Aurinia Pharmaceuticals Inc. (AUPH) Q3 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Aurinia Pharmaceuticals Incorporated Third Quarter 2017 Financial Results. 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. I would now like to turn the conference over to your host today, Celia Economides, VP of Corporate Public Affairs. Thank you, you may begin.

Thank you, operator. Good afternoon everyone and welcome to Aurinia's Q3 2017 earnings call and recent corporate update. With me on the call today from Aurinia are Richard Glickman, Chief Executive Officer and Dennis Bourgeault, Chief Financial Officer. Joining us for the Q&A will be Michael Martin, Chief Operating Officer and Robert Huizinga, EVP of Corporate Development. This afternoon we issued a press release detailing our Q3 2017 financial results and corporate update. The press release is available on our auriniapharma.com and a 6-K was filed with the SEC as well. I'd like to remind you that today's call is being webcast live on Aurinia's Investor Relations website. It is also being recorded. A replay will be available on our website following today's call. The content of today's call is Aurinia's property. It cannot be reproduced or transcribed without our prior written consent. During the course of this call we may make forward-looking statements based on our current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's press release, our most recent filings with Canadian securities and our reports that we file on Form 6-K with the US Securities and Exchange Commission. All of our statements are made as of today November 14, 2017 based on information currently available to us. Except as required by law we assume no obligation to update any such statements. With that, let me turn the call over to our CEO, Richard.

Well, thank you, Celia and thank you to everyone for joining us today as we review our Q3 results and recent corporate events. First off I would like to commend the entire team for the tremendous progress that we have made over the course of this year and especially over the recent quarter. Our priority over the last six months has been to execute the AURORA Phase III trial in lupus nephritis without compromise. The trial is in full swing. We continue enrolling patients and we remain on track to complete the enrolment by the end of 2018. This is a 52-week study and we expect to see results at the end of 2019. As of today, we have 138 sites that are currently activated and able to enroll patients throughout the world. As you can imagine, enrollment in studies of active lupus nephritis can be challenging. But we are confident in our ability to do so with our previously stated guidance of 18 months. As a reminder, our 265-patient Phase II oral [ph] study took us 16 months to enroll which was one of the fastest enrolling global studies ever conducted in active lupus nephritis. This team has an unparalleled track record in shaping the current treatment landscape for lupus nephritis where there are no FDA or EMA approved therapies and we continue to believe that we can execute a successful Phase II program for voclosporin. Our previous work continues to be recognized by the medical community. We recently presented a poster at the American Society of Nephrology meeting in New Orleans demonstrating that certain biomarkers can be predictive of complete and partial remission rates in patients with lupus nephritis. Additionally, at the recent American College of Rheumatology meeting Dr. David Wofsy who leads the Rheumatology Standard at the University of San Francisco School of Medicine and past President of the American College of Rheumatology and recipient of the American College of Rheumatology Presidential Gold Medal Award presented a subgroup analysis of the Phase II data which demonstrated consistency of results across age, gender, race and ethnicity. We have a wealth of data that has been generated on voclosporin and the AURORA trial is the final piece of that puzzle. To that end under voclosporin's Fast Track designation we intend to utilize a rolling new drug application NDA process with a nonclinical module being submitted in the second half of 2018. We plan to submit the CMC module in the first half of 2019 and the clinical module in the first half of 2020 following the completion of the Phase III AURORA trial with a potential approval in late 2020. Furthermore, in order to enhance our clinical dossier and to collect long term data for voclosporin in lupus nephritis we will also be initiating a two-year extension study for patients in the Phase III trial. This extension of the study will not impact our timelines for NDA submission and potential approval. However, it should provide valuable data on the long term use of voclosporin. We've made a lot of progress in multiple areas over the quarter. We have successfully hit all of our major milestones that we promised to our key stakeholders with the most important being the execution of our Phase III clinical program in the [indiscernible]. Having secured the necessary financial resources we are now poised to grow our business and extract maximum value out of our lead asset voclosporin. On October 20 we held an R&D Day in New York City to review plans to execute our vision of the company which I will review with you today. We announced plans to expand our voclosporin renal franchise to include focal segmental glomerulosclerosis [FSGS] and minimal change disease. Furthermore we announced plans to evaluate our proprietary nanomicellar voclosporin ophthalmic solution for the treatment of keratoconjunctivitis sicca or dry eye syndrome, DES for short. The advancement of these new indications, in addition to lupus nephritis, represents an expansion of our strategy, pipeline and commercial opportunities. A Phase II proof of concept clinical trial for voclosporin in FSGS and minimal change disease will be initiated in the first half of 2018. FSGS and minimal change disease affect nearly 150,000 patients globally, accounting for almost half of all patients with Nephrotic Syndrome. Nephrotic Syndrome is a collection of symptoms that indicate kidney damage including large amounts of protein in the urine, low levels of albumin and higher than normal fat and cholesterol levels in the blood and edema. Similar [ph] to lupus nephritis for lead clinical response in reduction of proteinuria is thought to be critical to the long term kidney health. We are focused specifically on FSGS a lesion characterized by persistent scarring identified biopsy and proteinuria and our minimal change disease, a disease in which large amounts of protein are lost in urine and they are both characterized by high morbidity. While guidelines exist for their treatments there are currently no approved therapies for FSGS or minimal change disease in the United States and the European Union. This Phase II proof of concept study will evaluate approximately 20 FSGS and minimal change disease patients. It is an open label study and there will be planned interim data readouts during the second half of 2018. And upon conducting our regulatory introductions our intent will lead to initiate a Phase II trial for these diseases in the first half of 2019. As a company that has been focused on lupus nephritis since its inception, expanding our scope to include these diseases with Nephrotic Syndrome is synergistic with our current strategy and long-term vision of the company. We seek both to provide a treatment option for patients where high unmet medical need remains while creating significant additional value for our shareholders. As I mentioned, we also announced that we will be advancing VOS for the treatment of dry eye syndrome. Dry eye syndrome is a chronic disease which a lack of moisture and lubrication in the eye result in irritation and inflammation of the eye. It is a multifactorial heterogeneous disease estimated to affect greater than 20 million people in the United States. VOS is an aqueous, preservative free nanomicellar solution containing 0.2% voclosporin intended for use in the treatment of dry eye syndrome. Studies have been completed in rabbits and dog models and a single Phase I study has also been completed in healthy volunteers and patients with dry eye syndrome. VOS has its own separate IP from voclosporin with protection until 2031. In April of this year, we had announced an agreement granting Merck Animal Health worldwide rights to develop and commercialize VOS for the treatment of dry eye in dogs. Merck previously conducted proof of concept research in dogs suffering from dry eye, which affects approximately one out of every 22 dogs. And they made a decision to move forward with VOS with a development project. As a reminder, Merck Animal Health was the developer of a larger selling treatment for canine dry eye Optimmune which is the equivalent of Restasis in humans. We will be initiating a Phase IIA tolerability study of VOS versus Restasis which is the standard of care for the treatment of dry eye by the second quarter of 2018. We expect data to be available in the second half of 2018. Calcineurin inhibitors are the mainstay in the treatment of dry eye and the goal of this program is to develop a best-in-class treatment option demonstrating improved efficacy and tolerability for patients with dry eye. We then intend to monetize this asset either through a partner or divestment. We are excited by the opportunity that voclosporin offers in these new indications and of course in lupus nephritis. We continue to believe that leveraging our expertise to expand voclosporin’s applications while making minimal investments will create significant value for our shareholders. With that, I'd like to turn over our call to our Chief Financial Officer, Dennis Bourgeault, who will review our Q3 financials with you. Dennis?

Thank you, Richard. On the financial front the condensed consolidated financial statements of Aurinia have been prepared in accordance with IFRS as issued by the International Accounting Standards Board. Our consolidated financial statements are presented in U.S. dollars which is the company's functional and presentation currency. All amounts mentioned are in U.S. dollars therefore. Cash, cash equivalents and short-term investments were $182.4 million as at September 30, 2017 compared to $189.8 as of June 30, 2017 and $39.6 million at December 31, 2016. We believe based on our current plans that we have sufficient financial resources to fund our existing lupus nephritis program including the AURORA trial conduct work on the new indications and fund operations into 2020. For the three months ended September 30, 2017 we reported consolidated net loss of $13.1 million or $0.16 per common share as compared to a consolidated net loss of $7.4 million or $0.21 per common share for the three months ended September 30, 2016. The increase in the loss was primarily due to an increase of R&D expenses of $7.5 million. We incurred R&D expenses of $10.8 million for the three months ended September 30, 2017 as compared to $3.3 million for the same period in 2016. The increase in R&D expenses for the three months ended September 30, 2017 reflected AURORA clinical expenses such as contract research organization service fees and costs for activities including site activations, regulatory submissions, patient treatment, as well as drug costs for manufacture of voclosporin drug product and drug encapsulation, packaging and distribution for the trial. We incurred corporate administrative and business development costs of $2.6 million for the three months ended September 30, 2017 as compared to $1.7 million for the same period in 2016. These costs included a non-cash stock compensation expense of $795,000 for the three months ended September 30, 2017 compared to $469,000 for the three months ended September 30, 2016. With that I'll turn the call back over to Richard for some closing remarks.

Well, thank you, Dennis and once again I'd like to thank the team for the tremendous progress that we made over the last quarter and over a small nimble and dedicated team that continues to successfully execute and complete all of our major milestones. I'd like to end the formal part of this call by sharing a few thoughts as to where we are today and how I see Aurinia's business as we look to the future. Now I believe that Aurinia really represents extraordinary opportunities for patients and for investors. As a company we have a drug candidate that is successful in Phase III, has the potential to be the first approved therapy in the treatment of lupus nephritis. We have generated significant Phase II data supporting potential of this drug and we believe we have a clear regulatory path forward to approval. There is a solid intellectual property base and we believe the market opportunity for this drug is very significant. It is with great confidence actually that we continue to advance voclosporin into its final stage of development. Furthermore with our recent announcement on indication expansion we are focusing on ways to extract maximum value of voclosporin which could benefit both patients and our shareholders. And with the addition of these new indications we see the potential sales of this drug increasing from about $1.4 billion to an excess of $2 billion globally. And with that, I'd like to turn the call over to the operator and open the line for Q&A. Operator?

Thank you. [Operator Instructions] Our first question comes from Joseph Schwartz with Leerink Partners. Please proceed with your question.

Hi thanks for taking the question, this is [indiscernible] dialing in for Joe. Congrats on all the progress. I just had a couple on the expansion program specifically in the FSGS and the MCD indication. So the open label trial that you will be embarking on next year, I was just wondering if you could comment on your rationale behind just pursuing that single dose of 23.7 mg b.i.d.? And then I've got a few follow up thanks.

Yes, I think I'll give a quick answer to that and then I'll turn it over to Rob. I think the dosage just reflects the experience we have in our working with this drug. We've got 2400 patients that have been exposed to this medication and we have a really good understanding of its PK/PD. We have a really good understanding of how it performed in proteinuria kidney disease at this point in time and so it just made sense to move forward with that dosage and we are actually really quite comfortable with what we see in the clinic with that dosage range. Rob do you have anything to add?

No Rich, I think you handled that perfectly. That's effective dose we found in lupus nephritis and what we know with Calcineurin inhibitors seems to be the right dose to move forward with.

Great, so in that case looking at the endpoint, looking at sort of the clinical meaningfulness of the complete remission, partial remission, I'm just trying to get a sense of the clinical meaningfulness behind the definition of these remission endpoints and as you know your competitor in FSGS has conducted a trial looking at modified partial remissions. So how should we think about those differences if any?

So Rob, do you want to address that?

Yes I can do those, thanks for the question. So unlike lupus nephritis where complete remission is really key, even a partial remission in diseases like FSGS and minimal change are important both clinically in terms of patient management and in terms of long term patient outcome. I think one of the keys to us finding the endpoint is finding one that has less ability [ph] we are using the same approach in FSGS and minimal change as we are in LN and so we don’t think that we would have to use a modified response rate as has been done by some of the other companies.

And is there any reason to believe that since you are including corticosteroid free patients into your open label trial, if you were to have patients on a concurrent immunosuppressant therapy that there would be any drug-drug interaction and are you including any patients that are on immunosuppressant therapy at baseline?

The plan for the study is voclosporin monotherapy, so it is just voclosporin on its own. So any patients that are on other immunosuppressants coming into this treatment period would have to stop those other immunosuppressants to be cleared of those before they could be entered into the study.

I also want to comment and you are dealing with these diseases that are really part of cytotophies [ph] and I think when you really look at the mechanism of action of voclosporin, I think one of the things that excites me most is that dual nature, at first people were actually concerned of the dual nature of voclosporin, one being an immunosuppressant and reducing – in IL-2 and T-cell activation, but the other being its direct impact on the podocyte. And I think that combination gives us potential for a really quick response on that disease, but also over time a real impact on the disease from a immunological perspective. So I think it is exactly an ideal type therapy for FSGS and minimal change disease.

And then last one from me, in terms of the long-term goal of FSGS, how should we think about in terms of kidney function, is it stabilization that should be looked at or more improvement of the kidney function?

You know, that's a really fair question and then Rob I will let you jump in on that, but you know in listening to Dr. Tumlin [ph] at [indiscernible] where he gave his presentation, he really does believe that you can see some regeneration at the podocyte level and the improvement in performance of kidney function as a consequence of podocytes being protected. But do you want to add to that Rob?

Certainly, I think breakthough into lupus nephritis in the short term we are looking for stabilization of renal function, but Rich made a really important point that these are all podocytopathies and we know from more recently that's come out this year that if you are able to interact on the podocyte directly soon you may actually be able to see repair of that podocyte. So that's an encouraging long term view for us.

Great, well thank you very much for taking my questions.

Thank you. Our next question comes from Ed Arce with H.C. Wainwright. Please proceed with your question.

Hi everyone. Thanks for taking my questions and thanks again for the detailed discussion at your recent Investor Day. Couple of questions from me, first is on the two-year extension study I realize this is a safety study outside of your NDA requirements for voclosporin and LN, but just wondering aside from safety, how do you think about that in terms of labeling, marketing, the drug? And then I have a couple of follow ups. Thanks.

Yes, Ed that's - thank you for your question. It’s also a very important question. These aren't cheap studies and so making a decision to run it for two years wasn't done attributably. But I do think it's important when you actually look at these treatments for instance with [indiscernible] these tend to - they use more long term because there's so few treatment options physicians once they have a patient that's actually stable with the disease, they really don't want to mess with medications a whole lot. That said, having this two-year study I think will have very important implications for longer term safety. One has to be cautious of course in how one then goes back to regulators with that long term data and present that they see how it might affect your labeling, but certainly our intent here is to try to show long term safety with a drug that we believe has usefulness over a longer term than through the initial sort of induction to stable disease days of treatment.

Okay, great and then the question about your program for VOS just wondering if you can provide any meaningful updates yet on partnering discussions and remind us of how you think about the criteria there to execute on a partnership for that asset?

As a general rule I've been told do not comment on partnering and where we’re in any sort of processes and so I am going to respect that rule here because I'll get kicked under the table if I don't. But I do think that when it comes down to what is it we're trying to show. We own an asset, it's got great IP, we know that we could deliver a lot more drug to these patients with this combination than they currently receive using a drug like Restasis. We believe that if we could show it is tolerable that we're putting ourselves in a position where we can really differentiate what is the largest selling drug in this space and it is believed by ophthalmologists that in fact that calcineurin inhibitors are going to play a role long term in dry eye. That being said, it's good IP and good data particularly if we could show this drug performance well from tolerability perspective. I don't think we are going to have a shortage of suitors because it fits a lot of potential companies' profiles.

Okay, that's great and then one last one Rich perhaps since you had mentioned at the close of your remarks. The projection of $2 billion or perhaps more globally on peak sales for the drug across the indications I was wondering if you might hazard to give us a bit more of a breakdown of how you see that across indications?

Well you know we originally presented and fairly conservatively I believe what we thought were LN projections that exceeded $1.4 billion. And so it’s easy to do the math and get to the point where you could see that we're projecting that when you look at the additional indications related to Nephrotic Syndrome, minimal change, FSGS and those primarily although I have to remind you that we don't believe the drug is going to be limited, but those will be the on-label strategies that we have as a company and that if we deem there's additional opportunities we will add additional on-label strategies, but we're just looking at those on-label strategies for the company right now where we're looking for regulatory approvals. That's how we roughly break down.

Okay, great. That's helpful. Thanks again.

Thank you for your questions.

Our next question comes from Vernon Bernardino with Seaport Global. Please proceed with your question.

Hi, guys. Thanks for taking my question. My question actually was on complete remission as an endpoint, but I was wondering if you could perhaps discuss a little further perhaps if just looking at proteinuria as an option as far as endpoint since these are patients with the direct effect on proteinuria is clinically meaningful or do you need to show remission?

Your question is specific to FSGF and minimal change disease?

Yes I’m sorry.

Okay, I just wanted to be clear on that. Rob did you want to give that a go?

Yes. So we look at two definitions there, the first is a complete remission which brings the UPCR, so the Urine Protein Creatinine Ratio from wherever the patient comes in at to a level of 0.5 or less and we’re also looking at a partial remission which is 50% reduction in that patients UPCR again dependent on where they come in at. So looking at both of those, we will also in the secondary endpoint there is a small Phase II trial in the secondary endpoints will look at other things well too which help inform us to potential design attributes for the Phase II program.

Okay. So the ratio is going to be the most important as far as determinant of remission, just wanted to confirm that?

Correct.

Okay, thank you very much. That’s the only question I had.

Thanks, Vernon.

Our next question comes from Justin Kim with Cantor Fitzgerald. Please proceed with your question.

Good evening, thanks for taking the question. Most of my questions were asked but perhaps just a follow up on the VOS program, do you believe that speed of response would alone be sufficient to differentiate the VOS profile and with respect to the standard of care and sort of can you refresh us on mechanistically why we might expect that from the drug?

Okay, I apologize, I missed the first part of your question when you were referring to what is the reference point?

So just trying to understand if speed of response whether VOS demonstrating that clinical response faster might be enough to differentiate the profile?

I think it’s also another very good question. I think that when you actually talk to physicians working within this space and you look at the current therapy, one of the issues around the current therapy or the standard of care is actually fairly slow in responsiveness, the so called wild [ph] effect where a patient takes a drug and actually really shows a very significant response quickly. I think with the addition of the newest drug entering into that field, I think we do see a more rapid response. So I think in order to really truly be successful here you need to have also, you need to show tolerability which is critical, the efficacy and I think you have to do it faster than the current standard of care actually does if you really are going to stand out in the long run and actually be a treatment of choice. Now Mike, you’re on the line, you might want to answer that question better than I did.

Yes sure. I think that onset of action would be a key differentiator if you’re just looking at the C&Is in that class and the stasis causes significant burning and irritation of application and arguably a lot of those patients on that therapy really don’t stay on long enough to get an effect. So clearly tolerability are the number one onset of action, I think that would be a major benefit to the market and there is reason to believe in follow up to your question that mechanistically in the formulation they were delivering so much more drug to the target tissues we’re really, really encouraged about that.

Hey great. Thanks for taking the question.

Thanks Justin.

Thank you. At this time, there are no questions in queue. I would like to turn the call back over to Management for closing comments.

Okay, I would like to close off and actually thank you all for taking time out of your afternoon to join us and I look forward to sharing development as we progress. I think next year is going to be a very big year for our company. We’ve got a lot of developments occurring and once again thank you for your time. Good afternoon.

This does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.