The Sagent Pharmaceuticals (NASDAQ:SGNT) Pharma Model Is Like a Breath of Fresh

Jun 28, 2012 12:36:12 PM PDT | 202 View(s) | No Comment(s) - Post a Comment Rating

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SGNT
$17.95 +$0.64 +3.70%

Odds are good you've never heard of Sagent Pharmaceuticals Inc. (NASDAQ:SGNT). On the flipside, odds are better than average you have used, or will use, a therapy or treatment that Sagent Pharmaceuticals has co-developed. The young company's strategy and business model is a bit different - in a good way - than what you'll traditionally find within the pharmaceutical world.

The company's beginnings in 2006 were inconspicuous, and revenues were benign. Since then, however, annual revenues have grown from less than $10 million then to more than $150 million as of last year. How? By adding partners... a lot of them. Indeed, SGNT may have more partner companies than any other major (or minor) pharma name in existence, and that's exactly how the company likes it.

CEO Jeff Yordon's vision is one of minimal overhead requirements by developing a huge partner network rather than trying to do too much in-house work. There are 48 manufacturing and development partners and 37 facilities, spanning 32 countries, and they can make a stunning number of kinds of drugs. The collective can also create them for use in several delivery methods (injectable, pill, etc.). The end result is a compelling one - 34 marketable products, and 82 products that are pending. Yet, the company hasn't had to shell out major cash to get any of those products or related facilities up and running. Instead, it shares the costs and the reward with its partners/.

The end result: When including the whole network of partnerships, Sagent can and does make a wide variety of drugs, but doesn't have to spend a lot to maintain that capacity and doversity... particularly if it's going to be idle capacioty at times.

Above all else, however, Yorden sees the real opportunity as something a little different than the normal view of "develop the next homerun drug". The big opportunity as he sees it is in being able to create adequate supply of existing or future drugs, which has been the nagging (though underappreciated) impasse for the industry for about a year now - especially on the cancer front. Clearly with the partnership network in place, Sagent Pharmaceuticals is better suited than most to create meaningful supplies of its drugs, and can do so at a lower cost.

So what's next for Sagent Pharmaceuticals? More of the same, according Yorden. The $281 million organization is aiming to make more acquisitions, particularly of drugs and divisions that generate (or will generate) less than $100 million in annual sales. Such a franchise is often proverbial peanuts to the large cap companies that own them, and as such, those drugs may not reach thief full potential with their current owners. Under the Sagent umbrella though, these drugs and therapies (or delivery technologies) may be cultivated to reach their full potential, whether or not they have true 'blockbuster' potential.

Perhaps more important, a drug that 'only' does a few million in annul sales IS a big deal to a small cap pharma manufacturer like SGNT.

It's definitely one for watchlists, if not yet for investors' portfolios.

James E. Brumley is a paid contributor of the SmallCap Network. James E. Brumley's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.