Molina Magellan Purchase, And Other News: The Good, Bad And Ugly Of Biopharma

Summary

• Molina Healthcare signs a deal to purchase Magellan.
• Applied DNA Sciences enters the FDA Emerging Technology Program.
• Verona Pharma faces trial uncertainty.
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Molina Agrees To Buy Magellan Complete Care For $820 Million

Molina Healthcare Inc. (NYSE:MOH) announced that it has inked a deal to acquire Magellan Complete Care, a part of Magellan Health Inc. (MGLN). The deal has been valued at $820 million and is expected to close in the first quarter of 2021. Magellan Complete Care serves nearly 155,000 members in government-sponsored healthcare programs such as Medicare and Medicaid in six states including Arizona and New York.

Molina recently nixed its $50 million acquisition deal with NextLevel Health Partners Inc. The company stated that NextLevel’s refusal to go by the terms and conditions of the acquisition deal was the main reason behind the retraction. With regard to its latest acquisition, the company CEO Joseph Zubretsky said, “Acquiring MCC expands our geographic footprint in our core businesses of managed Medicaid, dual eligibles (for Medicaid and Medicare), and long-term services and supports. We believe it will allow us to scale our enterprise-wide platforms and benefit from both operating and fixed cost leverage.”

With the new deal, Molina’s subscriber base will expand to over 3.6 million members and will span 18 states. The pro forma projected revenue for 2020 is over $20 billion. Molina stated that MCC provides a strategic fit and will help create new markets. It will also help Molina in expanding its geographic presence. The transaction is expected to add approximately $3 billion of revenue by 2021. It will also offer attractive leverage to the company’s fixed cost base. Molina believes that the acquisition will help it reach its target margins.

Molina also reaffirmed its guidance for 2020. The company also reported its financial numbers for the first quarter. Its premium revenue grew 8.9 percent on a year-over-year basis to touch $4.3 billion while its total revenue stood at $4.5 billion, up from $4.1 billion in revenue it had reported for the first quarter of 2019. Molina reported that its medical care ratio increased to 86.3 percent in the first quarter. However, its net income for the quarter declined $20 million on a year-over-year basis and was reported at $178 million.

Molina affirmed that its Q1 numbers were not materially affected by the pandemic. The company reported its EBITDA margin for the quarter at 6.6 percent. With the economic downturn and job losses, the company expects a significant jump in Medicaid membership. The company’s General and Administrative expenses ratio declined to 7 percent from 7.3 percent it had reported in the corresponding quarter of the previous year. The company CEO stated, “Going forward, while COVID-19’s impact on the U.S. healthcare system and the overall economy may develop in unanticipated ways, we believe that, under all scenarios, government-sponsored health care will continue to play a critical role in addressing the crisis." The company expects its earnings for the year to be in the range of $11.20 and $11.70 per diluted share.

Molina clarified that it is still in the process of assessing the impact of COVID 19 and therefore its impact on net medical cost is excluded for the purpose of calculating full year 2020 guidance.

Applied DNA Enters FDA Emerging Technology Program

Applied DNA Sciences Inc. (APDN) reported that the FDA has accepted the company’s candidature for the Emerging Technology Program related to the molecular tagging of Solid Oral Dosage Forms (SODF). The main aim of the program is to develop innovative approaches for pharmaceutical product design and manufacturing.

The FDA has stringent criterion for vetting the applications for the program. The agency seeks to identify the potential of the technology in terms of strength, safety, identity and purity. The ETT also aims to ensure that there are more frequent meetings and early engagements. Dr. James Hayward, president and CEO of Applied DNA said, “With the overwhelming majority of domestic drug production reliant on the importation of active pharmaceutical ingredients from overseas sources, there is an underappreciated and pressing need for product security across global pharmaceutical supply chains.” The company will collaborate to focus on the molecular tagging program.

The Emerging Technology Program will afford several benefits for the company as well as for the FDA. The agency will be acquainted with the cutting-edge technologies before any regulatory submission is made for them. Applied DNA will be a part of the team along with other industry behemoths, offering better chances of tie-ups and information exchange. The program will promote the opportunities for discussing and identifying potential technical and regulatory pathways.

Judy Murrah, Chief Information Officer of Applied DNA., added, “Applied DNA’s authentication technology is a robust, multi-layered platform that complements FDA’s Drug Quality and Supply Chain Security Act serialization initiative. The introduction of an immutable identity for traceability and authenticity to both the dose and the packaging supports product investigations even when the two become separated. It is potentially a game-changer for the pharmaceutical industry.” Applied DNA is mainly focused on supply chain security, anti-theft technology, diagnostics and anti-counterfeiting.

Verona Pharma Faces Uncertainty About Its Phase 3 Trial

Verona Pharma (VRNA) disclosed that it is currently assessing the impact of COVID 19 on its Phase 3 clinical trial for ensifentrine. However, the company stated that it continues to prepare for the trial, which was originally intended to begin in the third quarter. Verona still expects the trial to being “as soon as possible” but is also taking stock of the impact of the current pandemic on the trial design, costs involved and timelines.

Verona also provided detailed analysis of data from the Phase 2b where nebulized ensifentrine appended to tiotropium showed clinically and statistically significant dose-dependent improvements in lung function as well as COPD symptoms. During the presentation of its quarterly financials, David Zaccardelli, Pharm. D., President and Chief Executive Officer of Verona said, “Currently, the initiation of a Phase 3 program for ensifentrine for the treatment of COPD is anticipated later this year, subject to securing additional funding. We continue to monitor the situation caused by the COVID-19 pandemic and its potential impact on our operational and financing goals and will provide an update as and when further information becomes available." The company is currently awaiting the FDA's response to its End of Phase 2 package

Verona had earlier planned to report results from the multiple-dose portion (Part B) of the trial in the second half of 2020. However, in March, the company reported halting the start of Part B. The company is now assessing the situation to see whether the pandemic had any disrupting impact on clinical supply of the drug candidate for the ongoing trial. While the company’s contract manufacturers have indicated that they are prepared for uninterrupted supply, the company is taking a cautious approach.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.