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Last November， a woman in excruciating pain barged into Dr G. Durga Prasad’s office in Hyderabad and pleaded： “Doctor， I want to die. The pain is unbearable.” The consultant oncologist， a specialist in cancer pain management at the IndoAmerican Cancer Institute & Research Centre， was disturbed by the 22-year-old cancer patient’s condition. “Of the 200-odd cancer patients I see in a month， at least five per cent come seeking relief from severe pain，” says Dr Prasad.
Typically， such patients have not responded to conventional painkillers or stronger drugs such as codeine or even morphine. The doctor， therefore， prescribed a fentanyl patch， a Band-Aid-like strip which slowly releases a strong painkiller into the body over a 72-hour period. Fentanyl is a pain-relieving compound made synthetically， unlike opium andwhich are de- rived from a natural source. The patient’s pain subsided after using the fentanyl patch manufactured by Sparsha Pharma International and she now wants to live.
Sparsha is one of several small Indian pharmaceutical companies that have turned to specialising in niche products such as pain-relieving patches and sterile liquid injectibles to stay ahead in an increasingly competitive pharmaceuticals market. India is the world’s third-largest phar- maceuticals market in terms of volumes， but competition is stiff to grab a slice of the rapidly growing business. AIOCD Pharmasofttech AWACS， a pharma market research company， pegs the country’s total pharma industry at `70，000 crore （around $12 billion） and estimates it is growing at 13 per cent a year compared with the global rate of six per cent.
Despite the impressive growth， Indian pharmaceutical companies do not have many avenues for expansion. Many have been forced to innovate because of several challenges such as rising input costs and stiff global competition， especially from China. Moreover， some companies are losing their traditional edge in producing generic versions of patented drugs with the number of offpatent drugs on the wane. “We are clearly seeing a refreshing change in the way innovation is being approached by some of the companies， especially smaller ones，” says Aditya Kapil， who was formerly leading pharma and biotech investment and strategy at Ventureast， a venture capital firm. “Small companies are leveraging home-grown chemistry skills to take up more complex and hitherto intractable technology and in the process entering niche areas with large markets to stay competitive.” Kapil is now setting up his own fund for investments in technology， including pharmaceuticals.
Most niche players manufacture affordable products in segments with little competition. Sparsha CEO and Managing Director Dange Veerapaneni saw an opportunity in the fentanyl patch business in 2006 when he realised India had no local manu- facturers， and Johnson & Johnson was the only company importing the product into India. He launched the patch in India in 2009， first through the licensing and partnering route， and in 2011 began selling locallymade patches priced at a much cheaper `295 compared with Johnson & Johnson’s `499. “There was no one making fentanyl patches in India and there was a clear vaccum in India in the palliative care space，” says K.I. Varaprasad Reddy， Veerapaneni’s partner and founder of Shantha Biotechnics， the Hyderabad-based vaccine company， now part of Sanofi. Palliative care refers to treating the symptoms of a disease， but not the disease itself.
The biggest advantage of getting into the fentanyl patch niche is that it is a highly regulated market which makes it tough for po- tential competitors to get into the business. It took Veerapaneni close to two years to get all clearances in place. He hit the market in April 2011 and ended 2012/13 with sales of `5 crore. In five years， he aims to touch sales of about `25 crore in India from fentanyl patches alone.
Veerapaneni has now set his eyes on the lucrative US market where he is setting up a plant at a cost of $11 million. The plant is likely to be ready by the end of 2014.“The opportunity is huge in the US as the addressable market there is worth over a billion dollars，” says Veerapaneni. “Even with a five per cent share in this market by 2016， it would mean $50 million.”
One of the biggest success stories in the niche market is Bangalorebased Strides Arcolab. The company’s founder， Arun Kumar， sold his injectible-medicine business， Agila Specialties， to US drugs giant Mylan Inc for over $1.6 billion in February in one of the biggest deals in the Indian pharmaceutical sector in recent years. Agila specialises in making injectibles， a business with few players because it is targeted more at hospitals than individuals.
Injectibles and liquid formulations are big business for pharmaceutical companies in India. Mumbaibased Kilitch Drugs is one of the country’s largest manufacturers of sterile liquid injectibles， mostly for vitamins and antibiotics. The`100-crore company was one of just a handful of players in the business when it went public in 1994， but is competing with about a dozen companies today. Business has been good and last year， it sold one of its units in Himachal Pradesh for a huge profit： it set up the unit in 2006 with an investment of just `25 crore， but sold it for a whopping `310 crore.
Kilitch Drugs Managing Director Mukund P. Mehta says demand for generic versions of biotech-based drugs in injectible form will go up as many drugs are expected to go offpatent by 2020. “Since we got a good price， almost 10 times what we initially invested and with more players entering the space， we thought it best to exit and focus on other new areas，” says Mehta. “The next five years will be dominated by biosimilars and that is the category we are looking at.”
Ahmedabad-based Marck Biosciences is a leading manufac- turer of sterile liquid doses such as glucose， electrolyte solutions and ophthalmic solutions. The company also developed injectible paracetamol in plastic packs in 2010. It ended 2012/13 with revenues of`160 crore， a massive leap from just`6 crore when it started out in 1998. Marck has invested `170 crore so far and plans to put in another `80 crore in the next two years. Tata Capital has invested `45 crore to pick up a close to 19 per cent stake in the company， which plans to expand capacity in the fluid therapy and injectibles segments. “We will be a `500-crore company by 2017 and a dominant player with substantial market share in the sterile liquid space，” says Marck Biosciences Managing Director Bhavesh Patel.
Being in a niche helps pharmaceutical companies scale up successfully. Hyderabad’s Laurus Labs specialises in making bulk drugs or active pharmaceutical ingredients（APIs） for cancer and AIDS. Chief Executive Officer Satyanarayana Chava set up Laurus Labs in 2005. Revenues in the first year stood at `9 crore but the company closed 2011/12 with `455 crore and 2012/13 with over `700 crore. He invests around six per cent of his revenue each year on research and development， and hopes that will help him grow his portfolio of molecules in these two areas.
Chava has invested `400 crore and plans to pump in another `200 crore in the next year to expand capacity and for research and development. He says he chose drugs for cancer and AIDS because these areas are growing at over 10 per cent a year， which is higher than the global pharmaceuticals industry’s growth rate. “One should always have a competitive edge in any product， be it with respect to quality， capacity， price or technology，” says Chava.
And if the growth in his revenues is anything to go by， the approach is certainly working.