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A Breakout in Aurinia Pharmaceuticals Inc May Be Imminent

Chris Lau

The downtrend in shares of Aurinia Pharmaceuticals Inc (NASDAQ:AUPH) may end soon — not from the renewed interest in biotech stocks but because of Aurina’s upcoming revenue potential.

Aurina has a potential blockbuster drug, called Voclosporin, that is in the clinical stages. Classified as an immunosuppressant, it treats Lupus Nephritis (LN); Focal Segmental Glomerulosclerosis (FSGS), which often causes kidney failure; and Minimal Change Disease (MCD), a kidney disease. 

AUPH’s priorities during both its second and third quarter were the Aurora Phase III trial. The drug trial is underway as Aurina continues enrolling patients. The enrollment period will end this year and will last a full year. Results in the study will trickle in at the end of 2019.

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LN is a potential billion-dollar marekt for Aurina because a treatment for the disease does not yet exist. There are no FDA- or European Medicines Agency-approved therapies out there. Investors holding AUPH stock are betting that the company will report a successful Phase II program for Voclosporin.

Unlike many other early clinical-stage drug developers, Aurinia is financially-sound enough that it will not need to raise funds until at least 2020. In its last quarter, cash burn rates were modest, as the company kept R&D and administrative costs low.

Aurinia ended the third quarter with $182.4 million in cash and short-term investments, barely down from the $189.8 million from the previous quarter. Though it lost $0.16 a share, or $13.1 million, the company incurred low expenses. R&D activities cost just $10.8 million, up from $3.3 million from the previous year. Administrative and business development costs of $2.6 million are up from $1.7 million year-over-year.

Its clinical study for FSGS is at the Phase II proof of concept step. The study will start in the first half of this year.

In addition, Aurinia also has plans to study its Voclosporin ophthalmic solution to treat Dry Eye Syndrome (DES).

AUPH Stock’s Billion-Dollar Potential 

Aurinia believes the marketing sales potential Voclosporin is more than the $1.4 billion it forecast. Given its many potential indications, it could make sales of $2 billion worldwide. The company’s optimism will give investors confidence but the reality is different. Aurinia must report positive clinical results in 2018, setting the stage for a product launch in 2019 and beyond.

The sales forecast of $2 billion is also for sales at its peak. Aurinia is including the potential sales from the additional indications related to Nephrotic Syndrome and FSGS. But it’s not possible to predict that Aurinia earns regulatory approvals for all of the diseases it wants the drug to treat.

AUPH Stock’s Valuation

Since the company does not have a product on market, investors may apply such metrics as the price-earnings ratio or price-sales ratio to value the company. Instead, its future company valuation will depend on product sales. Using finbox.io’s fair value calculator, AUPH stock could have around 50% upside, assuming revenues start coming as early as fiscal 2019. Aurinia could potentially make billions in revenue annually but it is safer to model revenue of no higher than around $100 million annually.

Wall Street has an average target price of around $12 on the stock.

Takeaway on AUPH Stock

Aurinia is a speculative investment that has no proven product yet. Sentiment and positive news on the progress of its clinical studies will move its shares in the short-term.

Investors could just as easily consider Synergy Pharmaceuticals Inc (NASDAQ:SGYP) or Acadia Pharmaceuticals Inc. (NASDAQ:ACAD). The point here is that the biotech investor should hold a basket of speculative companies. Not all plays will pan out but the ones that do will give a very good investment return.

As of this writing, the author does not own any of the aforementioned securities.

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