Developing Drug Markets

When drug companies talk about the global market, they almost invariably mean the "Big Three:" North America, the European Union, and Japan. This is understandable, since together they accounted for roughly 87% of worldwide pharmaceutical sales in 2004, according to IMS Health.

But the world is a dynamic place. Last year, Asia, Africa, and Australia combined were just 7.7% of global sales and Latin America just 3.8%. But think of it in terms of growth, and these parts of the world offer very significant opportunities for investors. These two geographic groupings exhibited the fastest growth at 13.0% and 13.4%, respectively, compared to 7.8% for North America. The developing world appears to offer an attractive niche for companies that can address these markets' needs. And getting in early could pay off as development continues and opportunities multiply.

One firm that could break into this niche is Acambis (Nasdaq: ACAM). The British drugmaker's lead candidate is a vaccine in phase 3 trials for Japanese encephalitis (JE). Vaccines for JE have been on the market for 60 years, but the disease remains a major problem in some areas, particularly Asia, where 50,000 cases and 10,000 deaths are reported yearly.

Acambis' experimental vaccine has some advantages compared to marketed JE vaccines. For one thing, the company expects it will require a single dose compared with multiple doses for existing products. This should be a big plus in the developing world, where patients are less likely or able to return to physicians for multiple doses.

In addition, Acambis' product will be inexpensive, which is an absolutely vital feature in poorer countries. To keep the price low, Indian biopharmaceutical company Bharat Biotech will package the medicine and market it in India and neighboring countries. India and neighboring Nepal are major potential customers, as more than 1,000 people in the region died from JE from July to November of this year alone.

On the downside, Acambis puts the potential market for the new vaccine at $300 million, which is not huge, although it is significant for the company, given its size. In addition, the firm is a riskier play since it's unprofitable.

For more risk-averse investors, there are other potential candidates. For example, GlaxoSmithKline (NYSE: GSK) has a malarial vaccine in phase 2 trials, and Sanofi-Aventis (NYSE: SNY) has licensed a phase 1-stage Dengue fever vaccine from Acambis. However investors choose to play it, there seem to be opportunities in drug companies looking toward the developing world.

GlaxoSmithKline is a Motley Fool Income Investor recommendation.

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Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.