150 NEW REPS
Average revenue per rep is more than $1.5 MILLION
= $225 MILLION INCREMENTAL REVENUE
$225 Million X 40% (conservative) NET MARGIN (EBITDA)=$100 MILLION EBITDA CONTRIBUTION
40% Composite EBITDA Interest, Tax and Depreciation charges (NO INTEREST---DEBT FREE)=
$60 MILLION CONTRIBUTION TO EPS...OR APPROX. $1.00 EPS
ADD $1.00 TO THE NO GROWTH ESTIMATE (Ridiculous on the face of it) OF $5.36 AND YOU'RE AT $6.36 EPS. ONE MORE ADDITION...ORGANIC GROWTH FROM PRIOR REP FORCE=40 CENTS PER SHARE AND YOU'RE AT $6.76 EPS...Just 3 cents shy of my $6.79 BOTTOM EPS UP FORECAST FOR 2013.
NOTE---THIS ESTIMATE DOES NOT INCLUDE EITHER ADDITIONAL CONTRIBUTIONS FROM INDICATIONS CURRENTLY UNDER EXAMINATION (OVER 50 CURRENT TRIALS) NOR DOES IT INCLUDE EITHER NEPHROLOGY NOR RHEUMATOLOGY MOVING ABOVE EXISTING GROWTH TREND OTHER THAN NEW REP CONTRIBUTIONS...I.E., ORGANIC GROWTH!!!
Interesting perspective. Every time I've been invested in a company hiring more reps, it always takes some time for new reps to start producing, and usually longer than management expects. How long do you see before these new reps start producing their $1.5M in revenue? If $1.5M/rep is the average, any estimate of how much revenue an experienced rep (say 2+ years) brings in, thus helping bring up the average?
The composite performance and delta's of rep production was something we looked at closely during M&A due diligence. This included average tenure and years of experience. It varied significantly from pharma to pharma as you would imagine based on complexities of the product(s) and price of product(s). In Acthar's case it is both complex and expensive so the normal "training period" of 90 days on average is very likely closer to 6 months at Questcor...HOWEVER, throttle that back based on the extensiveness and intensiveness of the Rx SUPPORT RESOURCE employed by Questcor (now in-house). Most reps here do Level 1 marketing (introductions, materials, clinical reports, very brief overviews of relevant indications and clinical histories) and then "PUSH" MD's and other clinicians to discussions with other relevant physicians, hospitals and in particular their SUPPORT CENTER. The older ones probably have the opportunity to go to Level 2 marketing and those newer ones with the proper scientific background will be groomed to do the same...perhaps with rotations in and out of the support group. For NS and Rheumatology (both emerging, high growth segments) it could take 9 months to a year for "FULL PRODUCTIVITY" marketing at Level 1, but virtually certain that they are in front of relevant audiences within a couple of months (along with mentors) of arrival. So one has to layer in arrival, training and assimilation and initial learning and start-up from various dates of arrival ("classes")...These development actions started in Fall 2012 and virtually all reps are in the 3 to 8 month window, so they are ALL out making calls.
NOTE: This analysis above is the primary reason why I have consistently forecast that 2013 is heavily "BACK END LOADED" even though I believe that they're still beating their numbers in Q1 and the curve moves up in Q2 and sharpens significantly in Qs 3&4...$6.79 EPS for FY 2013 with an annual run rate of over $10 EPS by Q4 report-over $2.50 qtr!!