Aurinia Pharmaceuticals Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. Financial statements are in U.S. dollars and prepared under U.S. GAAP. Aurinia transitioned from foreign-private-issuer reporting and IFRS to U.S. domestic reporting and U.S. GAAP for 2021 filings; the presented comparative periods use U.S. GAAP.
Business context and key developments
Aurinia is a biopharmaceutical company focused on LUPKYNIS (voclosporin) for adults with active lupus nephritis (LN). The FDA approved LUPKYNIS on January 22, 2021, after the 2020 year-end; the filing describes the subsequent U.S. commercial launch. FY2020 revenue did not include U.S. product sales.
In December 2020, Aurinia licensed LUPKYNIS development and commercialization rights in Europe, Japan and specified other territories to Otsuka. Aurinia received a $50 million upfront payment and may receive up to $50 million in regulatory and reimbursement milestones, tiered royalties of 10%–20% on net sales, and sales-based milestones.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $50.1 million | $0.3 million |
| Research and development expense | $50.3 million | $52.9 million |
| General and administrative expense | $96.0 million | $22.3 million |
| Operating loss | $104.3 million | $90.9 million |
| Net loss | $102.7 million | $88.4 million |
| Basic and diluted loss per share | $0.87 | $0.95 |
| Cash and cash equivalents | $272.4 million | $306.0 million |
| Short- and long-term investments | $150.4 million | None reported |
| Working capital | $387.4 million | $303.8 million |
| Total liabilities | $55.9 million | $25.7 million |
FY2020 revenue was almost entirely the Otsuka upfront license payment; there was no reported product revenue for the year. The filing does not provide a meaningful product gross margin. G&A rose substantially as Aurinia expanded its commercial organization and incurred higher compensation, share-based compensation, facilities and pre-commercialization costs. R&D declined, primarily due to lower drug supply and clinical-trial costs, partly offset by regulatory expenses.
Cash used in operating activities was $69.9 million, versus $63.6 million in 2019. Investing activities used $158.2 million, largely reflecting purchases of investments; financing activities provided $194.4 million, including $187.7 million net proceeds from the July 2020 share offering. Accumulated deficit was $575.2 million. The company reported no debt balance in the provided financial statements. Management said cash and investments were sufficient to fund current plans for at least the next 12 months.
Fourth-quarter 2020 revenue was $50.0 million, operating loss was $8.1 million, and net loss was $8.1 million. The quarter’s revenue largely reflects recognition of the Otsuka upfront payment.
Outlook, risks and unusual items
- Management planned an Otsuka-led European marketing authorization application filing in the first half of 2021 and intended to pursue approvals in other licensed territories. Approval and commercial success outside the U.S. were not assured.
- The U.S. label requires pediatric studies, a lactation study, a drug-drug interaction study and a final AURORA-2 continuation-study report, with specified reports due between 2022 and 2031.
- Aurinia estimated a $3,950 wholesale acquisition cost per 60-capsule “wallet” and approximately $65,000 average annualized net revenue per patient. These are management estimates, not reported realized sales.
- A $6.8 million noncash royalty-obligation expense contributed to a year-end estimated obligation of $15.0 million, based on uncertain future voclosporin revenues and other assumptions. The obligation relates to former executive benefit arrangements.
- Aurinia agreed with Lonza to establish dedicated voclosporin manufacturing capacity. The arrangement is expected to be accounted for as a finance lease; the filing estimates minimum payments with a present value of approximately $94 million, beginning in 2021 and running through 2030. The first capital expenditure payment was made in February 2021.
- Key risks include launching a first commercial product with limited sales experience, market access and reimbursement, competition, reliance on sole-source API and encapsulation suppliers, manufacturing scale-up, and COVID-19-related disruption. The filing states inventory and capacity were believed sufficient for forecast demand.
- Development of voclosporin ophthalmic solution for dry eye syndrome was suspended after the Phase 2/3 AUDREY trial missed its primary endpoint. Enrollment in the exploratory FSGS trial was also suspended. A small investigator-initiated COVID-19 study was underway.
- Aurinia filed a U.S. patent-infringement action against Sun concerning CEQUA. Management stated it did not expect the resolution of ordinary-course contingencies to materially adversely affect the company; the Canadian tax authority was auditing tax years 2017 and 2018.
Most important facts for investors to verify
- Early U.S. prescription demand, realized net pricing, payer coverage, patient access and launch expenses for LUPKYNIS.
- Actual cash burn and runway relative to management’s at-least-12-month estimate, including the Lonza facility commitment.
- Otsuka’s progress toward regulatory filings and approvals, and the conditions for milestones and royalties.
- Progress and costs of FDA post-approval commitments, and any new safety or labeling developments.
- Manufacturing capacity, supplier performance, patent-term-extension status and the outcome of the Sun litigation.