Aurinia Pharmaceuticals Inc. (NASDAQ:AUPH) is a Canadian, clinical-stage, biotechnology company based in Victoria, British Columbia, focused on the development of its lead drug voclosporin for the treatment of Lupus Nephritis or LN. The company quotes the Lupus Foundation of America's estimate that approximately 500,000 to 1,500,000 people in the United States and up to 5 million people worldwide suffer from System Lupus Erythematosus ("Lupus" or "SLE"). 40% to 60% of patients with SLE develop LN.
LN is an inflammation of the kidney caused by SLE which, if left untreated or inadequately treated, can lead to end-stage renal disease, dialysis, renal transplant, and death, making LN a serious and potentially life-threatening condition. There are no FDA or EMA approved LN therapies.
I've written a series of article about Aurinia since May of last year. On January 23, 2017, I published an article about Aurinia Pharmaceuticals explaining why I believed Aurinia was an attractive buyout candidate. A copy of my January 23, 2017, article can be found here. At that time, AUPH shares were trading in the $2.50 range and I maintained a $12.00 to $16.00 share price target.
All currency references in this article are in U.S. dollars and all trading references are in relation to AUPH trading on NASDAQ.
In early February of this year, Aurinia announced the appointment of Dr. Richard Glickman as the new CEO (which I thought was a very positive development). I interviewed Dr. Glickman the very evening his appointment was announced and discussed my favorable views on his appointment in my article found here.
On March 1, 2017, Aurinia announced its top-line 48-week Phase 2B trial results, which exceeded my expectations. These positive top-line 48-week results bode very well for the upcoming 320 patient Phase 3 AURION study, likely to begin next month (or shortly thereafter.) On March 2, 2017, I published an article titled "Aurinia Successful 48-Week Phase 2B Trial Results Even Better Than I Expected."
Since releasing its top-line 48-week Phase 2B trial results on March 1, Aurinia's share price has increased dramatically. In fact, on Friday, March 10, 2017, shares of Aurinia hit a 52-week high in excess of $10.50.
The chart below is taken at the close of business on Thursday, March 23, 2017.
Until recently, one of the outstanding issues faced by Aurinia was the lack of capital necessary to complete its Phase 3 AURORA clinical trial and take the necessary steps to commercialize voclosporin in the U.S. as well as in Japan and Europe.
The funding issue was solved recently. On March 14, 2017, Aurinia announced the pricing of its secondary equity financing priced at $6.75 per share. On March 20th, a press release was issued confirming that $173,100,000 pursuant to the public offering had closed (less approximately $9 million in fees as well as legal and other expenses), which included the full exercise of the underwriter's options to purchase additional shares. In total, an additional 25,645,000 common shares were issued (with no warrants). I estimate that the company currently has just between $200 million and $209 million in cash or near equivalents. As well, its substantial number of options and warrants issued are in the money, and I expect some or all will be exercised within the next few years.
- Common Shares Outstanding: 80,456,235
- Options/Warrants Outstanding:
4,052,137 options - weighted average exercise price of $2.79
11,393,457 warrants - weighted average exercise price of $3.03
1,970,500 options - weighted average of $3.21
- 52 week share price low and high: $1.74 to $10.54
- Current share price: $8.40 (at close of March 23)
- Market cap: $676 million
- Cash or cash equivalents (estimate) $200 million to $209 million
Note: All currency references in U.S. dollars.
The AURA, AURION and AURORA Clinical Trials
To avoid confusing readers, Aurinia has three different clinical trials, which it has conducted or will be conducting using voclosporin to treat LN:
- the first is the 265-patient double-blind Phase 2B trial called the AURA trial, whose 48-week top-line results were released on March 2, 2017, and has caused such excitement in the market;
- the second is a small 10-patient open-label trial called AURION discussed below; and
- the third is the upcoming Phase 3 trial involving 320 patients, about to enroll patients next month (most likely, or shortly thereafter), called the AURORA trial.
48-Week Data From AURION 10-Patient Trial To Be Presented Monday, March 27, 2017
On March 16, Aurinia announced that it will be presenting the 48-week results from its AURION open-label 10-patient study of voclosporin at the 12th International Congress on Systemic Lupus Erythematosus (LUPUS 2017) & the 7th Asian Congress on Autoimmunity (ACA 2017). The abstract titled "AURION Study: 48-Week Data of Multi-Target Therapy with Voclosporin, Mycophenolate Mofetil (MMF) and Steroids for Active Lupus Nephritis," will be presented by Robert Huizinga, Aurinia vice president of Clinical Affairs on March 27, 2017. Following the presentation, a copy will be available on Aurinia's corporate website.
When the 24-week data from the 10-patient open-label AURION trial was announced by Aurinia in its October 6, 2016, press release, the results were very impressive.
...70% (7/10) patients achieved complete remission ("CR") at 24 weeks as measured by a urinary protein creatinine ratio (UPCR) of ≤ 0.5mg/mg, eGFR within 20% of baseline and concomitant steroid dose of <5mg/day. Of the 10 patients that achieved a reduction of UPCR of ≥ 25% at 8 weeks, 80% were responders (≥ 50% reduction in UPCR over baseline) at 24 weeks and 70% were in CR at 24 weeks. In addition, inflammatory markers such as C3, C4, and anti-dsDNA all continued to normalize to 24 weeks. Voclosporin was well-tolerated with no unexpected safety signals observed.
The October 6 press release summarized the AURION 24 week trial results below:
|Patient #|| |
|TOTALS:||100% (10/10)||70%(7/10)||80% (8/10)||50% (5/10)||70% (7/10)|
*Retrospectively defined by ≥50% reduction in UPCR
...The AURION open-label exploratory study in 10 patients was designed to assess the short -term predictors of response using voclosporin (23.7mg BID) in combination with MMF and oral corticosteroids in patients with active lupus nephritis. The primary objective of the study is to examine biomarkers of disease activity at eight weeks and their ability to predict response at 24 and 48 weeks. The 24-week data released in October 2016 showed a majority of patients achieved complete remission, and all inflammatory markers and anti-dsDNA trended towards normalization. In addition, renal function remained stable, and voclosporin was well-tolerated with no unexpected safety concerns observed...
I anticipate that the 48-week data from the 10-patient AURION trial, (including the data relating to renal function, including any levels of renal toxicity) to be presented on Monday, March 27th, will be even stronger than its 24-week data. If so, this will certainly give investors a peak at the likely 48-week secondary data to be released from the 265-patient AURA Phase 2B trial next month.
In particular, some investors and analysts will be keen to hear whether there is any increase in renal toxicity in those 10 patients taking voclosporin at 48 weeks compared to the very good results shown at 24 weeks. March 27th may be an important date.
Aurinia Accepted to Present 48-Week Data From Its Phase 2B AURA Trial at the National Kidney Foundation Spring Clinical Meetings to be held April 20, 2017
Aurinia announced on March 6 "...its late-breaking abstract for voclosporin has been accepted for oral presentation at the National Kidney Foundation (NKF) 2017 Spring Clinical Meetings taking place April 18-22, 2017, in Orlando, FL. The oral presentation titled "Treatment of Active Lupus Nephritis with Voclosporin: 48-Week Data from the AURA-LV Study," will be made by lead author Dr. Samir Parikh, a clinical investigator for the study and Assistant Professor, Clinical Nephrology at the Ohio State University, on Thursday, April 20, 2017, from 4:00 P.M. - 5:30 P.M. ET.
A corresponding late breaking poster presentation of the 48-week AURA-LV study data will also be presented at the NKF 2017 Scientific Clinical Meetings. A copy of the abstract will be available on the conference's website.
We're pleased that the AURA-LV 48-week data have been accepted for a late-breaking oral presentation and look forward to sharing these important results with the nephrology scientific and medical communities," said Richard M. Glickman, Aurinia's Chief Executive Officer...
Based upon the improvement in the clinical results in patients taking voclosporin from eight weeks to 24 weeks and the fact that there were no further deaths or serious adverse events reported after the initial 24-week results (when the 48-week top-line results were reported on March 1, 2017), I am optimistic that the 48-week Phase 2B AURA results will be as good as or better than the 24-week AURA trial results.
Market Potential for Voclosporin
I have written about market size potential for voclosporin in some detail in previous articles published on Seeking Alpha. Aurinia itself has previously provided guidance (based upon its market research) that peak voclosporin annual sales will be approximately $1.38 billion; $1 billion in the U.S., $300 million in Europe and $80 million in Japan.
In reaching my estimated $12.00 to $16.00 share price target for AUPH, I have assumed that those peak sales estimates for voclosporin are reasonable.
These estimates of peak voclosporin sales were once again repeated at page 5 of Form 40-F Annual Report filed on March 9, 2017, by Aurinia with the SEC,
...We recently conducted our own market research which surveyed approximately 900 rheumatologists and nephrologists across the United States, Europe, and Japan to better define the potential market size, estimated pricing and treatment paradigms in those jurisdictions. Using the U.S. MarketScan® data set (with approximately 170,000,000 insured lives in the United States) there were 445,346 SLE patients in the United States (between January 2006 and December 2015) based on specific SLE diagnosis codes. The National Institute of Diabetes and Digestive and Kidney Diseases estimates that up to 60% of people with SLE are diagnosed with LN. Using claims database research and additional physician research, we believe the diagnosed range of LN patients to be approximately 125,000 to 200,000 in the United States and 175,000 to 250,000 in the European Union. In both the United States and the European Union, 1 in 5 patients are thought to be undiagnosed due to referring physicians being inefficient and inaccurate in diagnosing the condition...
Only 18% of those surveyed were very satisfied or extremely satisfied with currently available and unapproved therapies' ability to achieve a CR within six months. Based on the pricing research we have conducted, we believe that the price range for voclosporin can be between US$50,000 and US$100,000 per patient per year in the United States. We believe that the US market will provide the most opportunity and while the European population is likely larger than the United States, the pricing and market opportunity is more limited. We believe that the initial estimates of voclosporin peak sales may yield a global opportunity in excess of $1 billion. (with greater than $1 billion in the United States; over $300 million in the European Union; and over $80 million in Japan).
Could Peak Annual Sales exceed $2 Billion?
While Aurinia ventured to provide its estimated peak annual sales of voclosporin ($1.35 billion) in its Form 40-F Annual Report filed with the SEC, if voclosporin's ultimate Phase 3 AURORA trial demonstrates that it will be next standard of care (with little or no renal toxicity), $1.38 billion in peak annual sales could be a very conservative estimate by management.
In the U.S. alone, if there are 125,000 to 200,000 diagnosed LN patients, if Aurinia can obtain 30% market share, that could translate into a low of 37,000 patients to a high of 90,000 LN patients being treated each year. Assuming Aurinia charges $60,000 per year (which was a figure that a small group of insurers thought reasonable), even after discounts, that may translate into peak annual voclosporin sales in excess of $1.5 billion to $2 billion in the U.S. alone.
Apparently, I wasn't the only person with those thoughts. In an updated report dated March 2, 2017, from Bloom Burton (written by Dr. David Martin, Ph.D., MBA, Analyst), provided voclosporin proves not to be nephrotoxic (which I assume will be the case), Dr. Martin estimates peak annual worldwide sales of voclosporin at $2.340 billion, including $1.5 billion in the U.S. alone.
I also noted that FBR posted a brief note last week suggesting it was estimating peak annual voclosporin sales to be in excess of $2 billion.
Naturally, while estimates of future peak sales are not guarantees, those sales will actually be generated (assuming regulatory approval), valuations of companies with pre-commercialized assets are ultimately calculated using those peak sales estimates.
Based upon the foregoing, it may be that my 12-month target share price for AUPH in the range of $12.00 to $16.00 is conservative, especially in a buyout scenario.
Perhaps a $16.00 to $20.00 share price target for AUPH is more realistic given my view that a buyout is a very real possibility later this year given:
- the strength of the Phase 2B 48-week data (p<0.001), with high levels of partial and complete remissions in LN patients at both 24 and 48 weeks in the face of low or biologic levels of steroid, and what will likely be little or no renal toxicity (demonstrated at 24 weeks and hopefully demonstrated at 48 weeks);
- the size of the LN market, with unmet medical needs and no other FDA or EMA approved drug to treat LN (estimated $1.4 billion to $2.35 billion peak annual sales);
- FDA Fast Track designation;
- FDA blessing to only conduct a single arm Phase 3 trial (with 320 patients) to begin enrollment within the next few months; and
- future filing for regulatory approval of voclosporin in both Japan and Europe.
Aurinia - Buyout Target (Including a Possible Lucrative Partnership)
My January 23, 2017, article sets out my reasons why I believe Aurinia is a likely buyout target and my speculation as to the identity of potential buyers.
In recent weeks, I have read some articles and comments (including one from FBR) that it may be more likely that Aurinia would entertain a lucrative partnership arrangement (rather than a sale of the company) regarding voclosporin, with a substantial upfront payment, additional milestone payments, and ongoing royalties. Assuming the terms were sufficiently lucrative and provided Aurinia and its shareholders with very significant upside I wouldn't object to that type of transaction either.
The only real change since my January 23, 2017, article, apart from the release of the very successful AURA Phase 2B 48-week trial results, is that Aurinia now has the funding to complete the Phase 3 AURORA trial by itself, and is, therefore, in a much stronger negotiating position if bidders for the company or the product arrive on the scene.
- March 27, 2017 - The release of the 48-week trial results from the 10-person open-label AURION trial to be presented at the 12th International Congress on Systemic Lupus Erythematosus (LUPUS 2017) & the 7th Asian Congress on Autoimmunity (ACA 2017). The abstract, titled, "AURION Study: 48-Week Data of Multi-Target Therapy with Voclosporin, Mycophenolate Mofetil (MMF) and Steroids for Active Lupus Nephritis," will be presented by Robert Huizinga, Aurinia vice president of Clinical Affairs on March 27, 2017;
- April 20, 2017 - The presentation of the 48-week trial data from the 265 patient Phase 2B AURA trial. The late-breaking abstract for voclosporin will be orally presented at the National Kidney Foundation (NKF) 2017 Spring Clinical Meetings taking place on April 20, 2017, in Orlando, FL. The oral presentation titled "Treatment of Active Lupus Nephritis with Voclosporin: 48 Week Data from the AURA-LV Study," will be made by lead author Dr. Samir Parikh, a clinical investigator for the study and Assistant Professor, Clinical Nephrology at the Ohio State University, on Thursday, April 20, 2017, from 4:00 P.M. - 5:30 P.M. ET.
A corresponding late-breaking poster presentation of the 48-week AURA-LV study data will also be presented at the NKF 2017 Scientific Clinical Meetings. A copy of the abstract will be available on the conference's website;
- April - May 2017 - The enrollment of patients in the Phase 3 AURORA trial; and
- Mid to late 2017 - My prediction (speculation) of a possible partnership to develop voclosporin with a larger pharmaceutical company or a buyout of the company at a premium to market price.
Despite my bullish views on Aurinia, it remains a speculative buy and is subject to various risks, including poor trial results, Phase 3 trial failure, failure to obtain FDA, European or Japanese regulatory approvals, litigation risks, competition risks, voclosporin being the only substantial asset owned by Aurinia, potential IP or patent issues, financing issues, general economic, market and other usual risks for a biotech company without revenues or any approved products. For further discussion of the risks involved, please carefully review the recent Form 40-F filed by Aurinia with the SEC.
Disclosure: I am/we are long AUPH.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.