Aurinia Pharmaceuticals Inc. (AUPH) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining. My name is Michael Klem. I'm a member of JPMorgan's Healthcare Investment Banking team. It's my pleasure to introduce Peter Greenleaf, the CEO of Aurinia Pharmaceuticals. He's joined here with Joe Miller, the CFO; Neil Solomons, the CMO; and Glenn Schulman, SVP of IR. [Operator Instructions] Without further ado, I'll turn it over to you, Peter.

Thanks, Michael, and I want to thank everybody at JPMorgan for having us here at the conference today, and for all investors who sort of lasted through the entire day of activity to join us as we're back and clean up. But we're excited to be here today. Before I get started, obviously, I would just point you towards our website for all most recent filings with the SEC. As part of our forward-looking statements to start my presentation. While I'm going to just speak freely about who we are, where the business is and where we're going, there is a slide deck, corporate slide deck that you can follow alongside of -- that has been posted, both with this presentation and on our corporate website as well. But for those of you who don't know the company, we are an organization based in Canada that has been on, what I would call, a vigorous mission to, through an innovative approach, really changed the lives of a patient population out there that has been in desperate need for new medicines, for medicines that are approved by the U.S. FDA, to really change the course of the disease, and that disease we've targeted, first and foremost, has been lupus nephritis. There have been decades of research that have gone behind the product that we're bringing to them -- hopefully, bringing to the market soon, a product called voclosporin, which is a next-generation calcineurin inhibitor. And we are currently in process with the U.S. FDA for an approval of the product with a PDUFA date of January 22. So we're literally days away at this stage from hopefully getting an answer on our application to the U.S. FDA. So safe to say, outside of just JPMorgan, we've been very, very busy at work. And we hope to capitalize on our mission and vision of the company to really change the course of the disease for these patients with our drug, voclosporin. What I hope to do today is kind of take you through a little bit of background on lupus nephritis, if you don't know much about the disease. What we've been up to in terms of not just a regulatory process, but our pre-commercialization efforts. And maybe give a little bit of view as to -- of what you expect to see as we get closer towards that PDUFA date with the U.S. FDA. I'll spend maybe 20 minutes on my upfront comments. And then we'll try to turn it to what's remaining to a Q&A. But obviously, lupus nephritis is a life-threatening and a debilitating disease. It is a portion of the disease we know as lupus. Lupus affects somewhere between 350,000 and 500,000 patients out there in the U.S. and probably a very similar number as you go into Europe. Of that subset of patients when the disease progresses to -- kidney involvement becomes the most serious is when patients are diagnosed with lupus nephritis. These patients, obviously, are in a very critical condition at that point. And they can progress on, if not treated aggressively, onto much serious components of chronic kidney disease or potentially even dialysis. And unfortunately, if not treated aggressively, it can progress on to death. We have been deeply engaged with the lupus community for the life of the company since 2014. And with the thought leaders and clinical advisers that we've had out there in this space up until this time. We obviously showed data in the November, December time period of last year, and from that, have been busy at work preparing for the submission of the data. And then, of course, where we are today, which is right on top of a PDUFA date just next week, and a hopeful opportunity to bring this drug to market. If you don't know much about voclosporin, we were granted an FDA priority review in January of 2021, with a PDUFA date in January of 2021. We had the potential to be one of the first movers here in terms of our product. The first orally administered product available to patients in this community. And we have been, as I said, extensively preparing for the launch of this product, not just in the last couple of months, but throughout the period of 2020. We have a very strong foundation to build from. The group here, we've classically been, up to this point, a development stage company with depth in clinical development. And over the last year, we have been bolting in deep commercial experience, starting at the top of the organization and working all the way through to the individual sales reps that we've hired into the organization, and I'll talk more about that as I go through my opening comments here. This new launch for us, if the FDA gives us the ability, will just fuel the company's ability to enter the market and build an established company from there. And I guess, in conclusion, I would also mention, before I go a little deeper into the disease, what our cash position is. It's been important to us to have the right level of investment capital in order to build the company through this major phase. As to our last reported period of September of last year, we had approximately $421 million in cash. And as we've said, we think this can take us well through the first 2 years of launch or well past the end of 2022. So absolutely strong runway to build and do the work that we need to do to ready ourselves for the market. So let me just take a step back and talk a little more deeply about lupus nephritis. As I mentioned, the disease is an offshoot or a progression of SLE. SLE obviously is a multisystem-, multiorgan-affected disorder that has debilitating effects. And when the kidney becomes more involved, there's an inflammation tissue damage, it progressively over time -- if not treated aggressively, these patients can lose function of their kidneys and end up in a situation where they're on dialysis, face outcomes like potential transplantation and even death. So having medications here that aggressively treat this disorder is critical. Historically, it's been a disease that has been treated with a host of generic medicines out there as part of the treatment paradigm. And up until recently, there have been no EMA or FDA-approved medications for the treatment. Now up to, as I said, 40% to 50% of SLE patients will see this. So it's a sizable market opportunity, somewhere in the range of about 80,000 to 100,000 patients, we think, in the U.S. alone. And obviously, our data that we've shown, there's a significant benefit that our drug can provide to this population if and when it is approved by the U.S. FDA and global bodies around the world. So just to talk about voclosporin and the drug itself and what we've been able to do up to this point. The overall standard of care currently is a combination of MMF and steroids. We did our studies by putting voclosporin in addition to MMF and steroids and looked at the difference out to 6 months in a year that our drug could provide directly versus the standard of care in addition to the standard of care. And what we saw, obviously, is a strong clinical response profile, a very fast clinical profile and the data that we produced and all of this being done in an oral formulation for the product. In terms of how that relates to first-generation calcineurin inhibitor, well, you get a more predictable response, no drug therapeutic monitoring with our drug, potentially a better glucose profile, reducing potentially risks of diabetes,. and of course, with the structure of the molecule versus first-generation calcineurin inhibitors, we get an increased potency, which we think has a direct correlation to the effects we've seen in the trial results that we produced up to this point. The pivotal trial, we run -- we ran obviously a Phase II trial and a Phase III trial for the product with the end benefit being, at a year, we saw almost a doubling of the effect of lowering of proteinuria in the urine of these patients at a year versus the current standard of care. And obviously, just to put this in context, the goals for treatment are to get a rapid lowering of protein in the urine or proteinuria in time periods of as early as 6 and 12 months. So obviously, the opportunity to create a new standard of care with our drug added to the treatment regimen is very real. We get questions a lot about what's the intellectual property run rate on the product and how long should we expect if the product's approved, that we have patent protection. Well, just to start with the first approval, alongside of our base composition of matter and our -- in addition, the benefits will get under Hatch-Waxman. And in addition to pediatric extension study that we're doing, all 3 of those get us to approximately end of 2027. In addition, in early 2020 of last year, we were afforded a patent extension -- or excuse me in 2019, a patent based upon the method of use that we used in both our Phase II and our Phase III clinical trial where we looked at -- upon initial dose of voclosporin, taking levels of patients eGFR. And based upon those levels, reducing dose, and the net effect that we saw from that was at least as good, if not a better response that these patients were seeing in terms of lowering of their proteinuria. So we were issued a unique claim by the U.S. Patent and Trade Office around that. And that extends our -- based on that method, the U.S. patent extends our patent runway all the way out to the end of 2037. Now I know people have had questions around whether this will appear in our package insert. Well, first, we have to get the drug approved. And then it is our belief that this is the way we administer the product, both in our Phase II and our Phase III trial. It's the way we're advising physicians to dose and administer the trial -- the drug, and we feel confident that it's important enough to appear in the dosage administration if and when we're approved for the treatment of lupus nephritis. So if you're looking at the unmet medical need and you're trying to align what the goals of therapy are, voclosporin aligns very well to that, whether it be control of active disease and rapidly controlling that disease, with 6-month and 12-month data over the current standard of care, whether it's reducing steroids, which obviously have a detrimental burden alongside of their effect. We actually were able to show that. And all being done within a convenient treatment regimen, voclosporin brings all that to the table. So next, just shifting gears to what we've been up to in terms of our commercial preparation. And we're going to obviously talk a lot more about this if and when the drug has the benefit of being approved by the U.S. FDA. But we've been busy at work. As we said and guided throughout 2020, it was our goal to be commercial -- to be ready to commercially launch the product if we were awarded that opportunity by end of the year of 2020. I can tell you, through December, we were pretty much locked and loaded and ready to do that. And that would include both shipping the product and having our on the ground commercial field troops out there. We are fully deployed against rheumatologists and nephrologists out there and really just waiting for the green light in terms of an approval to launch the drug in the U.S. We've really tried to, in our approach, through hiring and through our commercial strategy to adopt 2 factors that I think are critically important to our success. One, it was to hire people who had a depth and experience in the disease states that we were operating. One, they had to have a deep experience in rheumatology and nephrology. I can tell you, in our commercial organization today, the average number of years of rheumatology experience is somewhere around 10 years. And in addition, the average nephrology experience around 7 years. May I ask why this is important outside of this being the customer base that we're calling on. But think about in this COVID environment, what the best way to access this physician universe is going to be. It's going to be knowing your target audience. So this was a critical hiring factor for us. And I can tell you with those types of numbers and experience hiring top talent in this space, we've been incredibly successful at that up to this point. And those folks are deployed and ready to go in our field sales organization. As part of our commercial strategy, in addition to that, it was critical that we put together what we are qualifying is sort of a rare disease approach to how we market the product and how we support our patients and customers out there. And that includes every element of ensuring broad access to the product, very broad and high-touch patient ID and support. So going out there, finding patients, and once patients are identified and on drug that we have the right back-end support services for them that not only fuels rapid treatment adoption but also provides the patient with a great experience from end-to-end and provides that patient with a feeling of support and ability to get drug and help within an appropriate way to have access to the drug, not just initially, but over time. That would also include co-pay work, co-pay foundations, co-pay cards and other access programs that we'll talk more about when and if we get the opportunity to launch the drug and get the approval. So this high-touch model was critical to us, and we've been very successful in building a team and a back-end support service group that's going to only complement our field sales force effort, our field reimbursement specialist effort and our medical affairs effort out there in the field today. In addition, obviously, this is all about the patient. It's been -- our mission has really been driven by -- from the inception of the company, we've always been close with all the major patient advocacy organizations that are out there. Our work with the Lupus Foundation of America. The National Kidney Foundation and the Lupus Research Alliance have been consistent through our almost decade of work as a company. And those continue all the way through the process of commercialization. We started early with a patient education awareness building program. And as we've hired on our commercial folks in our field organization, we have migrated that to not just patient education, but also to disease awareness education, building the importance of the early message for the need to treat and to treat early and why that's important in the treatment of the disease. Obviously, at this stage of the game, we can't do any brand-awareness and brand-building work that can only happen after approval, but we have been spending our time, not just understanding our physicians and the universe that they work in, but also trying to educate them more on the disease and the need for rapid treatment and the need for a drug that provides rapid treatment and rapid response. Before I roll up to a quick close here, I wanted to put some context around some most recent partnerships that we embarked upon. Obviously, we want to take this drug global. And part of our focus in building the organization and strategy that we put together, we were very clear that we wanted to build the beachhead first in the United States. That's for about 85% of the overall economics, we think are going to come from this drug. If you look at other analog drugs like ours out there in the market today. So -- and we believe that we could do that in an efficient and effective way. So the U.S. is something we're taking on and we're taking head on, and we've built towards. We've always said that outside the U.S., we had the desire to bring on a partner. And we announced in December of last year, a partnership with Otsuka Pharmaceuticals, Otsuka is a company that's deep in the nephrology space. They're passionate about what they want to do in Europe and Japan with our drug. We signed an agreement with them that brought in both upfront and milestone-driven economics and a double-digit royalty, where we have the ability to glean all the benefit from the success of the drug, and we have their expertise in their ground troops to sort of lay the pathway towards bringing this drug into Europe and into the Japan market. I'll add as well that in our busy efforts, just 7 or so days from our PDUFA date in the U.S., we've also been engaged with our partners, Otsuka, in our conversations with the EMA this week. And as we've said, we believe we can get a submission into the EMA in the first half of 2021. And in addition to that, we signed an exclusive arrangement with Lonza, where basically, we can continue to work with them. They are obviously a world-class organization in both the manufacturing of API for our drug and other drugs out there in the marketplace. But under this exclusive agreement with Lonza, we're basically working with them to build a dedicated state-of-the-art "Monoplant" or a dedicated line to ensure that we have long-term product supply and that we continue to work on leveraging down our cost of goods. Upon completion of this agreement, we still maintain unobstructive use of the product, but we have a more dedicated way to toggle up and toggle down on our own line with Lonza, and it was a strategically and financially smart deal for us to do this in the long term. I do want to underscore that at launch, we have ample product to distribute. This was a longer-term agreement to support what we think the growth needs are going to be for the product. So very strong and important strategic relationships that we embarked upon at the end of 2021. So in conclusion, and then we'll open it up to any questions that you might have here late in the day towards the end of the JPMorgan conference. We are on a path and on a mission, and we have a potential groundbreaking product that's being brought through the FDA process, and we are literally just days away from hearing from the FDA. We feel very good about the process, as we've said, all the way through. And we're excited about what's to come and what we hopefully will go to be talking to you about in just a short few days. This would be the first orally approved medication for the treatment of this disease and one that we think brings unique benefits to this patient population. And as I've said, we've had extensive launch preparations underway now for several months and throughout 2020, that we're ready to enact upon the marketplace and excited to get working on the launch of this product. We've got a depth of experience in that organization to make it happen. We're confident that we'll be able to deliver if we're given the nod from the U.S. FDA. So it's been a fast start to the year. We're excited about what's to come, and we're excited to be right here at JPMorgan today, within days of hearing from the U.S. FDA, to take any questions that you might have about where we're at in the marketplace. So with that, let me turn it over to, I think, Glenn, who is administering our questions here.

That's right, Peter. It looks like the first question is coming over for Neil. Investor wanting to know when we'll have long-term safety data on voclosporin? I guess, referring to the AURORA 2 study?

Yes. So obviously, we do have very long-term safety data from some of the work that was done on this drug in other indications. In fact, the longest transplant patients been on the drug for over 12 years now. The long-term extension, double-blinded extension to -- in lupus nephritis completes towards the very end of this year. So that will be reported probably just soon after that.

Perfect. Thanks, Neil. The next question is asking about aside from the eGFR dosing, can you talk about some of the nuances of a potential label that are important to understand class, restriction, biopsy, et cetera?

Yes. Well, I mean, obviously, there's the population that will be indicated for. And while we don't know what the final decision will be in terms of whether we'll first get approved; and two, once approved what the population that were indicated for, that's clearly an important one. And our best guesstimate is it will be somewhere between the treatment of lupus nephritis or a treatment of active lupus nephritis -- in our study population, obviously, we treated active lupus nephritis, and there are multiple qualifiers under that. We'll have to see where the FDA comes out at the end of the day. But rest assured that if it's for active lupus nephritis, it gives us access to almost 80% of that -- we believe, almost access to about 80% of that population that I talked about earlier. In addition to, obviously, the dosing and the importance of that, not only to our patents, but as to how we think the drug should be appropriately dosed out there. The length of therapy is going to be an important one. And I think the balance of benefit risk is going to be another. And as we've said all along, we think certain areas of risk will accrue to us from just first-generation CNIs and that's expected. The data that we produce from both -- from the Phase III trial showed a very strong efficacy profile alongside of a safety profile that showed no penalty. So you have to be balanced in this process, and we hope that in the end, if we're lucky enough to be approved. That the balance of benefit risk will be there in the package insert. Glenn, you're on mute.

Multi-tasking. Thanks, Peter. Next question is, given the priority review, how have the interactions been going with the FDA? And what have been the major questions they've had throughout the process? Any other details or insight you can provide?

Yes, Neil, do you want to jump in?

Yes. I mean so we've had interactions with this division for some time, having had fast track or having fast-track designation. We actually had the benefit of meeting with the FDA face-to-face for our pre-NDA meeting, one of the last-to-face meetings that the FDA actually had prior to pandemic taking hold. And the interaction has been good, obviously, taking place by telephone. The review has been smooth. Obviously, without going into details, about what the FDA have actually asked us, there were no surprises there. The questions around the safety and efficacy and the data package.

Thanks, Neil. The next question is, will biopsies be required for therapy again?

So I mean, that's a good question. Again, we have to wait and see what comes out in the label. Certainly, all our patients had to have a biopsy to get into the study. However, if you look at the way clinical practice is performed, the 6-month requirement for biopsies is required in most lupus nephritis trials, that's often not done in clinical practice. And the biopsies that were required to get in were just diagnostic. So certainly, our position is that the patient has a clear diagnosis of lupus nephritis, then they should be eligible for treatment. As to what actually comes out in the label, we'll have to wait and see.

Yes. One small one, just to add to Neil's comments, is the fact that both in the Phase II, we looked at 6-month biopsy criteria, in Phase II, we looked at -- they had to have a biopsy within 2 years. So -- and that is normal in most clinical practice in order to have a differential diagnosis for lupus nephritis. They usually have seen that. Now serially done, no. So we don't think that's practical, but we have to see how it all nets out with the agency.

The next question came through is with regards to eGFR dosing, does it matter where it appears in the label?

Well, we think it should be as prominent as dose administration. It's how we instructed physicians to dose the product in our Phase II and Phase III trial. We think there are benefits that accrue to patients and that's where we believe it should fall. We'll see where it actually ends up coming out. If, in fact, we get an approval from the FDA.

Next question is why not -- why wouldn't physicians generally just use a generic CNI versus voclosporin? Kind of a broad question.

Neil can go more a little more technically into this. But first is because they haven't been studied. And second, they haven't been studied in a way that we've studied this drug. And I guess, third is that this is -- while this may be a next-generation calcineurin inhibitor, the one carbon chain difference change to this molecule has significant differences in how we believe the drug has performed in the trials and how the drug can be dosed. So I think it would be a risky proposition to say you can just flip in one or flip one out for the other. And we've talked to a lot of physicians about this, and that's not where they naturally go. I think it's important for people to understand that in the U.S., at least, it's our estimate that less than 10% of patients with active lupus nephritis see a first-generation calcineurin inhibitor for active treatment today. So our target will not be to position this drug as a "calcineurin inhibitor", but to position it on the data that we produced and the important and meaningful data that we produce towards the treatment and outcomes of these patients. And I think done there, you don't jump to, why can't I just flip in a drug that hasn't been studied and use it the same way. Neil, what -- is there anything I'm missing there technically?

No, I mean, I think there are some very specific things. One of the most commonly used calcineurin inhibitors, more than lupus nephritis and transplant, it's voclosporin that interacts with MMF. That is a part of our treatment regimen. So you don't want to be giving 2 drugs whose doses are unknown. I mean, maybe some people might, but that's not something that's generally recommended. And there are other very specific [indiscernible] side effects that are associated with some of the legacy CNIs. But I think the #1 reason is what you said Peter, in terms of the others have not been shown to be safe and effective, they're not routinely used, at least not in proliferative or active lupus nephritis. And the doses are pretty much unknown to be clear for both the sets of drugs and calcineurin inhibitors, aside from voclosporin.

Thanks. Next question, revisiting cash position. What is the latest? And how does guidance look going forward, burn rate? And Lonza, Monoplant, how does that impact your overall cash guidance?

Let me turn that over to our CFO, Joe Miller, so you can get to know him a little more, Joe?

Yes. Thanks for the question, Glenn. Yes, last reported cash position was just a touch under -- over $400 million. As Peter mentioned earlier in the presentation, we did close on the mono -- I'm sorry, the Lonza agreement, which brought with an additional $50 million in cash. So that, of course, extends our cash runway considerably. On top of that, the Lonza Monoplant agreement does have some cash outlays over the next 2 years. Nothing we deem material in the near term. There are some incremental costs associated with that. But as Peter mentioned, the benefits of that in the long term, not just from a supply chain standpoint, but also from a cost-of-goods standpoint, pay for themselves. As we guide to our cash position, I'd look out for at least 2-plus years of cash on the balance sheet today. And that, of course, assumes no contribution from our commercial operations. So we have sufficient cash to launch the drug as well as continue to further our R&D development efforts.

Thanks, Joe. I think people miss often that how well capitalized, we are to do what we set out to do, and that was an important factor in how we built the company over the last 12 months. If you think about what it takes to launch, one of the failures of companies coming up to this stage is being undercapitalized and not having the resources they need or underinvesting. We didn't want to be put in that place. And we originally guided that this -- how far this could take us out, and that was obviously before we had the Otsuka agreement and the $50 million that, that brought us. So we've got a really strong runway, and that's regardless of incoming revenue.

The last question I've gotten here is, can you review how many SLE patients there are? We thought there was 0.5 million to more -- or more in the U.S. So I guess it...

Yes. No, it's -- these numbers move around quite a bit. There was most recently a GSK paper that I saw that had just over 300,000. The estimates range. And we've seen numbers as high as 1 million. We've seen numbers that sort of hit the average of about 0.5 million. But we know, and as we've done more work, which is more based on looking at coding data in the U.S. and extrapolating off of that and looking at the EpiData that is available that this number for -- broadly for lupus nephritis is about half of that lupus population, somewhere between 40% to 50% of that lupus -- of the lupus population. Now we would hope and we would love to be surprised if the numbers be even bigger when we get out there. But for areas like this, where you've not classically had a marketing organization out there, you've not had approved products as companies really digging into the depth of the available market, a lot of this is going to be learned. So we hope -- we don't hope for a patient's sake that there are more patients. But if there are more patients out there, the opportunity exists to do better by them.

Just got one more question in here. Looking at consensus, which Bloomberg has around 91 million, sales for voclosporin in 2021. There's -- the analysts have a wide dispersion. How should we think about the ramp as we -- as Aurinia builds this market?

Yes. So we haven't given any specific revenue guidance and the consensus range right now, I think we might -- we may have even seen it differently than Bloomberg, but I'm not sure if they're pulling from FactSet or what. But at the end of the day, we will give some level of guidance when we launch the product in terms of where we think pricing is going to be. We'll be ready to communicate something about pricing and value if and when we get the approval for the product. And then we're in the process right now is sorting through how we want to give other elements of guidance right around the launch time period. I want to underscore that there are some variables that could swing pretty wildly as we get out there. One is patients, there could be more than we think or there could be less; two, eGFR dosing, the percentage of patients that actually see this or not could have some effect on pricing, and all of those things are going to weigh on. And of course, COVID and the fact that launches take a little while to get a ramp-up are all going to factor on first year numbers. So while we want to be conservative, we also want to ensure that we overachieve expectations. So know that we are thinking about right now, all the elements that feed into that and how we can best ensure that our investors and the people who cover our business understand what we think the expectation should be for year 1 and potentially even how big we think the drug could get in the future.

Thanks, Peter. Those are all the questions that I've received, so...

Great. Well, on behalf of Aurinia, our Board and our shareholders, we want to thank you all for taking the time with us today. It's always tough to back clean up during a very big conference and be sort of at the end of the day. So we thank you for sticking with us. We hope to be involved in calling you all again very soon, once we hear back from the U.S. FDA on our PDUFA date, remember that is the 22nd of January. And we look forward to hopefully coming forward with some very good news for you. We're prepared. We're ready to take the hill. We want to make this happen. We're doing it for patients, and we're excited about the opportunity that lies ahead of us. Thank you for your time today.