Aurinia Pharmaceuticals Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Aurinia is a commercial-stage biopharmaceutical company developing and commercializing therapies for serious diseases. This unaudited filing covers the three and six months ended June 30, 2021. The FDA approved LUPKYNIS (voclosporin) for adult patients with active lupus nephritis in January 2021, and the company launched it in the United States.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $6.6 million | $29,000 | $7.5 million | $59,000 |
| Net loss | $47.0 million | $26.5 million | $97.4 million | $52.5 million |
| Loss per share, basic and diluted | $0.37 | $0.24 | $0.76 | $0.47 |
| Operating cash used | Not separately stated | Not separately stated | $91.5 million | $44.6 million |
Revenue and margins. Q2 product revenue was $6.6 million; first-half product revenue was $7.5 million. License revenue remained $29,000 for the quarter and $59,000 for the half year. Cost of sales was $308,000 in Q2 and $356,000 for the half year; management reported gross margin of approximately 95% for both periods.
Expenses. Q2 selling, general and administrative expense rose to $43.8 million from $15.4 million; first-half expense increased to $83.1 million from $26.5 million, primarily reflecting commercial and administrative expansion for the LUPKYNIS launch. Research and development expense declined to $10.1 million in Q2 and $19.9 million for the half year, versus $11.1 million and $24.9 million, respectively, largely due to lower clinical-trial and supply costs. First-half share-based compensation was $15.6 million, compared with $7.7 million a year earlier.
Liquidity and obligations. At June 30, cash, cash equivalents and investments totaled $323.7 million, down from $422.7 million at December 31, 2020; working capital was $320.4 million. Cash and cash equivalents alone were $121.6 million. Total liabilities were $54.0 million, including $8.9 million of operating lease liabilities; the filing reports no conventional borrowings. Management believes available cash and investments can fund current plans for at least 12 months beyond issuance of the financial statements. First-half investing cash outflow was $65.6 million, including an $11.8 million upfront payment for the Lonza manufacturing facility; financing provided $6.3 million, primarily from option exercises.
Material changes and developments
- Commercial product revenue began following FDA approval, while losses widened as the company expanded its launch infrastructure.
- First-half net loss increased by $44.9 million year over year; operating cash use more than doubled, reflecting launch spending, inventory payments and a $4.0 million related-party milestone payment.
- Otsuka filed an initial EU marketing authorization application in June 2021. Aurinia may qualify for regulatory milestones, sales royalties and cost-plus product supply revenue, but no additional Otsuka consideration had been earned or received by June 30 beyond the $50 million upfront payment made in 2020.
- Shareholders approved an equity plan authorizing up to 11.5 million additional shares and an employee stock purchase plan authorizing up to 2.5 million shares. Shares outstanding increased to 128.4 million from 126.7 million at year-end.
- The company announced it would delist from the TSX effective July 30, 2021; its shares continue to trade on Nasdaq as AUPH.
Outlook, risks and contingencies
- Management’s stated liquidity outlook is to fund current commercial, post-approval, manufacturing, R&D and corporate plans for at least the next 12 months; the filing provides no specific revenue or earnings guidance.
- FDA post-approval commitments include pediatric studies, a lactation study, a drug-drug interaction study and the AURORA-2 final report, with specified reports due between 2022 and 2031. Management said these studies were on track.
- The Lonza monoplant arrangement is expected to be accounted for as a finance lease. Estimated minimum payments total approximately $96 million from April 2023 through 2030 and are not included in the reported operating lease maturity table. The company also had approximately $25.4 million of non-cancellable Lonza manufacturing commitments through 2023.
- Commercial sales depend on a small number of customers: the filing says two specialty pharmacies accounted for approximately 61% and 36% of total revenue for the three- and six-month periods, respectively; the exact period-to-customer attribution is not clear in the text.
- Potential risks include COVID-19 disruption to clinical trials, commercialization or capital-market access; execution of the product launch; customer and supplier concentration; and uncertainty around regulatory milestones, royalties and future sales. Management reported no material change in previously disclosed risk factors and no pending legal matters believed likely to have a material adverse effect.
- Other unusual items include Q2 other income of $967,000, compared with $67,000 of expense in Q2 2020; for the first half, other expense was $804,000, versus $2.0 million a year earlier. The filing does not provide a clear breakdown of these period-specific movements in the supplied text.
Important facts for investors to verify
- Whether LUPKYNIS prescriptions, net sales and reimbursement access continue to grow, and how rebates, discounts and channel inventory affect reported product revenue.
- The pace of launch-related spending and cash burn relative to the $323.7 million cash-and-investment balance and management’s 12-month funding outlook.
- Progress and timing of Otsuka’s regulatory review, potential milestones and eventual royalties; these amounts remain contingent and are not assured.
- The timing, accounting treatment and total economic commitments associated with the Lonza monoplant, including the expected approximately $96 million of future lease payments.
- Potential dilution from outstanding options and the newly approved equity plans, as well as the concentration of revenue among specialty pharmacy customers.