Just one month into the swine flu outbreak and Long Beach managed care provider Molina Healthcare Inc. is feeling the pain.

Molina said last week that a spike in medical costs as kids returned to school in September and then flooded emergency rooms with flu symptoms hurt third quarter earnings and will dampen them for the rest of the year.

The company, which contracts with government-sponsored health care programs in California and nine other states, doubts it can achieve its earlier expected $2.15-per-share profit for fiscal 2009. It’s also blaming higher medical costs and state budgetary shortfalls around the country.

Third quarter earnings fell 45 percent to 33 cents per share as a 15 percent increase in revenue was offset by a 17 percent increase in expenses. The California health plan alone had a $4.8 million net loss.

Molina is one of several Medicaid managed care providers blaming the new virus for aggravating the typical winter flu season. The U.S. Centers for Disease Control and Prevention said last week that H1N1 has become widespread in 46 of the 50 U.S. states, a level comparable with the peak of an ordinary flu season but coming far earlier than usual.

“This H1N1 situation is an outlier for Medicaid HMOs, which tend to have a lot of single moms and their children,” said Thomas Carroll, an analyst for St. Louis-based Stifel Nicolaus & Co.

In addition to the flu, it also is suffering from rising health care costs and insufficient premiums particularly in Los Angeles County. In its home county, Molina is a Medi-Cal subcontractor of Woodland Hills-based HealthNet Inc., which is able to withhold from Molina a portion of the government premiums it receives in order to cover administration costs.

Molina has no plans to leave its home market, but has announced it will exit two unprofitable programs in Yolo and San Diego counties next year, and cap enrollment in other submarkets.

Some help may be on the way, though. All versions of the health care reform bills under consideration in Congress propose to expand Medicaid funding, noted Chief Executive Mario Molina. That should particularly benefit the company’s California, Florida and Texas businesses.

“Part of our strategy is to find a way to maintain a profitable presence in (these states) as we await the implementation of health care reform,” he said during a conference call with analysts.

Ritter Seeks Dollars

There’s nothing like a U.S. Food and Drug Administration stamp of approval to improve profit margins and the potential market for a therapy – at least that’s what Andrew Ritter is counting on.

Ritter’s West L.A.-based Ritter Pharmaceuticals Inc. had been selling RP-G28, a lactose intolerance treatment, over the counter. Now, he is seeking investment capital to fund clinical trials to prove its effectiveness as a long-term treatment.

The product, which promotes the growth of beneficial bacteria to digest dairy products, hasn’t been making headway marketed as a simple dietary supplement, in part because the company can’t make certain claims about its effectiveness and physicians were cautious about recommending it.

Now, Ritter, who formed his company in 2004, plans to file an application in the next few weeks with the Food and Drug Administration to seek the agency’s approval of the product. Ritter, who already has conducted initial studies, is seeking $15 million to conduct phase two clinical trials. He’s been making the rounds of investor conferences, and said he made some promising contacts at the recent SoCalBio Investor Conference in Santa Monica.

“There’s a whole different mentality among patients and doctors when a product is FDA approved,” said Ritter, a former lactose intolerance sufferer.

Cord Blood Movement

Cord Blood America Inc., which banks umbilical cord blood as a potential source of therapeutic stem cells, earlier this month moved its corporate headquarters from Los Angeles to Las Vegas, where the company was able to more cost-effectively open its own cryogenic research and storage

laboratory.

“The new facility will significantly reduce the cost of sales while increasing gross profits because we no longer have to outsource the storage,” said Chief Executive Matthew Schissler, a company founder.

The dedicated facility also will allow the company to expand into other stem cell preservation markets, such as cells gathered from body fat, also known as adipose tissue, and from peripheral blood stem cells. Schissler also expects to lease some of the storage space to other stem cell companies that lack their own facilities.

Staff reporter Deborah Crowe can be reached dcrowe@labusinessjournal.com or at (323) 549-5225, ext. 232.

For reprint and licensing requests for this article, CLICK HERE.