Aurinia Pharmaceuticals Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise. Aurinia is a commercial-stage biopharmaceutical company focused primarily on LUPKYNIS (voclosporin), approved in the U.S. for adult patients with active lupus nephritis, and is developing AUR200 and AUR300.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Product revenue | $25.5 | $14.6 | $75.1 | $22.1 |
| License and collaboration revenue | $30.3 | $0.03 | $30.5 | $0.09 |
| Total revenue | $55.8 | $14.7 | $105.6 | $22.2 |
| Net loss | $(9.0) | $(50.3) | $(82.1) | $(147.6) |
| Loss per share | $(0.06) | $(0.39) | $(0.58) | $(1.15) |
| Operating cash flow | Not separately presented | Not separately presented | $(90.0) | $(131.8) |
- Reported gross margin was approximately 96% in Q3 and 96% for the first nine months, versus 98% and 97% in the comparable 2021 periods.
- At September 30, cash, cash equivalents and restricted cash were $86.1 million; short-term investments were $290.6 million. Together these totaled $376.6 million, down from $466.1 million at December 31, 2021. Working capital was $417.9 million.
- Total liabilities were $64.9 million. The filing reports no borrowings or funded debt; operating lease liabilities totaled approximately $8.2 million. Interest income was $2.2 million for the nine months, up from $0.4 million.
- Nine-month cash flows included $57.6 million used in investing activities and $1.7 million provided by financing activities. Cash and investments declined by $89.5 million over the period.
Material changes versus prior periods
- Revenue growth reflected higher LUPKYNIS sales, which management attributed mainly to further market penetration, and a $30.0 million Otsuka regulatory milestone following European Commission marketing authorization on September 15, 2022. The milestone was recognized in Q3 revenue and collected October 31, 2022.
- Product revenue rose 74% in Q3 and more than tripled for the nine-month period year over year. Total revenue also includes the one-time milestone, so it is not solely indicative of recurring sales growth.
- Net loss narrowed substantially versus 2021, when results included a $10.0 million upfront license and milestone expense for AUR300, and revenue was much lower. Q3 2022 still recorded an operating loss of $9.5 million.
- SG&A increased to $52.2 million in Q3 and $148.9 million year to date, driven largely by professional fees, including corporate legal matters, and commercialization-related travel and sponsorships. R&D decreased to $11.0 million in Q3 and $35.1 million year to date; year-to-date CRO and development costs were lower, partly reflecting the prior-year AUR300 expense.
- Cost of sales increased with product sales and higher safety-stock inventory reserves. The company recorded a $2.5 million inventory write-down in the nine-month period.
Outlook, risks and notable items
- Management said the $376.6 million cash and investment position should fund current plans for at least the next few years, including LUPKYNIS commercialization, post-approval commitments, manufacturing and pipeline work. The filing provides no quantified revenue or earnings guidance.
- AUR200 and AUR300 remain in preclinical development, with IND submissions projected for 2023. Aurinia is continuing regulatory work with Otsuka in other territories; the Otsuka agreement provides for royalties and potential sales milestones.
- Customer concentration is significant: two U.S. customers represented approximately 48% of Q3 total revenue and 74% for the nine months; Otsuka represented approximately 52% and 26%, respectively. The three customers accounted for 99% of trade receivables. A nominal additional discount to the two U.S. customers for the remainder of 2022, related to their holding additional inventory amid supply concerns, may contribute to revenue fluctuations.
- Manufacturing commitments merit attention. A dedicated Lonza facility is expected to begin operations in the first half of 2023; the associated arrangement is expected to be accounted for as a finance lease, with approximately $73.0 million in future minimum payments beginning in April 2023 and extending through 2030. These payments are excluded from the operating lease schedule.
- Risks cited include supply-chain disruption, inflation, market and interest-rate volatility, foreign-exchange exposure, and sanctions and other consequences of the war in Ukraine. A 100-basis-point decline in investment rates would reduce portfolio interest by an estimated $2.9 million. The company reported no material change to previously disclosed risk factors.
- Other items: the company terminated the intended new Victoria headquarters lease and expensed $0.3 million of related construction-in-progress costs. Two senior executives were scheduled to leave effective October 31, 2022 under separation agreements. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- How much of future revenue growth comes from recurring LUPKYNIS product sales versus one-time Otsuka milestones, and whether sales momentum continues.
- Whether U.S. customer inventory levels, the temporary discounts, customer concentration and supply conditions affect orders, net pricing or collections.
- Whether the stated cash runway remains valid as operating cash use, commercialization costs and pipeline spending evolve, including the expected Lonza facility payments.
- Progress toward the projected 2023 AUR200 and AUR300 IND submissions and further Otsuka-territory approvals.
- Potential effects of inventory reserves, revenue-estimate judgments, foreign exchange, inflation and legal or separation-related costs on future results.