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

Alethia Young here. I cover large-cap, small mid-cap biotech at Cantor. I'm very happy to have Aurinia here with us. I have Peter Greenleaf, who is the CEO of the company. And we're doing a fireside chat for almost all of this.

And why don't I just start off, Peter, with you kind of framing, I mean you have your first drug approved on the market. So just tell us a little bit about how the past 12 months has been going.

Yes. So just to start, for folks that may not know the company, we are -- the company has been around for about 10 years. And it was a development-stage company up until about -- just about 1.5 years ago, where we produced data in the area of lupus nephritis. And we were lucky enough to be able to leverage that data into an FDA approval at the early part of this year, the third week in January this year. So as Alethia is referring to, we've been at launch in this drug since that time period. Listen, it's -- I can say the environment could be better to be launching drugs in, and I'm sure you're hearing this from plenty of companies out there right now. The COVID environment has had its challenges. But on the more half-full side of that, we had a full year to prep in the midst of COVID to build our team and to come to the potential FDA approval with all learnings from other companies and understanding that this could still be facing us when we walked in. And through 2 quarters of work, I think we're off to a good start. We spent a good part of last year just building the team, getting a world-class selling and marketing team out there, getting ready to launch the drug, and proud to say we did that at risk. We raised up enough money to be able to build that team, train them, get them into the field. And when we had approval, we didn't lose a day, right? Like it was on a Friday when we got approval, and we were out there talking to customers the second we got approval. And we started seeing prescriptions start forms come in right at the first Monday post approval. So off to the races, so just in terms of the quant -- little more quant around what we've been able to do to date, we have about 150 people out there, customer-facing people between our sales reps, medical affairs, people who do reimbursement-type support, et cetera. And they've produced literally tens of thousands of calls up to this point. I think on the last call, we -- or last quarter, we had produced a number like 30,000 calls against target. The majority of those calls, believe it or not, have been -- were in the first quarter and continued to be in 2Q, live calls with physicians about 60% to 70% of those calls. So we're getting access. The areas that have been more challenged for access, I think, are obvious. It's the larger tertiary care centers that have lupus clinics and see a number of lupus patients, obviously. And lupus is a disease we're targeting, and lupus nephritis is an offshoot of lupus itself. So there, it's been more restricted. But in the physicians' offices, we've had really strong access. Through the second quarter, we did about $7.2 million in net sales. In terms of patient start forms for the second quarter -- first quarter, we did about 257, Alethia. Patient start form, obviously, is our version of a prescription. This drug is distributed through a limited specialty network. So the patient start form starts the whole process of getting a payer to pay for the drug and get the drug shipped to the patient. So first quarter, 257. We grew that by 415 in the second quarter. And we have reported that through the timing of our report, which was, I think, the first week in August, we had approximately or north of 800 patient start forms year-to-date. So progress has been really good. Payer coverage has been, as you know, with drug launches, it's always probably the biggest challenge. And momentum you're trying to gain, they're trying to ensure that the drug gets in their minds, appropriately used and/or held back from being used. But we've had good progress there as well through 2Q and growing. We had 50-or-so payer policy plans specifically for LUPKYNIS. The drug is broadly covered. If I look at -- can patients get access to the drug, the answer is yes. The bettering of the yes is when you have LUPKYNIS-specific policies in place. That way, when a physician prescribes the product, the payer, the person administering the start form knows exactly the criteria to get the patient approved immediately. Outside of that, in a lot of cases, the drug is being approved as a medical exception, and that can require more paperwork and time to get the patient on to therapy. And I don't think we're any different than any other drug launch in the specialty and the rare disease space as it pertains to that. As a matter of fact, I think our progress has been on par or better in terms of turning payer policies and/or getting patients on drug. In the first quarter, I think we said our rolling average conversion rate when we -- when a patient is first prescribed the product and then how many of those are we actually converting on the drug was about 40%. And then as we rolled into 2Q, that had increased to 50%. And I think our Chief Commercial Officer aspires that to be matter of weeks and days. But as many know, that takes time. So we're off to the races with the launch. I'll talk more when you ask the question about what else we've been up to in the company, but 95% to 98% of the focus of everybody in the organization right now is making this U.S. drug launch a success.

Yes. I guess to follow up on many of these things, there are lot of different things to follow up on. But like with COVID, I mean, I know it's kind of -- it's been a while since probably a new therapy like kind of hit the scene in lupus nephritis. And so is it -- do you feel that it's like of paramount importance for like the doctors want to see their patients before prescribing this? And that I guess with the increase of the Delta variant, that is sort of like the essential headwind that you guys are kind of facing? Is that -- it's really that patients and doctors can't connect? Is it more so -- or is it more so the sales force and the doctors can't connect?

Well, I think it's multifaceted. First, I think the most immediate impact is when we launched, are docs' offices open? Can a rep even get in through the door and talk to a physician instead of trying to do it through a phone call? And that's why I think it was pretty impressive that we had north of 60% of those calls that was actually done -- that were actually done live. Then the second is, of course, when a physician prescribes, do they actually see the patient or do they have to actually do a urine screen remotely. This will just give you the magnitude of the things we're working through, right? And in many cases, a lot of this activity is being done remotely. Physician decides they're going to prescribe the product based upon diagnostic data that they're getting remotely that they may have taken right in the office pre-COVID, right? And then once that happens, then -- on our side, the patient and physician have to opt into our system so that we can help the process along. That's paperwork. And then once the payer receives the paperwork, that paperwork kicks back and forth. And I think that the challenge -- additional challenges in the offices, obviously, most office administrators are not operating in the office. So if things are mailed back and not e-mail, that can slow the process. Things can sit on desks. So COVID -- then pepper on top of that patient gets drug, has it shipped to them, to ensure they stay on drug is a whole another process that I think COVID gets in the way of. So I think our results, taken in light of all that sort of less than optimistic sort of view of what the environment is like, have been right on target. Now the real question for me, and I'm sure you cover a lot of companies for any other company is when does this change, right? And then what should we expect to see? Is it going to be gradual? Is there a flip of a switch and then all of a sudden, you're moving from a couple of hundred patients in a quarter to much more than that? And my answer there would be who knows? It just seems gradual and prolonged. And our hope is data I was just looking at this morning that things are starting to open up and look more optimistic. So knock on wood we see that, and it's much more free sailing, and our systems can be that much more effective when we don't have this overhang.

Yes, that makes sense. And I think one thing that's very interesting, I think people sometimes forget is that your team, I feel like -- and I'm sure the sales people you've hired have been in some of these launches before and have experience. And I think that's important. So maybe just talk a little bit about that.

Yes. So I think the team we brought on board last year to Aurinia, I mean, on average, 10 years in rheumatology for a field sales rep with an additional in combination of 7 years on average in nephrology. So they knew the customer, and that was important to us because if they didn't have office access, and they had to introduce themselves for the first time, that was going to be very difficult. So it came from world-class companies in the biologics space, in the rare disease space. So I think that was an important play on our side. And they know how to launch drugs. I mean, the team that we have both marketing and sales have decades of experience and multiple drugs launches under their belt in both smaller drugs all the way up to blockbuster drugs through the entire chain. So I think the launch experience we have on the team, I'd put second to none. This is -- but this is all new ground, right, like what we're dealing with out there, and we have to be that much more creative and that much more tenacious in terms of the work that we're doing. And I'm proud to say is that we're doing it every day. It'd be nice not to have this situation. We shared a couple -- just to put in perspective sort of market, less just execution, but market. We've been since launch tracking claims in a very sizable claims database, and that gives us a view of patients diagnosed, treated in the U.S. and it's a sizable sample. From our view, year-on-year '20 to '21, just diagnosis alone, if you're looking at patients who have a differential diagnosis through biopsy, which really is the way a patient gets diagnosed with lupus nephritis, they were down 22% year-on-year, right? So you have 22% less new patients coming in. And then when we track the drugs these patients are getting utilized, so not Benlysta or our product, but MMF and steroids and TAC or cyclophosphamide, azathioprine, they were all down significantly year-on-year. So you have a situation where you've got less new patients coming in. And then those patients who are diagnosed are getting less drugs and they're being treated less. And in that world, we're still launching a product and growing a product and getting patients on a new therapy. So again, real challenges, but things we're facing head on. And the optimistic side of me says once this opens, we're going to have a much freer range to manage this. And that's not just for us, it's for any company that's commercializing products or launching products today.

So that brings me to like -- I remember I was talking to a doctor before the launch and stuff and I spoke to the person afterwards. And they had like -- they were kind of a little negative before and then afterwards, they were kind of positive. And I'm wondering if that's why you're able to get some traction is because it's just the profile of the drug. So talk about the profile that LUPKYNIS has and what need does that fulfill for physicians and patients in what's out there.

Well, I think -- yes, I think first and foremost, like other therapy areas over the last couple of decades, this is one of those areas where there had not been an FDA-approved medicine, right? So the cocktail of drugs that have been used to treat lupus nephritis and not with a lot of data, right, to support their utilization, just a physician experience over decades, right, were generic MMF and steroids. And if in cases where patients were breakthrough and resistant, they would throw on cyclophosphamide or TAC or other medication. So what we had to break through and what I think for -- unfortunately for patients, they lack an FDA-approved medicine that actually shows meaningful movement in well-controlled trials on how their disease progresses, which is measured primarily by protein in the urine or urine proteinuria levels. And what we brought to the table, and there were 2 medicines approved in the year, both us and Benlysta, was a drug that not only could lower UPCR down to levels that were very meaningful but do that in an extremely rapid fashion. As early as 3 and 6 months, we see impact with this drug that is meaningfully better than the current standard of care. Remember, in our trials, the control arm was actually the standard of care of MMF and steroids. So what that means for patients, I mean, there's a much higher rate of these patients that go on to, if not treated aggressively, end-stage renal disease, huge full factor of kidney transplant and death in these patients if they're not treated aggressively. So if I'm a patient, I can now look forward and say there's not just 1 but 2 medications out there that could provide a solution for my disease and help it from progressing to very negative outcomes that not only have personnel impact, but huge economic impact on the system. So I do think that our profile and our data, to some degree, speak for themselves, but I don't want to minimize that by saying that it's not still a huge body of work to educate physicians and patients on new therapies and to -- we're in next-generation CNI. There are chemical structure differences between our drug and first-generation CNIs. And you've got to educate physicians not only on your data, but why it's different than drugs that haven't been studied here that might fall within the same class. And we've been about that for the last, call it, 8 months and change, and it's going to continue to take time, but the early progress has been good.

Yes. No, it's been -- looks very good. I guess -- I always look at just kind of that fast onset of activity that's compelling. But -- let's talk a little bit about like safety and like how the physicians are thinking about do they -- how much long-term safety they need to see? Are they comfortable with the profile now? How do you think about that?

Well, listen, I think with any newly launched drug, that's one of the biggest questions you're going to have right up front. I think if you ask a physician, "Hey, what would be ideal?" "Well, give me 10 years' worth of outcomes data, and then I'll feel a hell of a lot more comfortable. I don't care what disease you're in." But we came to the starting line with 1 year worth of data. And that's what our competitors kind of came with as well. But the -- always the ask and the understanding of having more data is better, and we had an extension. The pivotal trial was the AURORA trial, which was published in Lancet in May. And that was 1 year worth of data. We did an extension to that trial, which we're coining as the AURORA 2 extension, which is an additional 2 years of data. And throughout this year, we've been reporting pieces of that data. And at EULAR, we had the 1 year in addition to our initial study. And at the end of this year, we'll have the full data package to be reported out, which we'll probably do a press release on and have a call if we think it's warranted. But at the end of the day, what that provides to a physician is not just 1 year but 3 years worth of data. And I can tell you through 1 year, we saw consistent performance in terms of those patients on the proteinuria, so keeping their proteinuria in check at sort of the similar levels to what we saw in the original 1-year data. And then more importantly, which AURORA 2 is primarily a safety study, with not a lot in terms of any additional compromise risk that you would see -- that you wouldn't see with other immunosuppressants on board. So that's tracking first, EGFR, so no further sort of reduction in EGFR. EGFR remains stable in these patients. And then all the other host of AEs that you might be tracking, infections and the like, all seem very in line with where the Phase I data is. And obviously -- or Phase III data is. Obviously, a physician, this can increase comfort. And obviously, for a physician wanting to use the drug longer term, not only can it help increase their comfort for just 1 year, 2 years or 3 years of therapy, but also help them in that battle that they're eventually going to face in terms of the payer and/or the patient and convincing them that the drug is safe, at least in the near term.

Awesome. Maybe talk a little bit about doc feedback that you've received. I know it's still early, but I just kind of want to hear the good, obviously, and even the pushbacks and what you have to educate people on.

Yes. I mean, why don't I start with the good and kind of give you what the pushbacks are, and I think the pushbacks are obvious, right? The data was very well received. I mean, we're the first -- and what I didn't mention about the AURORA 2 study, I think we'll be the first out there to have 3 years' worth of data ever in the treatment of lupus nephritis. So it's big, right? So from physicians, we don't get a lot of pushback on the data. The data is meaningful. Our control was not a sham control, it was a -- or placebo control. It was the active current standard of therapy. So -- and we showed meaningful improvement over the standard of care. So I think the data speaks for itself. If I look at market research that we have out there, we do quarterly what we call [ fizz pulse ] where you go out there and you ask physicians a lot of different questions, and it's a sizable N of physicians in terms of the sample. The 2 that I always look at, one is actively, who are you treating and then sort of from percentages of your LN population to where do you want to go? And well, in any launch, the who are you treating out of the gates is always fairly low. The intent to treat over the next 3 and 6 months were upwards of 40% and 50%. So those types of numbers are -- project well if we can realize them in the market, obviously. And usually, those types of research reports, when you ask those questions, you have to file them down a little bit. I mean they're not exact science, but those types of projections actually do show well for actual treatment on the post. In terms of the challenges that we're facing, I think they're obvious. You got to get the system to adopt the drug. And that's -- I mean, I'm not -- I could spend 30 minutes just talking about the system we live in today. But -- it takes a while for payer systems to adopt the drug. And I think there's always initial pushback to any new drug even if it's a breakthrough cancer therapy. It's got to go through medical review. If physicians request it, they've got an exception policy. And all that just takes time, right? It takes time and money, both at the physician's office and with the manufacturer. Unfortunately, the victim of all that is the patient on the other side who's waiting to get the drug to change their disease. So that reality is there. And physicians don't like it, and they push back on it. And the only one they usually yell at and talk to about it is the manufacturer, so we work through that challenge every day. It should be easy as a flip of a switch. It's not today, but eventually it will be, but that's definitely one. And CNI differentiation, I think, is absolutely critical. We don't hear a lot of physicians that come to us and say, "Help me understand why I should use your drug over Benlysta." It's clear in our mind, they're considering Benlysta earlier in terms of patients being on lupus. So they understand where they want to use Benlysta. And when they're looking at our drug, the real differentiation point that we got to challenge every day is why they would use our drug over a first-generation CNI, and that differentiation has got to start in every call. And if there's pushback, it's usually from those physicians, primarily a nephrologist, who has had negative experience with first-generation CNIs and not in lupus nephritis, but in transplant, where they're the current standard of care. And what we know is in transplant, at super high doses over long periods of time, that there is toxicity that develops, nephrotoxicity. So that concern is one that we face every day. And without 10 years of data and a differential study, a physician that's concerned about that, a 3-year data will help, right? But we're going to continue to have to grow the experience to show that our drug is different.

And another question I have is kind of how the rooms and the nephrologists are using and utilizing this medicine. Is it similar?

Well, I mean, in terms of prescribing, yes.

Yes. I mean, but do they kind of have the same concerns or mindset?

I think nephrologists are probably more in tune with CNIs than rheumatologists are. So if we hear the concern I just mentioned, it probably more often comes from a nephrologist. Now on the rheumatology side, and this is obvious, but there have been a lot of drugs launched in rheumatology over the last 20, 30 years, right? So they're innovative early adopters. That was way back in the early anti-TNF days, and I can tell you they weren't always. But today, where they've progressed to, they're adept at -- when a new drug is approved, to jump in on it and to find the areas where they want to jump in on it. So I would say early adoption with rheumatology has been really solid because of that. Now you juxtapose nephrology alongside of that and -- there hasn't been a ton of really breakthrough innovation continually driven at the nephrology space. There's a ton coming, hopefully. But they're a little more conservative, I guess. But to break that down to the actual prescriptions to date, the numbers are pretty even. We're seeing prescriptions coming from rheumatologists as actively as we're seeing from nephrologists.

Awesome. I wanted to talk -- you've said before, kind of we talked about consensus and how people think about that $45 million. I just kind of -- I mean, you're off to a very good start. I think you saw a very nice uptick in the second quarter. And I just kind of want to get how you're thinking about where all our heads are at and that -- your kind of general perspective on that.

Yes. I think as we launched this thing, I said that we weren't going to give guidance in the first year. But what became very obvious to me was that I guess, externally some of -- and not necessarily our -- to some degree, some of our analysts that are out there. But I think the general market after the first quarter reacted poorly to that result. And what we wanted to make sure we did was sort of bully people a little bit that even in COVID, we think there's a significant opportunity this year. And we gave a range, that $40 million to $50 million range for the year, based off of what we had seen in 6 months. So we feel good, and no change to that as of when we reported it. We'll have to see where it goes from there. Because a big question mark for me is, once we see the year, what does next year look like, right? And it'd be way too early for me to project that now, and I think we need to see a year worth of what that outcome is. So you probably won't be hearing anything about 2022 in Q3. But as the year ends, we're going to have to give some sense of a steer as to where the future goes.

And then I have 2 quick ones. Well, maybe not so quick. So how does the formulary work? Like is there an established formulary for lupus nephritis drugs? Or is it more like you kind of just have to get an agreement with the payers on negotiation?

I think it varies. I think hospitals are more apt at formularies, but payers do too. And I think categorically, I'm a little over my specialty here, but I think categorically, it's more lupus. And then as an offshoot of lupus, it's nephritis. And I think they are now gearing up a lot more because now you have 2 newly approved more expensive meds. It was generics before, wasn't really -- it wasn't a managed category. I think in the future, it will be.

And then maybe my last question is just what are you guys kind of working on up to next preclinically? And I know, obviously, the launch is a huge focus.

Yes. And I want to underscore that for investors. The priority here is priority A, and that's the launch of this drug and the expansion of the drug. Remember, we put in a marketing authorization request with the European authorities in June, and we'll hopefully hear back from that sometime in the back half of 2022. So we're globalizing the product too, not just the U.S. Yes, we did a couple of deals that were most recently announced, but what I'll qualify as kind of tuck-in deals, preclinical, both with at least proof of principle, one with proof of concept. We'll be filing INDs over the next 12 to 18 months on both of them. One is a novel peptide and the other is an antibody. We're excited about them. We've been silent on indications because we have to do the characterization work in this early stage, and we look forward to talking more about them. But the proof-of-concept drug we brought on board, it's a B-cell inhibitor by way of APRIL and BAFF. and there is a very solid proof of concept there. We'll talk more about the drug as we finish the characterization work, but believe me, we think we have some differentiators on that. And then the second is a macrophage technology targeting anti-CD206. And to me, that's really innovative because the primary focus on some of these antifibrotics there are -- has been cancer. There's an emerging thought around autoimmune disease. And we'll obviously talk more about it down the road, but this one could be a real innovative, exclusive play for us, and we're excited about it. So we've been busy, not just building the foundation of the company through LUPKYNIS, but also ensuring that we have a diversified pipeline for the future. And those first 2 shots on goal, I think, are good ones, albeit they're early.

I forgot. Actually, remind us what's going on in Europe for LUPKYNIS.

Yes. So the application has been filed. Remember, Otsuka is our partner there and -- in Japan. And obviously, we're in that period where we're waiting to hear back from them, and our target is the back half of next year for a potential approval in Europe. And then we'll go through with Otsuka all the rigmarole you need to go through in Europe. Japan, we have had really solid conversations with the PMDA, but I've held back on saying exactly what those are until we actually have some of that back in writing. But it was probably more positive in terms of what we have to do next than are going in assumption. So -- and I think having a partner whose primary base is in Japan is very helpful in that. They can help us think about it strategically, and they can engage with the authorities that they know. They are locally on the ground.

Awesome, Peter. Congrats on all the progress so far.

Thanks so much. Appreciate the time today.