Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) Q3 2023 Earnings Call Transcript

Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) Q3 2023 Earnings Call Transcript November 2, 2023

Aurinia Pharmaceuticals Inc. beats earnings expectations. Reported EPS is $-0.09, expectations were $-0.17.

Operator: Greetings. Welcome to Aurinia Pharmaceuticals Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jamie Harrell, Investor Relations for Aurinia Pharmaceuticals. Thank you. You may begin.

Jamie Harrell: Thank you, Operator. And thank you to everyone for joining today’s call and webcast to review and discuss Aurinia’s third quarter and nine-month 2023 financial and operational results. Joining me on the call this morning are, Peter Greenleaf, Chief Executive Officer; and Joe Miller, our Chief Financial Officer. This morning, Aurinia issued a press release announcing its financial results and operational highlights for the third quarter and nine months that ended September 30, 2023. In addition, the company filed its quarterly financial statements on Form 10-Q. For more information, please refer to Aurinia’s filings with the U.S. Securities and Exchange Commission, which are also available on Aurinia’s website at auriniapharma.com.

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During this call, Aurinia may make forward-looking statements based on current expectations. Those forward-looking statements are subject to a number of significant risks and uncertainties and actual results may differ materially. For a discussion of factors that could affect Aurinia’s future financial results and businesses, please refer to the disclosures in Aurinia’s press release and its quarterly report on Form 10-Q along with Aurinia’s annual report on Form 10-K and all of its recent filings with the U.S. Securities and Exchange Commission and Canadian securities authorities. Please note that all statements made during today’s call are current as of today, Thursday, November 02, 2023, unless otherwise noted and are based upon information currently available to us at this time.

Except as required by law, Aurinia assumes no obligation to update any such statements. Now, let me turn the call over to Aurinia’s President and CEO, Peter Greenleaf. Peter?

Peter Greenleaf: Thanks, Jamie, and good morning everyone. I want to thank you all for joining us on today's call. On this morning's call, we will focus on the company's third quarter and year-to-date performance. We'll discuss key metrics and significant commercial highlights for LUPKYNIS. We'll then provide an update on our progress outside the U.S. and close with a brief update on R&D activities for both LUPKYNIS, as well as our pipeline assets. I'll then turn the call over to Joe Miller, our CFO to provide additional details on our financial results. Now let me dive into our overall business performance. I'm pleased to share that we continue to make progress over the last three months and year-to-date with LUPKYNIS, both domestically and abroad.

Highlighting the third quarter, we achieved $40.8 million in LUPKYNIS net product revenue, which represents an increase of 60% versus the prior year's third quarter. We're quite pleased with these results, in particular in light of the impact that the summer months have had on our business historically. This brings year-to-date LUPKYNIS net product revenue through the end of the third quarter to $116.2 million. This represents an increase of 55% versus the same time prior year. As a result of our strong third quarter, we're narrowing our net product revenue guidance for 2023 from $150 million to $160 million to $155 million to $160 million. Additionally in the quarter, we recognized a $10 million XUS milestone from our collaboration partner Otsuka Pharmaceuticals for securing the pricing and reimbursement approval in Europe.

This plus royalties from XUS sales brings our total revenue for the third quarter to $154.5 million. Leading the company's key commercial metrics for the quarter, patient start forms remain strong throughout the period with 436 PSFs in the quarter. This represents a growth of 17% over the prior year's third quarter. Driving new patient starts continues to be an important area of focus for us, and we're pleased to see that PSFs remained relatively stable throughout the summer. Through the end of October, we recorded approximately 1,510 PSFs since January 1, 2023. Patient conversions to therapy remain at high levels with approximately 90% of all patients who have a patient start form submitted receiving actual treatment. We're very pleased with the majority, roughly 65%, are now starting therapy within 20 days.

This represents continued strong execution from our best-in-class patient support services group, Aurinia Alliance. Once we get a patient onto therapy, equally important is how long they stay on therapy. As we know, their underlying disease is a continuous inflammatory process requiring maintenance therapy. Our 12-month persistency rates remain around 54%, with 15-month persistency at about 48%, and now we're seeing 43% persistency at 18 months. We had a total of 1,939 patients currently on therapy as of September 30, 2023. While this number continues to grow, there's been a slight increase in the quarter of discontinuations, which is a function of when patients initiated therapy and when they're falling in the persistency curve at the quarter end.

We're also pleased to report that we have approximately 4,000 patients who have been treated with LUPKYNIS since launch. As stated on previous calls, our business plan is focused on activating three main levers in the growth of LUPKYNIS and the lupus nephritis market. Educating healthcare providers on the need to screen and treat more aggressively, activating the patient to advocate on their behalf, and then lastly, continuing to clinically differentiate LUPKYNIS and position it as part of the foundation therapy in the treatment of LN. We now have the full complement of data to be able to share with the medical community. When we look at the comprehensive data set from the original AURORA trial and our pivotal results, the AURORA II extension study demonstrating long-term safety and efficacy, and the Biopsy sub-study depicting tissue-level evidence of no nephrotoxicity associated with LUPKYNIS.

We continue to educate physicians on these data sets as we further work to penetrate and grow the lupus nephritis market. Our first lever is driving healthcare providers to act with urgency to screen and treat patients more aggressively, getting them to recognize the consequences of their lack of action. We continue to emphasize the importance of treating to goal and reinforcing the guidelines on rapid and sustained reductions of proteinuria to preserve the kidney, the patient's kidney function. Over the third quarter, we maintained our call activity on high-decile targets, driving home the message of treatment urgency, goals of therapy, and the benefits of LUPKYNIS in helping physicians meet their ultimate goal of kidney preservation. In the quarter, we increased the depth of prescribing in our current base of customers as well as expanded the total number of new prescribers.

Additionally, we're starting to see patients come back to therapy as restarts. We have begun to examine this phenomenon, and we believe it is a good indicator for the brand, one, because physicians are comfortable with LUPKYNIS and two if they're restarting therapy, they must have had a good experience with LUPKYNIS during their first exposure to therapy. We believe this bodes well for the further for further growing the brand was with a somewhat unique segment of patients. It also becomes an opportunity to discuss extending the duration of therapy and these patients based on both the AURORA extension study, Biopsy data, as well as the recently published guidelines from EULAR. The EULAR guidelines further support our messaging and educational efforts.

They reinforced the need to routinely screen lupus patients to treat aggressively, to treat to target proteinuria levels and to maintain proteinuria at manageable levels throughout three years. Let me go into a little bit more detail regarding the recently published EULAR guidelines and their advancement for the treatment approach to LN. At a high level four key areas benefit LUPKYNIS. The first is driving earlier diagnosis. Early diagnosis and regular screening for organ involvement especially in LN with prompt initiation of therapy aiming at remission and strict adherence to treatment is essential to preventing flares in organ damage, as well as improving prognosis and enhancing patient's quality of life. The need for routine monitoring is a second.

SLE disease activity should be assessed at each clinical visit with an evaluation of organ damage using validated instruments. Vigilant monitoring for new organ involvement, mainly kidney organ involvement from LN, especially in the first years of disease and thereafter. The third is that the committee recognized the need for a treatment paradigm shift that moves LUPKYNIS up in the line of therapy, “With the breakthrough of LUPKYNIS” a novel C&I for LN, consider shifting an introduction and induction maintenance regimen to early use of combination therapies. And lastly, long-term treatment following the following renal response with LUPKYNIS treatment of LN should continue for at least three years based upon the long-term AURORA extension study, leading that reported stable EGFR throughout the three years of data.

We believe these guidelines actively support our strategic approach to the management of LN and how to use LUPKYNIS in the physician’s treatment regimen. Our second focus is educating patients on the appropriate seriousness of their condition and to advocate for themselves. We need them to ensure that they're getting screened for kidney involvement with their lupus and that they are routinely monitored to ensure their wellbeing and kidney preservation. We have several patient directing campaigns ongoing that are focused on educating the patient about their disease and the consequences of not getting screened. They also advocate for routine monitoring by their physicians. The majority of these campaigns run through the digital marketing and social media channels to maximize reach to target audiences in a cost effective manner.

We've also been working with Toni Braxton, the spokesperson for our unbranded Disease Awareness Campaign “Get Uncomfortable”. To date, her message is reached over 750 million media impressions, and 10s of 1000s of SLE and lupus nephritis patients. Our third strategy is directed towards clinically differentiating LUPKYNIS from substandard therapies, and working to establish LUPKYNIS as a foundational therapy for all on patients. The Company recently announced the launch of the AURORA II extension data for LUPKYNIS. In September, the extension data was published in arthritis and rheumatology, the official journal of the ACR. This publication along with our Biopsy data gives us a great opportunity to go into the remainder of the year reinforcing the long term safety and efficacy of LUPKYNIS.

In addition, our ongoing medical affairs initiatives are focused on evolving the treatment approach for LN and educating healthcare professionals about LUPKYNIS. Our medical teams continue to work with the global key opinion leaders to ensure that they have the latest information and supportive care guideline writing efforts. This holds true for the recent EULAR guidelines, as well as the upcoming KDIGO and ACR guidelines that are continued under development. Throughout the third quarter our medical team engaged with physicians and health care providers over 1000 times. They engaged over 100 clinical data presentations, 95 follow ups to medical information requests, and 150 and light LN related visits. For the two upcoming major medical meetings of the American Society for Nephrology, ASN and the American College of Rheumatology, ACR in November, they have 14 abstracts and posters that were accepted and being presented.

Now moving on to our globalization efforts for LUPKYNIS. Our collaboration with Otsuka has resulted in significant launch momentum outside the U.S. this year. Having received European Commission, British and Swiss marketing authorizations, Otsuka is now focused on launches and securing pricing and reimbursement approvals in various countries throughout Europe. In the third quarter, we recognize a $10 million milestone from Otsuka for securing pricing and reimbursement approval in three of the five major countries in Europe. In addition, this quarter, we started recognizing collaboration revenues related to our mono plant, and offsetting a portion of our fixed facility fees, as well as royalties on our European sales for LUPKYNIS. Our work with Otsuka in Japan remains on track for a regulatory submission before the end of the year.

Upon approval in Japan, which is currently anticipated, for the second half of 2024, we would be eligible for an additional $10 million milestone around the approval in Japan, along with low double-digit royalties on net sales once launched. Now, let me close with our R&D activity. We continue to enroll patients in our LN registry, and currently we have 71 sites activated and a total of 113 patients screened with 111 enrolled. The vocal paediatric study also remains ongoing. As for our pipeline, we remain on track to file an IND for AUR200, our BAFF/APRIL inhibitor by the end of the year. We continue to evaluate potential auto immune and kidney related target indications with a high unmet medical need for this asset. As for AUR300, our novel peptide therapeutic that modulates M2 macrophages via this anti CD206 receptor we are currently in reformulation work on this product as we work towards an IND submission by the end of 2024.

Before I turn the call over to Joe, I'd like to give you a brief update on the ongoing strategic group review, which we now announced a few months back. As a reminder, we initiated a strategic review of the company at the end of June. We continue to work through the process of reviewing strategic options for the company, which include a variety of possibilities ranging from a potential sale, a merger, or other strategic transaction. We have no further updates on the matter. Other than that the process is actively ongoing. We remain committed to running a fulsome process that reflects the best interests of the company, our shareholders, and other key stakeholders including our patients, health care providers and our employees. We ask for your patience in these matters, and know that when we have something material to share at the appropriate time, we will share it with all of our stakeholders.

I'd now like to turn the call over to Joe for a more detailed review of our financial results. And of course I will then return at the end of the call for a quick recap and open up the line for any questions that you might have. Joe?

Joe Miller: Thank you, Peter. And good morning everyone. As of September 30 2023, we had cash, cash equivalents restricted cash and investments of $338.5 million compared to $389.4 million at December 31, 2022 and $350.7 million at the end of Q2 2023. The decrease in cash, cash equivalents restricted cash investments is primarily related to the continued investment and commercialization activities and post approval commitments of our approved drug LUPKYNIS, inventory purchases, advancement of our pipeline and model plant payments partially offset by an increase in cash receipts from sales of LUPKYNIS. We believe that we have sufficient financial resources to fund our operations which include funding commercial activities, including FDA related post approval commitments, manufacturing and packaging of our commercial drug supply funding or supporting commercial infrastructure advancing our research and development programs, and funding our working capital obligations for at least the next few years.

Now let's take a few minutes and go into detail regarding our financial results for the third quarter and the nine months ended September 30, 2023. Net Product Revenue was $40.8 million for the quarter ended September 30 2023, and $25.5 million for the quarter ended September 30m 2022. Net product revenue was $116.2 million for the nine months ended September 30 2023, and $75.1 million for the nine months ended September 30, 2022. The increase for both periods is primarily due to an increase in product sales to our two main customers LUPKYNIS, driven predominantly by further penetration of the LN market. Total net revenue was $54.5 million for the quarter ended September 30 2023 and $55.8 million for the quarter ended September 30, 2022. The decrease period-over-period is due to the recognition of a $30 million regulatory milestone from Otsuka following the EC marketing authorization of LUPKYNIS in September 2022 partially offset by the recognition of a $10 million pricing and reimbursement milestone in 2023 as well as additional collaboration revenue from Otsuka in 2023.

Total net revenue was $130.4 million for the nine months ended September 30, 2023 and $105.6 million for the nine months ended September 30, 2022. The increase is due to the aforementioned increase in net product revenue, partially offset by the change in milestone related revenues. Total cost of sales and operating expenses for the quarter ended September 30, 2023 was $70.8 million and $65.3 million for the quarter ended September 30, 2022. Total cost of sales and operating expenses for the nine months ended December 30 2023 was $192.4 million versus $189 million in the prior year period. Let me now give you a further breakdown of operating expense drivers and fluctuations. Cost of sales amounted to $6.8 million and $2.4 million for the quarters ended September 30, 2023 and September 30, 2022.

The increase is primarily due to increased sales of LUPKYNIS, coupled with the amortization of the model plant finance right of use asset which was placed into service in late June of 2023. Cost of sales was $8.8 million and $4.3 million for the nine months ended September 30, 2023 and September 30, 2022 respectively. The increase is primarily due to the increased sales of LUPKYNIS, coupled with the amortization of the model plant finance right of use asset partially offset by higher inventory reserves in 2023 due to the write down of FDA validation batches. Gross margins for the quarter ended September 30, 2023 was 88% versus 96% at September 30, 2022. Gross margins for the nine months ended September 30, 2023 was 93% versus 96% at September 30, 2022.

Selling, general and administration expenses inclusive of share based compensation were $47.8 million and $52.2 million for the quarters ended September 30, 2023 September 30 2022, respectively. The primary driver for the decrease in SG&A expense was a decrease in professional fees and services including legal fees incurred during the quarters with respect to litigation matters that occurred during the three months ended September 30, 2020 to partially offset by an increase in share based compensation. SG&A expenses inclusive of share based compensation was $145.0 million for the nine months ended September 30, 2023 versus $148.9 million at September 30, 2022. The decrease is primarily due to a decrease in professional fees and services, including legal fees and other corporate costs, including rent and insurance partially offset by an increase in share based compensation expense.

Non-cash share based compensation expense included within SG&A expense for the quarter ended September 30, 2023 was $9.6 million versus $6.6 million for the prior year period. Non-cash share based compensation expense included with an SG&A expense for the nine months ended September 30, 2023 was $27 million versus $21.5 million for the prior year period. Research and development R&D expenses inclusive of share based compensation was $13.6 million at September 30, 2023 versus $11 million for the quarter ended September 30, 2022. The primary driver for this increase in both quarters was due to an increase in CRO and development costs as the company's advances its pipeline assets. R&D expense of inclusive of share based compensation expense was $39.4 million and $35.1 million for the nine months ended September 30, 2023 and September 30, 2020.

The primary drivers for the increase in a nine month period where an increase in costs to advance its preclinical assets and an increase in share based compensation expense, partially offset by the decrease in costs associated with the completion of the AURORA continuation study and drug to drug interaction study, which were substantially completed in 2022. Non-cash share based compensation expense included with an R&D expense was $2 million and $1.5 million for the quarters ended September 30, 2023 and September 30, 2022. Non-cash share based compensation expense included with an R&D expense was $5.7 million for the nine months ended September 30 2023, and $3.5 million for nine months ended September 30, 2022. Interest income was $4.5 million at September 30, 2023 versus $1.5 million for the prior year period.

Interest income was $12.4 million and $2.2 million for the nine months ended September 30, 2023 and September 30, 2022 respectively. The increase for both periods is due to higher yields and our investment as a result of increased interest rates. For the quarters ended September 30, 2023 Aurinia recorded a net loss of $13.4 million or $0.09 net loss per common share, as compared to a net loss of $9 million or $0.06 net loss per common share for the quarter ended September 30 2022. For the nine months ended September 30 2023, Aurinia recorded a net loss of $51.1 million or $0.36 net loss per common share, as compared to a net loss of $82.1 million or $0.58 net loss per common share for the nine months ended September 30 2022. With that, I'd like to hand the call back over to Peter for some closing remarks.

Peter?

Peter Greenleaf: Thanks, Joe. As you heard throughout the call, we're obviously excited about our strong results for the quarter and our momentum through the first three quarters of the year. We continue to focus on business fundamentals and commercial execution. Our commercial teams are concentrated on delivering the newly published data from the AURORA II extension study and educating healthcare providers on the promise of kidney prevention for their lupus nephritis patients. Our R&D teams are focused on our regulatory commitments for LUPKYNIS, and advancing our to pipeline molecules into the clinic. And our executive team and our board are working behind the scenes of our day to day business on the strategic review process to deliver value to all stakeholders in Aurinia.

We remain focused on delivering LUPKYNIS to patients in need and driving results in the U.S. and key markets globally. We look forward to keeping you all posted along the way. I want to thank you all for joining us today. And I'd now ask the operator to open lines for any questions there may be. Operator?

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