Aurinia Pharmaceuticals Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also presents unaudited fourth-quarter results. Financial amounts are in U.S. dollars unless noted.
Business context and reporting period
Aurinia is a commercial-stage biopharmaceutical company focused on autoimmune, kidney and rare diseases. Its principal marketed product is LUPKYNIS (voclosporin), approved in the U.S. in January 2021 for adults with active lupus nephritis (LN), in combination with background immunosuppressive therapy. Otsuka holds development and commercialization rights in specified territories outside the U.S. Aurinia also has preclinical assets AUR200 and AUR300.
In September 2022, the European Commission authorized LUPKYNIS in the EU and certain associated markets, triggering a $30.0 million milestone payment from Otsuka. Great Britain authorization followed in November 2022.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net product revenue | $103.5 million | $45.5 million |
| License and collaboration revenue | $30.6 million | $0.1 million |
| Total revenue | $134.0 million | $45.6 million |
| Cost of sales | $5.7 million | $1.1 million |
| Gross margin | Approximately 96% | Approximately 98% |
| SG&A | $196.4 million | $173.5 million |
| Research and development | $45.0 million | $51.1 million |
| Loss from operations | $111.5 million | $180.7 million |
| Net loss | $108.2 million | $181.0 million |
| Basic and diluted loss per share | $0.76 | $1.40 |
| Net cash used in operating activities | $79.5 million | $157.7 million |
FY2022 revenue growth reflected higher LUPKYNIS sales, attributed primarily to further penetration in the LN market, and the $30.0 million EU authorization milestone. U.S. product revenue was $102.5 million; Japan revenue was $31.5 million, primarily reflecting collaboration-related activity. Two U.S. customers represented approximately 45% and 35% of total revenue, and Otsuka approximately 20%.
At December 31, 2022, cash, cash equivalents and restricted cash were $94.2 million, short-term investments were $295.2 million, and working capital was $396.4 million. Combined cash and investments were $389.4 million, down from $466.1 million a year earlier. Total liabilities were $65.4 million; the balance sheet shows no borrowings. Operating lease liabilities totaled approximately $8.1 million, and the company disclosed a future manufacturing-facility finance-lease obligation with an estimated present value of approximately $85 million, expected to begin in April 2023.
Fourth-quarter 2022 revenue was $28.4 million, operating expenses were $56.5 million, and net loss was $26.0 million, compared with Q4 2021 revenue of $23.4 million and net loss of $33.3 million.
Material changes versus the prior comparable period
- Total revenue rose $88.4 million year over year; product revenue increased $58.0 million and collaboration revenue increased $30.4 million.
- Operating loss narrowed by $69.3 million and net loss by $72.8 million. Higher revenue and interest income contributed; expenses also rose overall.
- SG&A increased $22.8 million, principally from professional fees, including corporate legal and pharmacovigilance costs, and greater commercialization-related travel and events.
- R&D expense declined $6.2 million, largely because FY2021 included a $10.0 million AUR300 license and milestone expense; FY2022 also included additional development costs for AUR200 and AUR300.
- Operating cash outflow declined $78.2 million, reflecting increased receipts from LUPKYNIS sales and the Otsuka milestone payment. FY2022 investing cash outflow was $60.6 million; financing provided $2.4 million, versus $221.1 million in FY2021, when the company completed an at-the-market share offering.
Outlook, commentary, risks and unusual items
- Management expects LUPKYNIS revenue to continue to increase and believes available cash and investments can fund current plans for at least the next few years. The filing provides no specific revenue or earnings guidance.
- Aurinia expects continued significant SG&A to support commercialization and anticipates R&D spending will rise as post-approval commitments and pipeline programs advance. It projected IND submissions for AUR200 in 2023 and AUR300 in 2024.
- Management estimated short-term material cash requirements of approximately $181.4 million and long-term requirements of approximately $157.5 million; certain annual personnel, insurance and government-payor rebate amounts were separately estimated at approximately $104.9 million and may fluctuate.
- Key risks include continued operating losses and negative operating cash flow; dependence on a single marketed product; concentrated U.S. specialty-pharmacy customers; reimbursement, pricing and market-uptake uncertainty; competition; and reliance on single-source or limited suppliers. The company identifies Lonza as sole drug-substance supplier and Catalent as sole capsule encapsulation supplier.
- Inventory reserves were approximately $3.9 million at year-end, primarily for process-validation batches used for FDA approval. The company recorded $3.6 million of inventory write-downs in 2022.
- The filing reports a shareholder class action alleging misleading statements about financial guidance and commercial prospects; Aurinia stated it intended to defend itself. Separately, a January 2023 settlement with Sun resolved patent litigation and an inter partes review concerning the ’036 patent; the review was terminated on January 25, 2023. A newly allowed U.S. dosing-method patent application could provide additional protection through 2037 if issued and listed as intended.
- Other exposures include the Inflation Reduction Act and other drug-pricing measures, patent-term-extension uncertainty, post-marketing obligations, supply-chain disruption, and the approximately $85 million estimated present value of the future monoplant lease payments.
Important facts for investors to verify
- Whether LUPKYNIS sales growth continues and how much depends on customer inventory, patient access, persistence, rebates and reimbursement.
- Whether the company’s two major U.S. customers and Otsuka maintain purchasing, collaboration and commercialization activity.
- Actual cash burn and liquidity relative to management’s “at least the next few years” assessment and disclosed material cash requirements.
- Timing, cost and regulatory qualification of the Lonza monoplant and backup encapsulation site, including the future lease commitments and supply concentration.
- Progress and cost of FDA post-approval studies, the ENLIGHT-LN registry, and AUR200/AUR300 development milestones.
- Developments in the shareholder class action, patent-term extension and newly allowed patent, and any effects on product exclusivity or financial exposure.