Aurinia Pharmaceuticals Inc. (AUPH) Q1 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Aurinia Pharmaceuticals Q1 2017 Financial Results. At this time, all participants are in a listen only mode. A brief 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 Celia Economides. Thank you, please begin.

Thank you, operator. Good afternoon, everyone and welcome to Aurinia's first quarter 2018 earnings call and general business update. With me on the call today from Aurinia are Richard Glickman, Chief Executive Officer and Dennis Bourgeault, Chief Financial Officer. Joining us for our Q&A session will be Michael Martin, Chief Operating Officer; and Dr. Neil Solomons, Chief Medical Officer. This afternoon we issued a press release detailing our Q1 2018 financial results and corporate update. The press release and financial statement package is available on our website at 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, and a replay will be available 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 current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may make 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 Authorities and reports that we file on Form 6-K with the US Securities and Exchange Commission. All our statements are made as of today May 10, 2018 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 Richard. Richard?

Well, thank you, Celia. And thank you to everyone and good afternoon for joining us today as we review our first quarter financial results and provide a general business update. First off, I would like to acknowledge that today May 10 is recognized around the globe as World Lupus Day. This is the special and important day for those suffering with Lupus, and we're grateful for the opportunity to work with a community that is so incredibly motivated, which in turn motivates us to work diligently on their behalf to bring a potential treatment for lupus nephritis to market. There are several activities taking place around the world today and I urge you to take a look at the worldlupusday.org site. Additionally, the entire month of May is lupus awareness month so you will likely be seeing signs in the community to bring awareness to this disease. The first quarter has been characterized by diligently executing on our clinical programs. We have shifted from an early clinical stage company with one program to a late stage clinical company with multiple programs. The clinical team has gone above and beyond to ensure we meet our previously stated timelines and without compromising any quality. With respect to our Phase III clinical program in lupus nephritis, we remain on track to complete recruitment later this year and are incredibly pleased with the trial's progress at this stage. As of today we have 212 sites activated and able to enroll patients throughout the world, with 28 countries now initiated. We took a different approach in recruitment to our Phase III trial where we opted to initiate and activate as many sites as possible from the beginning rather than activating a few at a time. You may recall that patients that have active lupus nephritis are very ill. At our Phase II trial we enrolled some of the sickest patients ever studied with this disease. As a result, we have implemented several additional safety parameters in our Phase III trial and are monitoring these very closely. The DSMB reviews all adverse events on an ongoing basis and thus far we believe the study is progressing very well. We continue to be motivated and have motivated patients and investigators participating in this trial and encouraged by the level of interest, the trial has been garnering around the globe. This team has an unparalleled track record in shaping the current treatment landscape for lupus nephritis where there are no FDA or EMEA approved therapies, and our confidence continues to grow that we can execute a successful Phase III program for voclosporin. We have a wealth of data that has already been cultivated on voclosporin and the AURORA trial is one of the final pieces of the puzzle. As previously disclosed, under voclosporin's fast-track designation we intended to utilize a rolling NDA process. We're actively putting together an NDA, and expect to gain agreement with the FDA to submit the first module, the non-clinical module in the second half of this year. We plan to submit the CMC module in the first half of next year and the clinical module in the first half of 2020. Additionally, in order to enhance and complete the clinical dossier we plan to conclude a confirmatory drug-drug interaction study between voclosporin and MMF. Legacy calcineurin inhibitors such as cyclosporine have demonstrated impact on MMF concentrations and our goal with this short study is to confirm the insignificant impact of voclosporin on MMF concentrations that were previously reported in real transplant [ph] studies. In order to achieve a more meaningful DDI study we have decided to conduct the study with actual [ph] patients rather than in healthy volunteers as we originally proposed. As a result, the commencement of the drug-drug interaction study will likely occur later this year. In this study the patients will be monitored for only a period of two weeks. And we believe the results of this study will add to our knowledge of voclosporin in multi targeted therapeutic treatment approach which should have no impact on our submission timelines or potential approval of voclosporin in LN. We also intend to complete a study of voclosporin in pediatric patients after a potential FDA approval of the adult indication. Our commitment to LN goes beyond clinical trials. It is our goal to fill an unmet medical need. In the spirit of Lupis Awareness month and World Lupus Day today, I wanted to once again highlight all-in and educational program for living with lupus nephritis that we launched in February of this year. The program is designed to raise awareness of lupus nephritis and to support members of the LN community. With the overall Phase 3 trial progressing well and having the necessary financial resources, we continue to build our business and extract the maximum value we can out of our lead asset voclosporin. That brings us to an update on the new indications we are pursuing for voclosporin, the first pain [ph] focal segmental Glomerular Sclerosis or FSGS. Approximately 5,400 patients are diagnosed each year with this disease accounting for the largest segment, almost 30% of patients with nephritic syndrome. FSGS is a rare disease that attacks the kidney's filtering units, the Glomeruli causing serious scaring which leads to permanent kidney damage and even failure. Similar to lupus nephritis, an early clinical response reduction in proteinuria is actually critical to long term kidney health. While guidelines exist for this treatment, there are currently no approved therapies for FSGS in the United States or the European Union. After productive consultation with regulators in the first quarter, we will be initiating a Phase 2 proof-of-concept open label study this June. Startup activities are underway and we will be recruiting 20 patients -- treatment naïve patients. As we are essentially enrolling a newly diagnosed patients and this is a rare disease we expect the enrollment could take up to 12 months. But we intend to have planned interim data readouts throughout the course of the trial. We have submitted our IND in Q1 which is now active. The FDA is in agreement with the guidance we provided on our proof-of-concept study, and we look forward to initiate this program next month. As the company has been focused on lupus nephritis since its inception, expanding our scope to include other proteinuria renal disease is synergistic with our current strategy and long term vision of the company. The next indication we are pursuing is using voclosporin ophthalmic solution or VOS for the treatment of dry eye syndrome. This is a different formulation of voclosporin which is a unique patented aqueous preservative-free nanomicellar solution containing 0.2 voclosporin and as you know from previous disclosures voclosporin has been shown to be three or four times more potent than cyclosporine A. VOS has its own separate formulation patents with exclusivity till 2031. Dry eye syndrome is a chronic disease in which a lack of moisture and lubrication on the eye surface results in irritation and inflammation of the eye. Dry eye syndrome is multi-factorial heterogeneous disease that is estimated to affect greater than 20 million people in the United States alone. Currently there are two FDA approved products for the treatment of dry eye. However, we believe the calcineurin inhibitors will remain a mainstay for treatment of dry eye and the opportunity for improved treatment exists within this multi-billion dollar market. Studies with VOS have been completed in rabbits and dog models and a single phase 3 study has been completed in 35 healthy volunteers and patients with dry eye syndrome. As you might recall last April, we announced an agreement granting Merck Animal Health worldwide rights to develop and commercialize the treatment for dry eye in dogs. Merck Animal Health previously conducted proof-of-concept research in dog suffering from dry eye, which affects one out of every 22 dogs. They are currently continuing their development program. We will be initiating a Phase 2a head-to-head tolerability study of VOS versus RESTASIS in June 2018 and we expect data to be available before the end of the year. This is a four-week study, startup activities are underway and we will be recruiting up to 90 patients for this trial. We've reactivated our existing IND and have had productive meetings with the FDA and are aligned to proceed. The goal is to find the [ph] the best-in-class treatment option and upon completion we look forward to evaluating strategic alternatives for this asset. That's it for our clinical programs. And now onto general business. The company is now in a substantial growth phase transitioning from an early stage clinical company with one indication to a late-stage clinical program with multiple indications. To that end, we've added two new Directors this quarter to enhance expertise on our Board with the appointments of Jay Hayden and Dr. Michael Hayden. We are thrilled to be working with both of these individuals as we continue on our current trajectory. With that, I'll turn the call over to Dennis Bourgeault, our CFO to review the Q1 financial statements with you. Dennis?

Thank you, Richard. On the financial front, the interim financial statements of Aurinia for the first quarter ended March 31, 2018 have been prepared in accordance with IFRS as issued by the International Accounting Standards Board. The 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. We reported a consolidated net loss of $15.5 million or $0.18 per common share for the first quarter ended March 31, 2018, as compared to a consolidated net loss of $51.9 million or $0.92 per common share for the first quarter ended March 31, 2017. The loss for the first quarter ended March 31, 2018 reflected a $2.6 million increase in the estimated fair value of derivative warrant liabilities, compared to an increase of $40.8 million in the estimated fair value of derivative warrant liabilities for the first quarter ended March 31, 20187. An increase in estimated fair value of derivative warrant liabilities increases the loss for the period. The increases in the estimated fair value of derivative warrant liabilities were primarily the result of increases in our share prices at March 31, 2018 and March 31, 2017 compared to December 31, 2017 and December 31, 2016 respectively. These derivative warrant liabilities will ultimately be eliminated on the exercise of the warrants and will not result in any cash outlay by the company. The net loss before these non-cash changes in estimated fair of derivative warrant liabilities was $12.4 million for the first quarter ended March 31, 2018 compared to $11.2 million for the same period in 2017. Research and development or R&D expenses increased to $8.9 million in the first quarter of 2018 compared to $7.3 million in the first quarter of 2017. The increase in these expenses resulted from higher clinical patient enrollment and treatment costs, associated with our AURORA trial and costs associated with the planning and startup phases for the FSGS and dry eye Phase 2 trial and the lupus nephritis continuation study. R&D expenses for the first quarter ended March 31, 2017 reflected costs related to the AURORA planning phase and completion costs for the Phase 2 AURA trial. Corporate administration and business development expense increased to $3.8 million for the first quarter of 2018 compared to $3.4 million for the first quarter of 2017, and are primarily reflecting increase personnel costs due to the expansion of company activities. We continue to be in a strong financial position. At March 31, 2018, we had cash, cash equivalents and short-term investments of a $159.1 million, compared to $173.5 million at December 31, 2017. Our working capital at March 31, 2018, was $156.7 million compared to $167.1 million at December 31, 2017. Net cash used in operating activities was $14.4 million for the first quarter ended March 31, 2017 compared to $9.7 million for the first quarter ended March 31, 2017. We believe based on our current plans, that we have sufficient finance resources to fund the existing lupus nephritis program including the AURORA trial and the NDA submission to the FDA, conduct the planned Phase II trials for FSGS and dry eye and fund operations into 2020. With that, I’ll turn the call back over to Richard for some closing remarks. Richard.

Thank you Dennis and once again I’d like to thank the team here at Aurinia for the tremendous progress we have made thus far in 2018. We are diligently executing on our clinical programs to ensure we meet our previously stated timelines. We are looking forward to a very busy rest of 2018 with the completion of recruitment for the Phase 2 program in lupus nephritis, submission of the non-clinical module of our rolling NDA, the initiation of our FSGS and dry eye studies and data in dry eye before the end of the year. 2017 was an extremely pivotal year for the company and we are now a late stage clinical biotech company that’s diversifying its portfolio and building out its core competency. We are a nimble and dedicated team to continue to successfully execute upon our prestated milestones. As a company, we have a drug candidate that is successful in Phase 3, has the potential to be the first approved therapy in the treatment of lupus nephritis. The efficacy and safety data supporting this drug is substantial. We have a clear regulatory path forward to approval and there is solid intellectual property base. And we believe the market opportunity for this drug to be very substantial. It is with great confidence that we continue to advance voclosporin in its final development phase for lupus nephritis. With that I’d like to turn the call back over to the operator to open the lines for Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Joseph Schwartz at Leerink Partners. Please proceed.

Great, thanks very much and congrats on all the progress. I was wondering if you can tell us at least qualitatively how many of the over 200 sites have enrolled patient and how do you ensure quality conduct in a trial across such a wide clinical footprint? For example things like ensuring form standards around the withdrawal of steroids and anything else that you think is germane for quality results?

Okay so very fair question. The first one I actually can’t answer because I do, and I’ll be actually giving you really, really tight guidance on how many patients are in the trial. I will say that the trial is progressing very well. Enrollment's gone extremely well. So we’re very pleased with how this trial is going forward. To your second question which is really important, I’ll try to give the first answer to it and I think maybe Neil might kick in as well but we spend a lot of time educating sites and also I think very importantly when you look at the outcome measures that we use in the study the very objective outcome measures which is one of the for us, we chose to operate in lupus nephritis rather than just lupus because I think of course I believe the drug has promise in both areas. But specifically in lupus nephritis having those very clear endpoints, having central laboratories really makes a difference in our ability to execute a program like this. In addition extensive monitoring of those patients in conjunction with our CROs and with our team directly in the field we really feel very good about how this trial is being conducted and how the individual sites are executing it.

Yeah and just to add to that. Thanks Richard, there are two levels of monitoring within the study. There is on-site monitoring. We have two CROs involved and monitoring the study but also remotely we have experienced medical staff monitoring every single data points and that really helps us to be reassured that the key elements of the protocol aren’t hit and as Rich has said as well just to reiterate our endpoints are laboratory driven and by central laboratory readings there's no dispute as to results that are collected from each patients who we sign.

I think the advantage of initiating that many sites really comes down to educating large numbers of physicians about our clinical program but also realization over the years you never know which sites are actually going to produce patients, and we’ve learned from experience that if you, let’s say, chose 50 sites you think are the best performers, are you often wrong and then you have all that extra timing in gearing up the next sites. So we spent the additional money in educating more sites so that we can actually see who really are the producers. If the company, if a site doesn’t produce for us we tend to close down that site. And so that’s the approach we’ve taken and so far it’s worked really. really well and I think it provide us a visibility to deliver this program in a very timing manner.

Okay great and then my second question is on FSGS, assuming you see remission on proteinuria in this FSGS study what does that mean based on the regulatory preference for some of your peers that are entered phase recently after expensive interactions with the FDA to establish correlations between proteinuria and EGFR which the agency seems ultimately interested in. Do you expect to go through the same exercise or you’d be able to avoid any of that ground work?

So I think what you’re going to ask is that a number of the companies have announced that they’ve got agreements on sort of rate of approval pathway whereby they have to not only reproduce the short term reductions in proteinuria but also continue to follow the patients up for long term, clinical outcomes. That’s not necessary the approach we’re taking. So in our understanding from our pre-IND discussions with the FDA that the short term remission endpoints on their own maybe adequate to support approval further down the line. In addition obviously EGFR is an important construct to the end point so this is just the secondary end point in our study. And again we believe that we have broad agreement with the FDA, but it will all depend on the outcome of Phase 2 trial before we get agreements on our Phase 3 design. And I think one of the important things if you take a look at fundamentally much of the regulatory but underlying the mechanism of action of this particular drug, both being an immune, immunosuppressant and its impact on the disease overall and the addition of its having a direct impact on the [indiscernible]. Not just changing sort of very rapidly proteinuria levels but actually having an impact potentially on the disease. I think that’s going to serve very, very well for this particular product. We already know the Calcineurin inhibitors actually quite well in this disease we think this is a better Calcineurin inhibitor. So I think that as we progress and as we have data I think it's actually going to provide I think alternative eventually for patients if we are successful. But also I think from a regulatory perspective I think our data is going to be very important in terms of how we ultimately design the Phase 2 trial in conjunction with the regulators.

Great, thanks for taking my question.

Take care, Joe. Thank you.

[Operator Instructions]. Our next question comes from the line of Vernon Bernardino with FBR and Company. Please proceed.

Hi, everyone, thanks for taking my question. And yes definitely congrats on the progress, especially globe-trotting [ph] as far as education is concerned regarding this trial. Regarding --- I wanted to follow-up with -- on Joe’s questions. Have you experienced in your education of the PIs in the site seeing any variability in how the patients are treated?

Hi, Vernon. The protocol is really quite stringent and that is, it's not important to monitor very, very closely. So in some ways there is a pre-collection going on. So if a physician feels that the protocol medications [indiscernible] by AURORA don’t put him with that practice and they are not included in the study or don't participate. So in some ways we are beyond what the physicians in those sites, how they wish to treat their patients. We aim for uniformity in the study, right across the board, that gives us the best quality data the most easily available data to interpret at the end of the study.

Okay -- so are you experiencing before you have to educate them that you are seeing great variability and how they are treating patients, before you educate them?

Yeah, I mean I think thinking about Lupus nephritis there's being no approved drug at any given dose I think there is inevitably a variety of ways in which patients are treated in different healthcare systems. Like I said, I think the beauty of a program such as AURORA and also AURA but prime is the uniformity which we should impose on them. So I would just -- I would go back to specifically answering your question I think there are differences both in the physicians they expect that it's not always clear exactly how these patients should be treated. The results from the AURA study suggests that even in the control arm of the study the treatment was very -- was adequate and at least as good as they would achieve in their own clinics. So we are comfortable that we are serving the physician's needs.

Perfect, thanks. And a different question. When was the existing IND for VOS submitted and can you please give a brief history of the thoughts about studying VOS at the time of the IND was submitted and were there any changes to it in front of reactivating the IND.

The original work was done by Lux [ph]. Unfortunately for Lux they didn't have the fiscal resources to pursue the indication. If they chose a more difficult indication that require a systematic use of voclosporin and as you recall, some of those trials were positive, and some of them not positive. I think it would have been much wiser for them to pursue actual loss for dry eye. I think it will be to much easier a pathway for them to approval in fact. So when we picked up the file as you recall, we had a very much a strategic priority to make sure that LN was executed effectively. And after we felt we were confident and we would drive that program forward, we felt comfortable in then beginning to look at the additional indications and also building out our team. In the last year alone, since I've been on board, we've gone -- we've overgrown by 100% in terms of our personnel and our ability to execute programs. We then went back and looked at all of our intellectual property in whole variety of area including in the VOS area. And we thought that we're sitting on this asset. Merck had -- Animal Health had run some experiments as you recall. Those experiments was actually quite striking, we've never been able to share them, but they were quite dramatic. And as a consequence, they made a decision they wanted to study this drug, comparing in their work directly against drug similar to what is RESTASIS of course. And as a consequence we made a decision we will drive forward the program in humans because it was relatively low cost, relatively from a hurdle we don't see is particularly high. We talked about VOS as you know being about four times more potent. We also should mention that we're also delivering four times as much drug to the eye in that program. So and our goal is really simple which is show tolerability to better than RESTASIS because that's a huge issue. And show it's more efficacious in terms of its timeline. So the thinking behind all of this was really we had this really interesting asset, simple program to move forward. Personally I think it is kind of bit of a sleeper. And I think we might be able to generate some pretty exciting data over the next little while. And if it's positive I think it could have pretty significant impact on the potential value of our organization.

Yes, and congrats sounds like everything was very well thought on in front of this initiative. Thank you for taking my questions.

Thank you.

Thank you. We have no further questions in queue at this time. I'd like to return the floor to management for closing remarks.

I'm taken off guard here. I was waiting for the next question. Anyway, I know it's a short call and that's I think things are going extremely well. I think that's reflected by being a short call. Once again I thank you all for taking the time to listen to the call this afternoon. This is going to be a very, very active period coming up for us in the next several months with initiations of studies before the end of the year having completed enrollment in our study, having data from our dry eye. I think the last little while was fairly quiet for news from us. And I hope in the next little while we actually generate quite a bit of important interesting developments for you, our shareholders. And again once again I thank you for participating in today's call.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.