Earnings Call Transcript - AUPH Q1 2020

Operator, Operator

Greetings, and welcome to the Aurinia Pharmaceuticals First Quarter 2020 Results Conference Call. It is now my pleasure to introduce your host, Dr. Glenn Schulman, Head of IR.

Glenn Schulman, Head of IR

Thank you, Jesse, and good afternoon, everyone. Welcome to Aurinia's First Quarter 2020 Financial Results and Operational Update Conference Call, live from my home. Joining me on the call from the Aurinia team are Mr. Peter Greenleaf, President and CEO; Mr. Joe Miller, Chief Financial Officer; Dr. Neil Solomons, Chief Medical Officer; Mr. Michael Martin, our Chief Operating Officer; and Mr. Max Colao, our Chief Commercial Officer here at Aurinia. This afternoon, we issued our press release and associated financial statement package detailing the first quarter 2020 financial results, both of which are available on our website and filed the 6-K with the SEC. Before jumping into some brief remarks from the team, I'd like to remind everyone that today's call is being webcast live on Aurinia's Investor Relations website, and a replay will be available approximately 2 hours after the call. Please also note that the content of today's call is property of Aurinia. It may not be recorded, reproduced, or transcribed without prior written consent obtained from Aurinia. For approval, please feel free to reach out to me, Glenn Schulman, via e-mail at ir@auriniapharma.com. During the course of this afternoon's call, we may make forward-looking statements based upon 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. Lastly, please note that all of the statements made during today's call are current as of today, Thursday, May 14, 2020, and are 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 all of that, let me now turn the call over to Peter Greenleaf, Aurinia's President and CEO. Peter?

Peter Greenleaf, President and CEO

Well thanks, Glenn. And first and foremost, I'd like to say that, obviously, these are very unique times that we're all going through. And I hope that you and yours on the call and the webcast today are keeping safe and healthy. Between COVID-19, working from wherever it is you're locked down at, and a busy earnings season on top of all that, we really appreciate you taking the time with us today. As Glenn mentioned, we issued our First Quarter 2020 Financial Results this afternoon and an update on our ongoing operations. While the COVID-19 situation has had its impact globally, we, as a company, are fortunate that the impact on our business operations has been limited. Actually, compared to what typically small biotech companies experience, Aurinia has been essentially operating virtually since its inception and as a result, has been able to weather this shift pretty seamlessly. We have our global headquarters located in Victoria, British Columbia, our finance group in Edmonton, Alberta, and our commercial hub infrastructure being built out in Rockville, Maryland. But throughout our history, the company has sought to attract and hire those with the right talents wherever they may reside. We have assembled a global team in Canada and the U.S. and throughout the world and have leveraged technology such as Zoom, Skype, and Teams to collaborate online and ensure that we get the job done. If anything, with all of our ongoing priorities, we've been busier than we ever have, and communicating together more frequently in this current environment. This afternoon's call should be relatively brief. As I'm sure all of you are aware, our priority today and at this time is completing the new drug application for voclosporin and submitting the full application to the FDA in order to potentially become the first FDA-approved therapy for the treatment of lupus nephritis. On the heels of receiving the AURORA results last December and conducting a face-to-face meeting with the FDA this past February, we've been compiling all of the study reports, the documents and files, and preparing all the modules for submission to the agency. Looking ahead, we remain on target to submit the completed NDA, including the clinical module by the end of this quarter. We will make it known when that milestone has been achieved as it also sets up the timing for us to know more about the review timelines for voclosporin. As part of the NDA and under the Fast Track status previously granted to voclosporin, we're seeking priority review of the application. And assuming granted, and if we complete the NDA filing by the end of this quarter, that would set up a PDUFA date during the first quarter of 2021. And assuming approval, a planned launch of voclosporin will take place shortly after. As an executive in our industry, it's very rare in a career that you're lucky enough to bring a drug to market where there's no FDA-approved solutions. Here at Aurinia, we look forward to making meaningful differences in the lives of these patients. The evolution of this organization over the past year has been well executed by the team. Judging by the quality and breadth of experience we've been able to add to the Board, the commercial leadership team and throughout the organization, we have further strengthened our commercial capabilities and know-how to successfully launch voclosporin with a world-class team and Board of Directors. Last month, we announced Tim Walbert, Chairman and President and CEO of Horizon Pharmaceuticals, had joined the Board of Directors here at Aurinia. Tim is an industry veteran who brings a wealth of commercial and strategic experience that complements our Board. As I introduced you all last quarter, Max Colao joined us as the Chief Commercial Officer. He will provide his initial observations about the ongoing commercial preparations and build work towards launching voclosporin on today's call. Lastly, and in some ways, most importantly, we've brought aboard a new Chief Financial Officer, Joe Miller, who's with us today. After 21 years of service, including those at Isotechnika and Aurinia, Dennis Bourgeault has decided to retire. I can tell you that Dennis has worked tirelessly over the years and sacrificed greatly at times to bring voclosporin to this point, and we are truly grateful for everything he's done for us and the company. While Dennis is consulting for Aurinia to ensure a smooth transition, we're hopeful that he can enjoy his retirement and get back to traveling the world and enjoying the best that life has to offer. Joe Miller, our new CFO, joins us with over 20 years of public and private sector career in the pharmaceutical industry, which will come in handy as we look to launch voclosporin here in the United States over the next year. We've also established our U.S. commercial hub for Aurinia in Rockville, Maryland. This hub will serve as a launching point for voclosporin in the U.S., which we hope to return to shortly once things return to normal. With that brief overview upfront, I'll turn the call over now to Dr. Neil Solomons to review the status of the new drug application for voclosporin and our other development programs. Neil?

Neil Solomons, Chief Medical Officer

Thanks, Peter, and good afternoon, everyone. As Peter mentioned, during the past few months, we’ve had our heads down focused on writing and finalizing the voclosporin NDA that we will submit in full to the FDA by the end of this quarter. Since we last chatted in March and after we completed the face-to-face meeting with the FDA in February, we have made significant progress. To date, we’ve already submitted the nonclinical module to the FDA back in March. In April, we submitted the chemistry manufacturing controls module. We are now working to finalize the other necessary modules, including the clinical, and plan to submit everything to the FDA by the end of the quarter. As part of the filing, as Peter mentioned, we will also request priority review for voclosporin as it was previously granted Fast Track Designation by the FDA. In terms of presenting the results from the AURORA study, I'd like to remind everyone that Dr. Keisha Gibson did present the first results back in March during the NKF virtual spring clinical meetings. I'm pleased to report that this summer, we will also have presentations at the virtual ERA and EULAR conferences. Stay tuned for more details regarding the timing of these presentations. Furthermore, we anticipate having a presence at 4 conferences, including ACR and ASN in November. Another question we've received often is regarding the primary publication of the AURORA results. We just wanted to let everyone know that we plan to submit the primary manuscript for review later this year and will inform everyone about its publication. For the entire Aurinia team, it has been an incredibly busy and exciting time, and I couldn’t be prouder of my team for their continued execution during these interesting global times. Switching topics to our FSGS exploratory study. As a recap, for those who haven't been following closely, this study was initiated back in 2018 and aims to enroll biopsy-proven treatment-naive primary FSGS subjects into an open-label exploratory study of voclosporin. FSGS is an ultra-rare disease, affecting around 5,000 new patients annually in the U.S. Due to difficulty in recruiting the patient population meeting study criteria, in the spring and summer of last year, we opened additional sites in the U.S. as well as in the Dominican Republic. Furthermore, we amended the original study to allow inclusion of primary FSGS patients who had previously been treated with a limited amount of corticosteroids. Unfortunately, despite these efforts and enthusiasm from the sites, enrollment, regardless of COVID-19, remained slow. We will continue to thank and support the small handful of FSGS patients that were or are currently in the study. What we've learned is that, importantly, there have been no safety signals or tolerability issues noted in the study. That said, the sample size is too small to make any conclusions regarding efficacy at this time. Therefore, we have decided to invest our capital resources in other ways. As a result, we are preparing to explore voclosporin in other proteinuric kidney diseases, including potentially pediatric nephrotic syndrome or adult idiopathic membranous glomerular nephropathy. These additional indications would also be dosed in the same manner described in our 036 patent, which also includes LN and FSGS studies. Given our confidence surrounding the 036 dosing patent, we are currently assessing broader proteinuric kidney diseases for clinical and commercial feasibility, with a target of announcing plans for the exploratory study later this year. Owing to the intense current workload with the NDA, firmer timelines will be forthcoming next time we report quarterly results. On the dry eye front, the ongoing Phase II/III study evaluating voclosporin ophthalmic solution or VOS in a dose-ranging study compared to vehicle remains on track despite the adaptation of this and our entire clinical development program to the FDA guidance for conducting and maintaining data integrity during the COVID-19 pandemic. Based on internal discussions with the clinical trial sites and our CRO, we believe we remain on track to report top line results from this Phase II/III clinical trial during the fourth quarter of this year. With that brief update on the clinical and regulatory fronts, I'll pass the call over to Max.

Max Colao, Chief Commercial Officer

Thanks, Neil, and good afternoon, everyone. Thanks for taking the time. As Peter mentioned, I’ve been part of the Aurinia team for 2 months now, and I’d like to take this opportunity to share my initial impressions and focus. What struck me the most, as I’ve continued to learn more about lupus, is just how devastating LN is as one of the most serious, common, and life-threatening complications of this disease. These patients face significant morbidity and mortality with 10% to 30% of LN patients requiring dialysis just 15 years after diagnosis. When you take a step back and look at this disease through the lens of all the stakeholders affected by LN, there’s a clear and stark unmet need. From a physician's perspective, doctors express the need for more effective therapies, which achieve a quicker time to response as well as minimize the use of corticosteroids like prednisone. Payers ultimately want to avoid the costs associated with end-stage renal disease, including dialysis and/or renal transplant. Based on the AURORA and AURA study results, a voclosporin-based regimen for LN clearly demonstrated the ability for the regimen to defend the kidneys by achieving both an early and sustained renal response for a greater proportion of patients. Nevertheless, LN is a relatively rare disease, and we recognize barriers to ensuring voclosporin's adoption. Based on our internal market research, we have a few observations. First, we see variability in treatment goals, monitoring protocols, and the remission or response criteria employed by practitioners. We also observe variability in experience and understanding of the current treatment approaches and some inexperience around a multi-targeted treatment approach. Lastly, we recognize the challenge of launching voclosporin during a time where COVID impacts stakeholder access. As we flesh out our capabilities, we’re focused on implementing a rare disease model, as the path to realize voclosporin's potential. This guides our vision for building out our world-class commercial team and the profiles of experts that we're bringing aboard. Particularly, we’re leveraging those with deep expertise in nephrology, rheumatology, lupus, and other autoimmune conditions. Second, we’re hiring a seasoned team that has successfully executed launches of products across rare diseases as well as broader renal indications globally. Over the last 60 days, we’ve made great progress toward this goal. We’ve added key leaders to our existing commercial team in sales, marketing, market access, and operations. We have also added new capabilities in professional relations, thought leader engagement, patient advocacy, commercial supply chain, and patient services. Across the board, we’ve been fortunate to hire industry-leading professionals and add support staff to build out our Aurinia team. Just for perspective, our current commercial leadership team has, on average, 24 years of commercial experience: 9 years in rheumatology, 8 years in nephrology, and the team has been seasoned collectively through 72 launches. With that update, again, I’d like to say what a pleasure it is to be part of this team, and I look forward to providing further updates from the commercial perspective to all of you later this year. Thank you. I’ll now pass it over to Joe for a review of our Q1 financial results.

Joseph Miller, Chief Financial Officer

Thanks, Max, and good afternoon, all. As of March 31, 2020, Aurinia had cash, cash equivalents, and short-term investments of $286.1 million compared to $306 million as of December 31, 2019. Net cash used in operating activities was $22.7 million for the first quarter ended March 31, 2020, compared to $13.1 million for the first quarter ended March 31, 2019. The company believes that it has sufficient financial resources to fund its current plans, which include conducting its ongoing research and development programs, completing the NDA submission to the FDA, conducting pre-commercial and launch activities, manufacturing and packaging of commercial drug supply required for the launch, the continued build-out of our corporate supporting infrastructure and funding its remaining working capital needs through 2021. The company reported a consolidated net loss of $16.5 million or $0.15 per common share for the first quarter ended March 31, 2020, compared to a consolidated net loss of $12.4 million or $0.14 per common share for the first quarter ended March 31, 2019. The loss for the first quarter ended March 31, 2020, reflected a noncash reduction of $9.8 million in the estimated fair value of derivative warrant liabilities compared to a reduction of $1.7 million in the estimated fair value of derivative warrant liabilities for the first quarter ended March 31, 2019. The derivative warrant liabilities will ultimately be eliminated on the exercise or forfeiture of the warrants and will not result in any cash outlay by the company. The outstanding warrants expire on December 28, 2021. The loss before the change in estimated fair value of derivative warrant liabilities and income taxes was $26.6 million for the first quarter ended March 31, 2020, compared to $14.1 million for the same period in 2019. R&D expenses increased to $13.8 million for the first quarter ended March 31, 2020, compared to $10.6 million for the first quarter ended March 31, 2019. The increase in these expenses primarily reflected higher costs related to the preparation of the NDA submission and the related supporting activities, the ongoing VOS/AUDREY Phase II/III dry eye trial, the AURORA 2 extension trial, and the expansion of the medical affairs team to support the launch of voclosporin. Noncash stock compensation expense charged to R&D also increased to $1.2 million for the quarter ended March 31, 2020, compared to $862,000 for the comparable period in 2019, reflecting the hiring of a significant number of personnel in 2020 and an increase in the fair value of the stock options granted due to the increase in the company's share price. Corporate, administration, and business development expenses increased to $11.1 million for the first quarter of 2020 compared to $3.9 million for the first quarter of 2019. These expenses included the expansion of the commercial team, higher consulting and professional fees, insurance costs, and personnel compensation costs as the corporate organization build-out continued in Q1 2020. Noncash stock compensation expense charged to corporate, administration, and business development also increased to $2.3 million for the first quarter ended March 31, 2020, compared to $742,000 for the comparable period in 2019, reflecting the hiring of several significant key personnel in 2020 and an increase in the fair value of the stock options granted due to the increase in the company's share price during the quarter. With that review, I will pass it back to Peter for some concluding remarks. Peter?

Peter Greenleaf, President and CEO

Okay, thanks, Joe. Before we open up to Q&A, I’d just like to say that we are excited about what’s on the horizon, if it’s not obvious. We’re keeping our heads down, focused on filing the completed NDA for voclosporin. Furthermore, we’re working to build additional value for voclosporin with the VOS dry eye syndrome program by completing the AUDREY trial and reporting those results later in the year. Based on our continued enthusiasm and confidence around the 036 patent, we are now looking to redeploy our resources and evaluate voclosporin in other proteinuric kidney diseases beyond FSGS and moving beyond this ultra-rare condition into larger, more commercially viable indications. With a strong balance sheet of approximately $286 million at the end of the quarter, we are adequately funded through 2021 and can confidently execute on our development and commercial launch plans. I want to thank you all for your attention today, and the team is here to take your questions. With that, operator, can we please open up for a Q&A session?

Operator, Operator

Our first question comes from Alethia Young with Cantor Fitzgerald.

Alethia Young, Analyst

Congrats on all the progress that you made in the quarter. Just a couple for me. One, I wanted to get any feedback that you have heard from the FDA, the conversations you've had. It sounds like everything's a go to the finish line. But just if anything notable popped up there. And then second, I mean, I hope the drug gets approved relatively quickly after you file, and you may be launching, hopefully in early 2021. For your new commercial lead and for Peter, can you talk about how you think about targeting doctors in the world of COVID? Are you preparing to think about something virtually? I know it sounds a little early, but I feel like all companies are sort of having to consider multiple scenarios of launches in the next 12 months.

Peter Greenleaf, President and CEO

Okay, thanks, Alethia. Hope all is well on your end. Let me start with the first question because I think it’s the simplest. Feedback from the FDA, as we said on the last call, from the February 25 interaction and up to this point, has been somewhat on target. We haven’t heard or seen anything that has been a surprise to us. Actually, when we met in Rockville pre all of this lockdown, it was quite a collegial meeting, and we were very happy with the result. Neil, anything you’d add there?

Neil Solomons, Chief Medical Officer

No, I would echo what you said, Peter. It was a collegiate meeting. We met many of the medical reviewers there, most of whom have actually been following this program since inception in 2012, which is great news for us. They’re familiar with us, familiar with our story, and familiar with what they’re about to receive. They also reiterated that this is an NDA based on the one-year efficacy risk benefit, which we believe is very positive. So yes, we’re very confident.

Peter Greenleaf, President and CEO

On to the second question, which I’m sure is standard for just about everybody today: how do you launch a drug in a world of COVID? I think we’re all learning as we go here. I sit on multiple other Boards outside of Aurinia that have commercial products, and obviously, some of those learnings can be transferred in. We’re also watching other companies that have drug approvals during this time to see what they’re doing during a lockdown scenario. Our current planning is basically three scenarios. One, which is a normal drug launch, an unrestricted, non-lockdown assuming access – how we would approach the market. The second is a full lockdown scenario, which would mean recommendations come out that put us back into the same scenario we’re in today if the virus were to reappear or a new strain of the virus appears. And the third would be a limited scenario where the virus is circulating and maybe doctors’ offices and healthcare facilities have less access. We’re planning on all three scenarios, and we’re just trying to learn as we go. But plan A is to launch in a normal world scenario. I hope that leaves some level of confidence that we’re thinking about it on multiple fronts. Max, what would you add?

Max Colao, Chief Commercial Officer

Yes. What I would add is that we are clearly building our virtual capabilities, so we'll be enabled virtually irrespective of what scenario we launch under. I would also highlight that in terms of physician targeting, the disposition of physicians is similar to what you see in other rare diseases, where there are a small number of physicians that see a large number of patients, and then you have most physicians that see few patients. We are clearly taking that into account in our targeting and deployment as well.

Kenneth Cacciatore, Analyst

Congratulations on all the management and Board additions. Question for you on the intellectual property: Can you just talk about what was surprising about the dosing of voclosporin in these studies that allowed you to secure that patent? And do you anticipate those dosing instructions to be included in the label?

Peter Greenleaf, President and CEO

Yes. Let me take the latter part of that first, and I would ask Mike Martin to jump in. Our hope is that we would see this appear in our indication and usage section of our label. It is how we did both of our trials. This is our eGFR dosing protocol utilized in both our Phase II and Phase III designs. I think we’ve spent a lot of time with the agency over the time we’ve been in the industry, and it’s been rare where what you do in your trial does not appear in your usage and indication section of the label. We’re hopeful that it appears there. Regarding the first part of the question about what was unique on the patent front and why the observation was unique, I’ll let Mike speak to that.

Michael Martin, Chief Operating Officer

The essence of it is basically we’ve generated intellectual property with respect to a personalized treatment regimen. We know from past experience with the drug and other CNIs that some patients are much more susceptible to the short-term hemodynamic effects of calcineurin inhibitors. This causes a structuring of the renal arterials and a corresponding decrease in eGFR, which varies from patient to patient. What we found is that if we monitor these patients early on in therapy and adjust the dose, we can manage these short-term variations in eGFR and keep them on therapy. That’s been shown to have better complete remission rates at 6 and 12 months in both AURA and AURORA trials. That’s exciting because you would expect that lowering the dose of this particular medication would generate lower complete remission or partial remission rates. So that’s the surprising result. You can review the prosecution history available on the U.S. PTO under Public Pair to see how this was determined as patentable subject matter.

Peter Greenleaf, President and CEO

Thank you. Neil, anything you’d add? Ken, anything else?

Joseph Schwartz, Analyst

Just to continue with questions on the label, how do you anticipate the indication will look in terms of things like line of therapy induction versus maintenance? How many patients in the United States do you think would be covered by however those things are structured?

Peter Greenleaf, President and CEO

Thanks, Joe. I’ll ask Neil to build on this with me. As I’ve said in individual conversations with investors, we’re in the process right now with Max joining and bringing his leadership team together to really refine where patients show up, how they show up, and who they approach, ensure we know the right call points. We’re in the process of market research. Neil, do you want to comment on what we’re aspiring to in the label?

Neil Solomons, Chief Medical Officer

Yes, it’s very important when we look at the label to see what sort of patients we enrolled into both our studies. We deliberately made an effort to enroll a very broad range of lupus nephritis patients. The target label for us is just the treatment of lupus nephritis. Obviously, we’ll see how that pans out, but we’re clear on that.

Peter Greenleaf, President and CEO

I don’t want to speculate on where we’ll end up on the label. We’ve enrolled a very broad range of patients. Our ask will be what we did in our trial, so look at our entry-level criteria. We think there’s somewhere between 400,000 and 500,000 lupus patients out there, and around 50% of those patients have lupus nephritis. You’re talking somewhere in the range of 200,000 to 250,000 patients is our estimate. We’ll target the commercial message accordingly, once we’ve seen the label. Do you have another question?

Justin Kim, Analyst

I would like to get a sense of the allowable eGFR status range practically, relative to what the entry criteria was for AURORA. How do the results of AURORA, including Dr. Gibson’s presentation at NK, shape your thinking?

Peter Greenleaf, President and CEO

That’s a great question. I’m not a treating nephrologist, so I’ll defer to Neil for insight on that.

Neil Solomons, Chief Medical Officer

Yes. It’s a good question. We put a floor of eGFR at 45, but some patients have lower eGFR. When we started screening for the study, very few patients were excluded on the basis of eGFR. What we permitted was if they had a lower eGFR than 45 and had a pulse of steroids, and that eGFR recovered, they were still allowed in. We believe it's a good real reflection of a patient population having proteinuric flares. We might consider a Phase IV program to include more severe patients in the future.

Max Colao, Chief Commercial Officer

Regarding dosing, one of the benefits of this product is its ability to be flat-dosed. We would not want a patient-tailored dosing profile that adds complexity. Doctors are already tailoring doses normally, and this will not be an additive task for them.

Joseph Miller, Chief Financial Officer

Operating expenses will see a slight increase in SG&A as we build out the infrastructure. If you use Q1 as a benchmark, expect a slight increase in the coming quarters, with the R&D expenses remaining consistent.

Peter Greenleaf, President and CEO

We will provide guidance on future expenses as we get closer to a potential approval and label.

Maury Raycroft, Analyst

I was wondering if you're doing market research and have a sense of how much off-label use in non-lupus nephritis indications you might see? What indications are most likely?

Peter Greenleaf, President and CEO

We cannot project any spontaneous sales, but there are areas where CNIs are used today, indicating potential off-label use. However, we cannot promote that. We want to ensure broad access for patients.

Tom Bishop, Analyst

I’m wondering if you could give us more detail about the barriers to insurance for voclosporin. Do you mean pricing, or is there something else?

Peter Greenleaf, President and CEO

These are the standard barriers for any new product. We are looking into all of them. Upon concluding the Phase II trial, we did our preliminary market research. With sufficient data, access doesn’t appear to be an issue.

Operator, Operator

We have no additional questions at this time. I’d like to pass the floor back over to management for any additional closing comments.

Peter Greenleaf, President and CEO

I want to thank everybody for taking the time to run through how the quarter went. We continue to be incredibly excited about the opportunity ahead and we look forward to reporting back to you soon on our progress on the NDA and our development programs. Thank you and stay safe and healthy.

Operator, Operator

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.