Aurinia Pharmaceuticals: All In On Lupkynis - A Tough Bet

This is my first take on Aurinia Pharmaceuticals (NASDAQ:AUPH), a Canadian transplant that has transitioned to U.S. domestic reporting. As a result it now (post 2020) files typical 10-Ks and Qs, 8-Ks and the like, a significant improvement over its previous 6-K filings.

In this article I provide an overview on its business and assess its future investment prospects.

After several voclosporin disappointments, Aurinia finally hit pay dirt with LUPKYNIS (voclosporin) approval in treatment of LN

Aurinia has run voclosporin [LX214] through a variety of 22 clinical trials reported on clinicaltrials.gov. Its earliest efforts were trials begun before 2010, including:

1. dose-escalation study to assess the safety and tolerability of LX214 ophthalmic solution in healthy volunteers, followed by an open-label evaluation of LX214 in patients with keratoconjunctivitis sicca [KCS];
2. phase 3 study is to determine the safety and efficacy of voclosporin in patients with plaque psoriasis;
3. study to see if voclosporin is safe and effective in preventing kidney transplant rejection.

Aurinia's initial 10-K for 2020 (p. 7) points to voclosporin's fulsome clinical history in support of its safety and tolerability. It points to 2,600 subjects having been dosed with voclosporin in clinical trials including studies where voclosporin was compared to placebo or active control.

Aurinia reported the following as its reasons for discontinuing development of voclosporin in:

1. Psoriasis: Due to the evolving psoriasis market dynamics and the changing standard of care for its treatment, Aurinia decided not to pursue further Phase 3 development.
2. Kidney Transplantation: Due to the ongoing evolution of the commercial market in kidney transplantation, combined with the cost and timeline that would have been associated with additional clinical trials, Aurinia chose not to pursue further internal clinical development in kidney transplantation.
3. Eye conditions: In multiple studies, including ones by its licensee Lux, voclosporin showed an impact on disease activity, however achievement of the primary endpoints in multiple studies could not be shown.

To its credit and appropriately for a company with limited resources, Aurinia pursued this variety of indications deemed appropriate but backed away when the trials so indicated. In 01/2021 the FDA validated LUPKYNIS; it approved it in combination with a background immunosuppressive therapy regimen for the treatment of adult patients with active lupus nephritis [LN].

Aurinia's Q4 2022 conference call reported its progress as it enters its second full year

Aurinia wasted no time following FDA approval of LUPKYNIS. Already during its Q4, 2020 earnings call, on 02/24/2021 just 23 business days post-approval and launch, it was reporting preliminary launch progress and metrics. Then CCO Colao reported that following its approval on a late Friday, Aurinia reacted the following Monday morning with a fully trained field team.

At the time COVID was still a factor. Nonetheless he reported:

...so far 70% of our sales calls have not been virtual, 70% have been live and in-person, fully compliant local guidelines. We think that in the context of COVID restrictions, this high ratio of in-person calls confirms very robust interest on the part of physicians. It also speaks to the incredible dedication and tenacity of our team.

Aurinia's Q4, 2022 earnings call, (the "Call"), delivered on 02/28/2023, provides a report on how Aurinia is doing a full two years on. During the Call CEO Greenleaf advised that Aurinia was closing in on its initial target of net realizable revenue per patient for LUPKYNIS of $65,000 per patient per year.

He emphasized that variations were driven more by dose adjusting and persistency. It was not a result of margin erosion driven by significant payer access discounts. He cited a new marketing campaign directed to healthcare workers emphasizing LUPKYNIS':

1. improved clinical outcomes when compared to the historical standard of care;

2. more complete response rates, including speed and durability as well as the ability to rapidly reduce steroids and

3. efficacy in minority patient populations, which represent the majority of SLE and lupus nephritis patients.

Beyond efforts directed to healthcare professionals, particularly those deemed the highest potential writers, Aurinia is also employing patient directed strategies.

Prospective Aurinia investors need to evaluate its pipeline and LUPKYNIS' competition

Aurinia's 27 slide 02/2023 slide presentation (the "Presentation") includes the following slide 23:

This slide screams "one trick pony". Aurinia lists no other clinical stage assets beyond its approved LUPKYNIS. Anyone looking to justify its ~$1.3 billion market cap should forget about its pipeline. It may well be novel and differentiated but for lack of any clinical stage molecules it hardly deserves to be considered a pipeline, at least in terms of potential future revenues.

So if it's all about LUPKYNIS, what can we expect? For one thing LUPKYNIS lost any claim to exclusivity in LN before the FDA had ever approved. As luck would have it in 12/2020 GlaxoSmithKline (GSK) nabbed approval for its Benlysta to treat LN. Benlysta had already been approved to treat systemic lupus, so it was a familiar name, a familiar name with big pharma marketing muscle behind it.

Nor is Benlysta the only competition to consider. Perhaps the most important pilgrimage anyone interested in Aurinia as an investment ought to consider is the competition writeup in its latest 10-K (p. 9). I quote relevant excerpts from it below:

... Many companies, including major pharmaceutical as well as specialized biotechnology companies, are ... focused on medical conditions that are the same as, or similar to, those targeted by us. ... physicians have and continue to treat LN in the United States using other drugs with off-label prescribing, such as a combination of MMF and steroids or tacrolimus. ... Certain products may also be available at prices that are substantially lower than the cost of LUPKYNIS, whether or not studied in, or receiving approval for use by the FDA for, LN

I excised from the foregoing its important reminders that actual and potential competitors include a variety of organizations including:

1. companies with substantially greater experience, financial and other resources;
2. ones with larger research and development staff, and more extensive marketing and manufacturing;
3. colleges, universities, government agencies, and other public and private research organizations conduct acting on their own or through collaborative agreements.

With its ~$1.3 billion market cap, Aurinia is a shrimp in the drug development and marketing business. Not the smallest of the small by far, but a shrimp nonetheless.

Aurinia has limited financial resources

Aurinia has limited finances as it works to build a profitable business. The Presentation provides the following slide 25 with its financial overview and revenue guidance:

Its slide 26 supplements this advising of its ~$390 million in cash, cash equivalents, and investments. It also confirms that it has no debt. The excerpt below from its 2022 10-K sets out its operating results for years 2022 and 2021:

If you fill in the top level of LUPKYNIS' 2023 guided revenues ($140 million), it still nets out a sizable loss for the year.

Conclusion

The bottom line as I see it for Aurinia is ho hum at best. Accordingly I rate it as a hold. Bulls wishing to paint a more sanguine story can point to Presentation slides described below:

1. Slide 10 — LUPKYNIS Triples the Chance of a Complete Response;
2. Slide 11 — Achieves a Significantly Greater Complete Response in Diverse Patient Populations Compared to MMF + Low Dose Steroids Alone
3. Slide 12 — LUPKYNIS Reduces Proteinuria 2x Faster than MMF + Low-dose Steroids Alone
4. Slide 15 — Demonstrated Safety Over 3-Years

As always time will tell how the future plays out for Aurinia. My best read is that I prefer watching this one from the sidelines. The price for watching this play out over time is more risky than any potential reward.