Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) Q1 2024 Earnings Call Transcript

Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) Q1 2024 Earnings Call Transcript May 2, 2024

Aurinia Pharmaceuticals Inc. beats earnings expectations. Reported EPS is $-0.07464, expectations were $-0.17. AUPH isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Aurinia Pharmaceuticals First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the conference over to Andrea Christopher, Head of Corporate Communications and Investor Relations for Aurinia Pharmaceuticals. Please go ahead, Andrea.

Andrea Christopher: Thank you, operator, and thank you to everyone for joining today’s call and webcast. Joining me on the call this morning are Peter Greenleaf, Aurinia’s Chief Executive Officer; Joe Miller, our Chief Financial Officer; and Dr. Greg Keenan, our Chief Medical Officer. Today, we will review and discuss Aurinia’s 2024 first quarter financial and operational results as communicated in the company’s press release issued this morning. The company also filed its quarterly financial statements on Form 10-Q this morning. For more information, please refer to Aurinia’s filings with the US Securities and Exchange Commission and applicable Canadian securities authorities, which are also available on Aurinia’s website at auriniapharma.com.

During today’s call, Aurinia may make forward-looking statements based on current expectations. These 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 business, please refer to the disclosures in Aurinia’s press release, its quarterly report on Form 10-Q and its annual report on Form 10-K and all of its recent filings with the US Securities and Exchange Commission and Canadian securities authorities. Please note that all statements made during today’s call are current as of today, Thursday, May 2, 2024, unless otherwise noted and are based upon information currently available to us.

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, Andrea, and good morning, everyone. I want to thank everybody for joining us on today’s call. On this morning’s call, we will focus on the company’s first quarter performance. I’ll then turn the call over to Joe Miller, our CFO, to provide additional details on our financial results. We saw continued strong momentum in the first quarter, reflecting the initiatives that the company is focused on, including demonstrating solid commercial execution, rapidly restructuring the company and reducing our headcount by approximately 25% and accelerating the company’s time line towards cash flow positivity. So now let me dive into the first quarter business performance and how we’re executing on these overall initiatives.

For the first quarter of 2024, Aurinia achieved $50.3 million in total net revenue, representing growth of approximately 46% year-over-year. We achieved $48.1 million in net product revenue, representing significant growth of approximately 40%. With this momentum, we remain on track to achieve our net product revenue guidance range of approximately US$200 million to US$220 million. In terms of our restructuring efforts, we executed with speed and precision following the announcement on February 15, while maintaining our focus on loop kinase and growth. While we’ve ceased development on AUR 300, we are currently exploring alternative approaches for AUR 200. Taken as a whole, we expect the restructuring will drive the organization to a cash flow positive position, excluding share repurchases and over time, will provide meaningful accumulation of cash, increasing tangible value and allowing more flexibility for the company for the future.

As part of our corporate restructuring, we reduced employee headcount by approximately 25% in the first quarter. With this effort, we expect to reduce operating expenses by $50 million to $55 million over the next 12 months and approximately 75% of that will be recognized in this year. The company expects total annualized operating expenses on a go-forward basis to be in the range of $185 million to $195 million, with cash-based operating expenses of approximately $155 million to $165 million. With these achievements in mind, I’m very pleased to confirm that we expect to be cash flow positive, excluding share repurchases in the second quarter of 2024 ahead of our prior projections. On the commercial front, we are laser-focused on driving loop kinase revenues and have several key commercial metrics driving the brand’s trajectory.

In the first quarter, we added 448 patient start forms and approximately 148 new patients who were either restarting look kinase or receiving it through the hospital pharmacy. Together, these total approximately 596 PSFs in combination with restarts in hospital fills versus 466 PSF.s in the prior year first quarter, representing substantial year-over-year growth. There were approximately 2,178 patients on the kinase therapy as of March 31, 2024 in comparison to approximately 1731 patients as of March 31, 2023, an increase of approximately 26% and this was driven by overall improvements in all key commercial metrics. Net realizable revenue per patient for LUPKYNIS remains higher than our initial guidance of 65,000 per patient on an annualized basis.

As persistency adherence and pricing has evolved over time, we now believe that net realizable revenue per patient will be in the range of $70,000 to $75000 on an annualized basis. From the start of the year through April 28, 2024, the Company has added approximately 582 PSFs and approximately 170 new patients from restarts in the hospital channel. We continued to sustain high conversion rates with approximately 85% of PSFs converting to patients on therapy. We also sustained a rapid conversion time with approximately 60% of patients starting therapy within 20 days. Our overall adherence rates remained high at 87% through the first quarter and persistency grew year-over-year from approximately 51% of patients remaining on therapy at 12 months to approximately 56% remaining on therapy at 12 months.

Additionally in the first quarter, 50% and 46% of patients remained on therapy at 15 and 18 months respectively. Based on all of the above, we are reiterating our full year guidance. Our metrics demonstrate continued growth that is driving the upward trajectory of LUPKYNIS. We are heading towards cash flow positivity and increasing the Company’s financial strength and flexibility for the future. Along with this strong financial performance, we also recently achieved several key milestones reflecting the importance of LUPKYNIS as a best-in-class drug with a strong clinical portfolio that aligns with the most current treatment guidelines. As announced earlier this week, the FDA has approved a label update for LUPKYNIS. The label no longer includes language indicating that the safety and efficacy of LUPKYNIS has not been established beyond one year.

The label now includes long-term data from a post-hoc analysis of the AURORA 2 extension study. The data showed that patients receiving LUPKYNIS achieve sustained complete renal response at every time point assessed throughout the three years when compared to MMF and Low-Dose group glucocorticoid steroids alone. Shifting to our marketing efforts. We recently launched the “Know the Signs,” campaign and innovated a new campaign designed to increase awareness among rheumatologists about the severity of lupus nephritis and the urgent need to prioritize kidney health for people with lupus as well as encouraging them to increase screening for lupus nephritis among lupus patients. With an underdiagnosed and underserved population, we continue to believe there is still significant untapped potential in the LN market.

Current screening and treatment guidelines are not actually being followed. We know that high – a high percentage of lupus and lupus nephritis patients are not being given regular urine screens at every visit and may still only receive steroids when proteinuria levels indicate additional treatment is necessary. Yet our clinical trials have shown that LUPKYNIS reduce proteinuria roughly three times faster than MMF and steroids alone. This is why we’re heavily focused on improving physicians’ understanding of the seriousness of lupus nephritis. We want rheumatologists to understand the necessity of more aggressively treating and diagnosing LN patients by treating to target protein levels and keeping them on therapy for a minimum of three to five years, all of which closely aligns with current treatment guidelines.

Regarding commercial activities outside the U.S., we’re seeing continued revenue from Otsuka’s launch activities in Europe and we’re also working diligently to expand access to LUPKYNIS to another key market with our pending regulatory approval in Japan. As previously noted, we expect to receive a response from the Japanese regulatory authorities in the second half of this year. Regarding the JNDA. that Otsuka filed in November of 2023 for the approval of LUPKYNIS to treat adults with active lupus nephritis. Upon approval, we expect to receive a milestone of $10 million and from their low double-digit royalties on net sales once launched. So, in summary, we believe our first quarter accomplishments reflect solid execution against our previously announced business priorities.

I also want to recognize it May is Lupus Awareness Month. At Aurinia, we take great pride in the work we do every day to improve the lives of people living with lupus nephritis. We are committed to making a difference for this patient community and we never lose sight of that. I’d now like to turn the call over to Joe for a more detailed review of the financial results, but I’ll return at the end of the call for a quick recap and I did then open the line to any questions that you might have. Joe?

Joe Miller: Thank you, Peter and good morning everyone. Let’s take a few minutes and go into detail regarding our financial results for the first quarter of 2024. Total net revenue was $50.3 million and $34.4 million for the three months ended March 31, 2024 and March 31, 2023 respectively. Net product revenue of the same periods was $48.1 million and $34.3 million, representing growth of approximately 46% and 40% respectively. The increase is primarily due to an increase in LUPKYNIS sales from our two main specialty pharmacies, driven predominantly by further penetration of the LN markets. Total cost of sales and operating expenses inclusive of one-time restructuring charge in Q1 2024 were $63.6 million for the quarter ended March 31, 2024 and $64 million for the quarter ended March 31, 2023.

It is important to note that the first quarter was fairly burdened from an operating expense standpoint as the restructuring charge was not fully implemented until late in the first quarter of 2024. Let me now give you a further breakdown of operating expenses, drivers, and fluctuations. Cost of sales was $7.8 million for the quarter ended March 31, 2024 and $421,000 for the quarter ended March 31, 2023. The increase is primarily due to increased sales of LUPKYNIS, coupled with the amortization of the mono plant finance right-of-use asset which was placed into service in late June 2023. Gross margins for the quarter ended March 31, 2024 and March 31, 2023 was approximately 85% and 99%. Selling, general, and administrative expenses inclusive of share-based compensation were $47.7 million and $50.1 million for the three months ended March 31, 2024 and March 31, 2023 respectively.

The primary drivers for the decrease were lower corporate costs, employee-related costs due to the reduction in headcount, which occurred late in the first quarter of 2024, and lower spend for travel. The decrease in SG&A operating expenses reflects the early impact of our restructuring efforts. Though this balance does not include the one-time restructuring charge. The one-time restructuring charges reflected as a standalone or line item in the profit and loss statement and will be discussed separately in a moment. Non-cash SG&A share-based compensation expense was $7.5 million for the first quarter of 2024 and $7.6 million for the prior year. Research and development expenses inclusive of share-based compensation expense was $5.6 million for the quarter ended March 31, 2024 and $13.2 million for the quarter ended March 31, 2023.

The decrease is primarily related to exiting our pipeline programs as previously announced, but does not include the impacts of the one-time restructuring charge. As previously mentioned, the one-time restructuring charges reflected as a standalone line item. Non-cash share-based compensation expense included within R&D expense was a credit of $2.2 million and an expense of $1.6 million for the quarters ended March 31, 2024 and March 31, 2023. The primary driver for the decrease in share-based compensation is related to the reduction in headcount, which occurred late in the first quarter of 2024. Restructuring expenses for the quarter amounted to $6.7 million in the prior year period to zero. The balance is primarily made up of employee severance and one-time benefit payments and contract termination costs.

The company has recognized most of its planned restructuring costs in the first quarter. Other income was $4.1 million in interest expense was $1.3 million for the quarter ended March 31, 2024 compared to other expense of $290,000 and no interest expense for the prior year period. The changes for both other income and interest expense related to our model plant finance right-of-use asset, which is denominated in Swiss francs and was placed into service in late June 2023. Interest income was $4.5 million for the quarter ended March 31, 2024 and $3.8 million for the prior year period. Increases due to higher yields in our investments as a result of increased interest rates. R&D recorded a net loss of $10.7 million or $0.07 net loss per common share for the quarter ended March 31, 2024 as compared to a net loss of $26.2 million or $0.18 net loss per common share for the quarter ended March 31, 2023.

As of March 31, 2024 Aurinia had cash, cash equivalents and restricted cash and investments of $320.1 million compared to $350.7 million at December 31, 2023. The decrease is primarily related to continued investment in commercialization activities and post-approval commitments of our approved drug LUPKYNIS, model plant payments, share repurchases and restructuring related payments partially offset by an increase in cash receipts from sales of LUPKYNIS. The company remains debt-free at March 31, 2024. With that, I would like to hand the call back over to Peter for some closing remarks. Peter?

Peter Greenleaf: Thanks Joe. Obviously, we’re looking forward to continued strong performance in 2024 and beyond. I want to thank you all for your time today. We will now open up the lines for any questions you might have. Operator?

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Q&A Session

Operator: Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question today is coming from Maury Raycroft from Jefferies. Your line is now live.

Farzin Haque: Hi, good morning. Thank you for taking our questions. This is Farzin on for Maury. I just wanted to ask on the implications of the updated label, your conversion rate for the PFS has been in the mid 80s. Do you expect that to further push or should we expect primary influence prescribers perception of the drug?

Peter Greenleaf: So thank you for the question. Listen, I think the label update is a recognition of — by he agency of the data that we provided in addition to the original or pivotal study. I think it’s going to be helpful to not be concluded in the indication language that on anything beyond one year has not been studied to have that taken out of the three-year data incorporated into the label is going to help us I think on multiple fronts, probably not on the conversion side of the equation, but we’ll see we’re looking at it more on the probably the persistency side and ensuring that the drug gets utilized as both the EULAR and KDIGO guidelines outlined, three to five years of therapy approximately. So we see it more as persistency and length of therapy and additive to the already published data that’s out there.

Farzin Haque: Okay. Make sense. And then last month we had like 156 that are accounted, the total PSF and restart. So this is trending a bit lower than the average 1Q monthly numbers. Is that just lumpiness or is there any factors driving the slowness in April?

Peter Greenleaf: Well, the exact number I think in combination on the PSF plus the restarts and hospitals was closer to 170. So probably just now you’re quick doing the math, I think it was 170. If you look at that on a per week basis versus where we were in the first 13 weeks of the year, it’s pretty consistent, maybe slightly lower but pretty consistent with what we did in the first quarter of the year. If you look at it April 2023, it’s almost directly on target with where we were in April of 2023. But that was just a PSF number last year. So if you look at PSF on April 2023 versus PSFs alone in April 2024, the numbers were very consistent. The big driver of the change in about 25% improvement year-over-year in the month of April was driven by both restarts and hospital patients.

Farzin Haque: Got it. Okay. Thank you so much.

Peter Greenleaf: Thank you, sir.

Operator: Thank you. Next question today is coming from Stacy Ku from TD Cowen. Your line is now live.

Stacy Ku: Hey there. I’m sorry, if I repeat a question, because I got kicked off momentarily. So thanks so much for taking our questions. We did have a few. First is a follow-up to what I believe was the first question. Just can you talk about big picture? What’s your evolving thoughts around patient start forms and the current cancer additions as we look forward? And then how important is formulary purchases in the hospital channel for your long-term growth? That’s the first kind of question. And I have a few follow-ups.

Peter Greenleaf: Thank you. I think it’s a great question on. Obviously, PSFs we see as important, but I think as you’ve seen, because I think it’s the best indicator of new patient volume and since 85% of those convert, new patient volume and since 85% of those convert, new patient starts, and kind of our equivalent of an NRX, right? But this emergence over the last, let’s call it, six to 12 months of the importance of restarts, and the, albeit smaller, but emerging hospital business show new lines of growth. So the way we talk about it, Stacy, internally is more, how does our new patient on therapy numbers look within the quarter? And I think that’s an important one, and that’s a combination of all the three. I’m not trying in any way to discount the importance of PSFs. We think all our marketing and selling initiatives that we have out there, the primary driver is identifying new patients and getting new patients on drug.

But for the last, let’s call it, six months plus, a lot of our growth has come from both these restarts, which I think points to the importance of the AURORA 2 extension study, this label change, and the work we’ve been doing over the last 12 months. But it does in any way, in my mind, discount the need to focus on new patient growth. And while the hospital patients are indeed new patients, the PSFs are still a major indicator for that.

Stacy Ku: Okay. Understood. And then around your 2024 revenue guidance, do you want to just walk through, remind us about the seasonality, quarterly cadence expectations, and how you feel about kind of your revenue guidance for the high and low end this year?

Peter Greenleaf: Well, as you know, we don’t give any numeric or sort of pillars to the high and the low, but sort of qualitatively speaking, I think the low end of the guidance with the quarter we just produced would have to see a significant decline or some challenge in the summertime, and then back to growth in the fourth quarter. And the high end of the range, this is very generally how we think of it, and getting above that range is going to be driven by how well we perform in the summer. Since for three seasons now we’ve had a little bit of a dip during the summertime or a flattening in the summertime, if we can power through that, we think we have the ability to be in the upper end of that range. Lastly, I think 2Q performance will be a key driver to look at guidance in general and see where we are for the year.

And if that outperforms, then we’ll come back to the table and talk about where we see the year coming out. But the biggest swing on 200 to that 220 range is going to be the summer months of the year.

Stacy Ku: Okay. Understood. And then last question is just a follow-up on your comments around exploring alternative approaches for and your pipeline product 200, but just hoping to help us understand what does that mean? Can you go into a little bit more detail for us? Thank you so much.