Aurinia Pharmaceuticals Inc. (AUPH) Q1 2019 Earnings Report, Transcript and Summary

Greetings, and welcome to the Aurinia Pharmaceuticals First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Dr. Glenn Schulman. Please go ahead sir.

Thanks, Kevin, and good afternoon, everyone. Welcome to Aurinia’s first quarter 2019 financial results conference call. Joining me on the call today from the Aurinia team are Dr. Richard Glickman, Emeritus Chairman, CEO and now adviser to the company; Mr. Peter Greenleaf, Chief Executive Officer; Dennis Bourgeault, Chief Financial Officer; Dr. Neil Solomons, Chief Medical Officer; and Mr. Michael Martin, Chief Operating Officer for Aurinia. This afternoon, we issued our press release detailing the first quarter 2019 financial results. The press release and the associated financial statement package is available on our website at www.auriniapharma.com and a 6-K 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 the 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 also 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 authorities and reports that we file on Form 6-K with the U.S. Securities and Exchange Commission. All of our statements made during today's call are as of today May 14, 2019 based upon information currently available to us. Except as required by law we assume no obligation to update any such statements as of this date. With that, let me turn the call over to the Aurinia team starting with Dr. Richard Glickman, Emeritus CEO and Chairman followed by some comments from Mr. Peter Greenleaf, who will take a few moments to introduce himself and provide his thoughts at this time regarding the next stage of growth for Aurinia and then a summary of Q1 results by our CFO, Mr. Dennis Bourgeault. With all that, Richard?

Well, thanks Glenn and good afternoon everyone. For those of you that know me, you'd understand that today's a really bittersweet day for me. I announced my intention to retire last November and over the following months, we did an extensive search resulting in a number of impressive candidates proceeding to the process. And as we announced last month we are delighted to have chosen Peter Greenleaf as our new CEO. Peter is the ideal individual to lead Aurinia through its next phase of growth and maturation. He brings a truly relevant experience needed to lead Aurinia forward. Without going into all the details of his stellar pharma career, I think in summary he has a biopharma experience having led both large and small organizations through the pre-commercial development process, regulatory approval, product launch and global commercialization. Furthermore in his leadership role, he has also demonstrated a robust experience in business development in M&A activity and in financing all culminating in a history of building significant value for shareholders. In short, it's truly a pleasure to welcome Peter to Aurinia. And in my new role as an adviser of the company, I look forward to cheering and supporting the company as your leader Aurinia through its next phase of growth. With that, I welcome once again to Aurinia, it's a pleasure to turn the call over to you Peter.

Hey, Richard. Thank you very much for the kind words and honestly it's a pleasure to be here. Aurinia's in a substantial growth phase and really has transitioned from an early-stage clinical company with one indication to a late-stage clinical development company with multiple indications and today is actively preparing for the commercialization of voclosporin. I thought maybe I could spend a few minutes and talk a little bit about what attracted me to Aurinia, and why I'm here today. Then maybe, I could pivot quickly to a short discussion about near-term priorities for Aurinia. So several months ago, I was approached by an investment banker who introduced me to Aurinia and mentioned the fact that Richard had decided to retire. The reason for the outreach was because he knew me, knew my background and knew that it was very well aligned to where Aurinia was and where -- more importantly where the company was headed. So obviously, I was intrigued by the outreach and made the decision to investigate it further. I spent several months doing my due diligence on the company, its management team and Board, the science, the indications, the patient populations being addressed. What I learned confirmed my interest and opened my mind to the consideration of joining the company aligned to my passion in the industry and my skill sets. There are a few times in a career where as a leader, you can find the opportunity to build something great and do it for such an inspiring cause. For me, I've been lucky enough to have found a few of those opportunities over the years. Aurinia as a company had a great drug and has a great drug in voclosporin. I believe it has a potential to be a pipeline in a single product, a drug that has shown very convincing evidence already in the treatment of both lupus nephritis and dry eye syndrome and still has the potential for additional indications in the future. For lupus nephritis, there currently is no approved drug and -- to treat the disease today and there remains a massive unmet medical need. These patients suffer from their underlying disease. And even in the current -- with current treatment approaches, they still progress to kidney failure. The potential opportunity to change the course of patient suffering from this disorder is the single largest reason why I joined the team here at Aurinia. In addition, the VOS ophthalmic program for dry eye syndrome represents a substantial opportunity for Aurinia. Despite the availability in the market of over-the-counter and prescription drug therapies including the CNI cyclosporine, there remains a persistent need for improved therapies for dry eye syndrome in an already established multibillion-dollar global market. This market is also projected to nearly double over the next decade and VOS provides us with a great opportunity to not only leverage the established clinical and regulatory development pathways, but also the potential to enhance outcomes for patients. With FSGS and the potential for other areas of clinical development with voclosporin, we believe the asset represents an incredible opportunity for both patients and investors. During the process, I also had the opportunity to interact with the company's Board of Directors and management and I can tell you that the people and the culture were very big drivers for me as well. At their current stage of development, Aurinia has attracted and built a very accomplished and experienced Board of Directors. Further, the management team is tenured and passionate and they bring a successful track record to the table in the area of immunosuppressant and specifically drug development in lupus nephritis. People are what make companies and drugs in my opinion and Aurinia has great people around the table. The last point, clearly the opportunity to launch a drug to patients and caregivers that really moves the needle in terms of improving patient's outcome is always a huge draw for me. Actually the ability to do it again to create another great drug and build another great company was extremely compelling for me. For all these reasons and more, I left what I was doing and made the transition to come and lead Aurinia. Obviously, I'm pretty excited about being here and starting contributing to this great company. So shifting the gears while I've officially only been at the company for two weeks now, I thought I'd spend two more minutes just to walk through my focus and near-term priorities. Obviously, transitioning into the role and integrating with the team and Board is step one. The knowledge transfer process from Richard and the team is well on its way and I would say, we're well ahead of the curve on this one. Next keeping fully engaged focused and executing on our key priorities is key and namely, I'll go through four, five. First is execution on the AURORA Phase 3 lupus nephritis trial and preparing to file the NDA. Driving investment decision and subsequently executing on those for the VOS dry eye syndrome program is a critical next decision for us, driving the right level of investment in precommercialization and company building activities, further evolving our pipeline through further investment in voclosporin and the possibility of even new compounds. Getting out there with our employees, the patients we serve, our key opinion leaders and investors that are funding our success are all in motion. And lastly, embarking upon an exercise at our Board of Directors and management team to flesh out the company's longer strategy is also in motion. These are the obvious areas of focus for our company at this stage of development and I look forward to updating you all on our progress and in upcoming weeks and months. So turning now to our corporate update. Aurinia has three programs ongoing in parallel that highlight the potential of a pipeline and a drug for our lead candidate voclosporin. First and foremost, we're evaluating voclosporin in a Phase 3 trial for lupus nephritis. In addition, oral voclosporin is also being tested for FSGS or Focal Segmental Glomerulosclerosis. And lastly, VOS our ophthalmic solution being tested is in the treatment of dry eye syndrome. Last September, Aurinia announced the early completion of enrollment in the AURORA Phase 3 clinical trial for the treatment of lupus nephritis. The target enrollment of 324 patients was surpassed due to high patient demand with 358 lupus nephritis patients randomized at sites across 27 separate countries. We would like to thank our trial patients, the physicians, our CROs, the advocacy groups and especially the Aurinia team for their extraordinary efforts, which led to this result. The AURORA clinical trial is a global double-blinded placebo-controlled study to evaluate whether voclosporin when added to background therapy of mycophenolate mofetil or CellCept, can increase the speed and overall renal response rates in the presence of low-dose steroids. The primary end point for this study is complete response at 52 weeks and with the study fully enrolled as of last September, we look forward to trial results by the end of this year, which of course if positive will form the basis for our regulatory -- U.S. regulatory filing. As you know lupus nephritis is a debilitating disease and our team is extremely motivated and working diligently to potentially provide the first FDA-approved therapy for patients who are in desperate need of a new treatment option. We believe the totality of the data from both the AURORA and the AURA clinical trials will serve as the basis for a new drug application submission with the FDA following a successful completion of the AURORA clinical trial. Under voclosporin's Fast Track designation, we're also utilizing the rolling NDA process, which will allow us to begin the submission process following a positive pre-NDA meeting with the FDA, which we anticipate incurring in the first quarter of 2020. To that end, we're actively preparing the non-clinical and CMC modules required for the NDA submission. Our current plan is to complete the NDA submission including the full clinical module in the second quarter of 2020 in line with our previously disclosed regulatory time lines. With respect to the dry eye program, the pilot Phase 2 data reported by the company earlier this year showed that VOS to be well -- was well tolerated and actually producing some striking early efficacy results to the current market leader for dry eye syndrome, cyclosporine ophthalmic emulsion, or otherwise known as RESTASIS. Based upon those exploratory Phase 2a results, we're finalizing our plans to expand the VOS program and its path to market. Our plan is to initiate a Phase 2/3 clinical study for dry eye syndrome in late 2019. This study will encompass certain critical regulatory requirements that the FDA has traditionally required for dry eye syndrome product approval, including dose optimization requirements and comparisons versus vehicle. This plan is being finalized internally as we speak and we look forward to providing additional details on the program over the coming months. So, with that, I want to turn the call over now to Dennis Bourgeault, our CFO, to review the first quarter 2019 financial results with you. Dennis?

Thank you, Peter. On the financial front, the interim consolidated financial statements of Aurinia have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board. These 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. As at March 31, 2019, Aurinia had cash, cash equivalents and short-term investments of $144.3 million compared to $125.9 million as at December 31, 2018. Net cash used in operating activities was $13.1 million for the first quarter ended March 31, 2019, compared to $14.4 million for the first quarter ended March 31, 2018. The company believes that based on its current plans that it has sufficient financial resources to fund the existing LN program, including the AURORA trial and the AURORA 2 extension trial, complete the NDA submission to the FDA, conduct the ongoing Phase 2 study for FSGS, commence additional dry eye studies and fund operations into mid-2020. The increase in Aurinia's cash position at March 31, 2019, was primarily the result of the following. On November 30, 2018, Aurinia had entered into an open market sale agreement with Jefferies LLC, pursuant to which the company could, from time to time, sell through ATM offerings common shares that would have an aggregate offering amount of up to $30 million. This ATM facility was fully utilized in the first quarter of 2019. Aurinia received gross proceeds of $30 million and issued 4.6 million common shares. The company incurred share issue costs of $1.2 million, including a 3% commission and professional and filing fees related to the ATM offerings. Secondly, the remaining derivative warrants outstanding from the February 14, 2014, private placement offering were exercised in the first quarter ended March 31, 2019. Certain holders of these warrants elected the cashless exercise option and the company issued 687,000 common shares on the cashless exercise of 1.3 million warrants. Three holders of 464,000 warrants exercised these warrants for cash at a price of $3.22 per common share. And as a result, Aurinia received cash proceeds of $1.5 million upon the issuance of 464,000 common shares. The Company reported a consolidated net loss of $12.4 million or $0.14 per common share for the first quarter ended March 31, 2019, and that compared to a consolidated net loss of $15.5 million or $0.18 per common share for the first quarter ended March 31, 2018. The loss for the first quarter ended March 31, 2019, reflected a reduction of $1.7 million in the estimated fair value of derivative warrant liabilities compared to an increase of $2.6 million in the estimated fair value of derivative warrant liabilities for the first quarter ended March 31, 2018. The derivative warrant liabilities will ultimately be eliminated on the exercise of forfeiture of the warrant and will not result in any cash outlay by the company. The net loss before this non-cash change in estimated fair value of derivative warrant liabilities was $14.1 million for the first quarter ended March 31, 2019, compared to $12.9 million for the same period in 2018. Research and development expenses increased to $10.6 million for the first quarter ended March 31, 2019, compared to $8.9 million for the first quarter ended March 31, 2018. The increase in these expenses primarily reflected completion costs for the dry eye study and higher costs incurred for the AURORA 2 extension trial, the DDI study and the FSGS Phase 2a study, as these studies had more activity in the first quarter ended March 31, 2019, compared to the same period in 2018. Corporate, administration and business development expenses increased slightly to $3.9 million for the first quarter of 2019 compared to $3.8 million for the first quarter of 2018. With that, I will turn the call back over to Peter for some closing remarks. Peter?

Thank you, Dennis. And before opening up to Q&A, I'd like to say that Aurinia is truly in a unique space and in a unique opportunity as a company. Voclosporin has previously shown its potential in the oral Lupus Nephritis trial, as well as in the exploratory Phase 2 dry eye study. The strategic objectives of the company remain focused on voclosporin, its clinical development programs, pre-commercial and regulatory activities. Furthermore, we're working to build additional value around the VOS dry eye program and are focused on finalizing plans to enable the start of a Phase 2/3 trial later this year. Lastly, I want to thank Richard once again for all of his tireless efforts, building a passionate and dedicated organization truly working to improve patient health. On behalf of patients, employees and the board, Richard, thank you. We look forward to providing additional updates on our progress over the coming months. And with that, I'd like to turn the call back to the operator and open the line for Q&A. Operator?

[Operator Instructions] Our first question today is coming from Joseph Schwartz from SVB Leerink. Your line is now live.

Hi, there – and thanks very much, and it’s great to reconnect, Peter. Can you or could -- perhaps Neil would be better suited to answer this one. First on the efficacy considerations for AURORA, can you remind us about the powering assumptions for the AURORA study? And then what sorts of things have you done in terms of conduct in order to ensure orderly tapering of steroids for example?

So the question, in terms of powering I think the easiest thing to say about without getting into detailed statistical discussions is that we have basically twice as many patients per arm in this study as we did per arm in the AURA study. So the study is well powered depending on your assumptions. If the assumptions are what we originally talked for the Phase 2 trial, I think we said that 25% versus 40% the study's over 80% power. It's certainly my feeling that the study is probably even better powered than that given the patient numbers we had and also the results that we actually saw from the Phase 2 trial. So the study is well powered. In terms of the operational medical safeguards in action, I think that was your question. Can you repeat the second question actually, Joe?

Yeah. It's actually -- so it was still related to efficacy and what things have you implemented in order to prevent steroid tapering, for example, to confound the results. Do you have specific protocols that you can remind us about?

Yeah. I mean so what we found actually from the Phase 2 trial that the steroid tapering was remarkably well followed actually by almost all sites and most patients. And the reason for that is because there's a desire for the physicians and the patients to actually try their best to drive steroids down. As for the protocol, we have a very strict protocol taper in the -- and it's actually prescribed in the protocol itself with a couple of escape clauses permitted along the way in the protocol. But the study has, obviously, been monitored on-site by our CRO every site. But in addition we have a very robust medical monitoring team and they're reviewing not only things like steroid taper and to make sure all the assessments are being done on time to make sure we get the results as ordered, but also obviously safety and regarding assay and before in a lot of detail. So we believe the study is going to be -- the protocol is being followed very well at least to our initial indications and we believe it's being monitored very robustly according to GCP. And should the results be in our favor then I think they should be appropriate for FDA filing.

Okay, great. Thanks. And then on the safety side of things, a question we get sometimes is how exactly you've endeavored to avoid enrolling patients who could be at higher risk of death after what was seen in AURA in the Phase 2? Are there particular exclusion criteria that you can reference for us for example?

So, we don't -- it's a multi-layered approach. Obviously, our choice of countries and sites as we believe permits us to avoid some of the patients who have poor access to medical care. That was the very first thing we did. And then we put in place a very, very intensive medical monitoring process where every single patient being screened -- and that's over 600 patients being screened for that study -- underwent a detailed prescreening protocol. There were certain pointers without being specific exclusions that we picked up from the Phase 2 trial and most of those have been published and presented before that put patients at particular risk of bad outcomes. And if those pointers were fulfilled by the patient, the medical monitoring team would have a conversation with the physician who's entering the patient to make sure they receive appropriate patients go in. And certainly it's our understanding and that that's been successful.

Okay, that's super helpful. Thanks for taking my questions.

Thank you. [Operator Instructions] Our next question is coming from Ed Arce from H.C. Wainwright. Your line is now live.

Hi, great. Thanks for taking my questions Peter congratulations on joining Aurinia and leading the company with what I think is a unique asset and a strong and experienced team behind it.

Thanks Ed. Good to be here. Good to be working with you again.

Likewise. My first question is around the lead program. There really isn't much new to say I suppose as you're approaching the last few months here of treatment. But I was just wondering if between now and the end of the year will there be any sort of interim announcements of any type on the progress or progression of the study before the topline readout.

I'll try my best to answer for Neil, but I think the short answer is no on the lupus nephritis trial. Simple answer is probably better there. On the dry eye program, as we communicated through the talk track in the intro, we're in the process internally of looking at the best approach to take towards a Phase 2/3 trial that checks all the right regulatory boxes hopefully sets the trial -- the drug up for success and does that in an expeditious and efficient way. And we look forward to reporting that out over the next couple of months as we work through that internally with our Board. So, that will be new news in terms of what we're going to do with that asset and -- but on the lupus nephritis trial, the simple answer is no. We'll know when we know and that's towards the end of the year.

And since you mentioned the dry eye program as you just mentioned there's still a lot that's under discussion and you're conferring with various experts and so forth. But I was wondering if perhaps -- since it's mentioned that the comparison needs to be versus vehicle, I suppose that's a euphemism for placebo. But will there also be an opportunity to have an active comparator perhaps like RESTASIS in the previous trial?

So, I mean Ed I think as we stated before our main aim at this point is to kind of pass regulatory muster. We know that we have to compare against vehicle. That's something that the regulators have done with all other development programs to our knowledge. It's something that we have been told that we will do and we intend to fulfill that. I think we have to be very careful about mixing and matching and trying to achieve too much within the study. It's in the realms of possibility that we do those kind of comparisons at some point. But I think we have to be careful about the aims of the next study and that's to be expeditious as possible in gaining regulatory approval.

Okay. Understood. Makes sense. One...

Just an extra comment along that Ed I think is really critical. This is a well-defined pathway. The two CNIs have been approved down this pathway. If we do this right we minimize our risk. We will be as fast as we can to move forward with the asset. But really when you start adding these other programs and comparators you're actually creating greater risk to the asset. So therefore we know how to get this done. It's a very clear pathway and it could be done with minimal risk to our investors. The idea of any additional studies adds value from a competitive and commercial perspective in the future and so those are actually being entertained as well. But fundamentally if you want to get this drug approved as quickly and efficiently as possible, the pathway forward we're going to present will be the right pathway.

Right. Understood. That's helpful Richard. Then just if I may, one last question around your third program in FSGS. It's been fairly quiet lately and I know that that trial is progressing but hoping you could share with us any incremental updates perhaps on enrollment or the progress of the trial in general? Thanks.

Yes. As we have stated before on this, we're going for a particularly difficult population. We're going for treatment-naive population. There's a couple of things we're considering at the moment of doing. One is we are opening some more sites. I'm going to one or two extra countries that's happening as we speak, but we're also considering some changes to the protocol as well to kind of broaden some of the criteria slightly. We have to be careful. We have to balance the requirement or the wish to get the population that we want with also getting enough patients to make the study appropriate for analysis at the end. So again, we will update you when there's any material changes to that but that's where we are at the moment. We're confident that the diligence that we're doing on the program is going to result in complete enrollment as per our previous commitments.

Remember this was sort of a bit of a back burner program for us, for a while to the extent that it -- when you look at the life of the patent etcetera there was a limited life associated with it. With the extension of the IP right to 2037 all of a sudden now this becomes a really significant opportunity for the company, and of course is now on the front burner as a consequence. And so these modifications will make it a lot easier and a lot more rapid to bring patients. And the fundamental issue is that, it's hard to find patients who don't use steroids so we have to adapt to that. That's the reality. That's what we found and that's how we're going to be able to drive this forward a lot faster.

Okay. Thanks again. Appreciate it.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

I guess the only closing comments I would add would be just reinforce how excited I am to be here and to be working with this team of passionate folks towards both of the disease states -- all three of the disease states that we're focused on currently. We look forward to updating you on our progress as a company over the next couple of weeks and months. It's an exciting time for us and we thank you for joining us today.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.