chain risks.
Rewards:
- Limited competition creates strategic market advantages, with higher margins and sustainable market share.
- Building strong, long-term partnerships with innovative developers.
- Enhancing your reputation as a leader in tackling challenging opportunities.
Final Thoughts
High-barrier APIs require bold decisions, strategic thinking, and careful planning. Despite the complexities, such projects can be transformative, offering significant rewards and solidifying a generic company’s place as an industry leader.
