Earnings Call Transcript - AUPH Q1 2021

Operator, Operator

Good afternoon ladies and gentlemen and welcome to Aurinia Pharmaceuticals first quarter 2021 financial results conference event. At this time, all participants are placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It's now my pleasure to turn the floor over to your host, Glenn Schulman. Sir, the floor is yours.

Glenn Schulman, Host

Thanks Matthew and good afternoon everyone. I am pleased to welcome you to today's call discussing Aurinia's first quarter financial results. Joining me on the call this afternoon are Peter Greenleaf, our President and CEO, Max Colao, Chief Commercial Officer, Neil Solomons, Chief Medical Officer and Joe Miller, our Chief Financial Officer.

Peter Greenleaf, CEO

Thanks Glenn and I want to thank everyone for joining us today. I am going to spend a couple of minutes upfront walking everyone through our activities for the first quarter, including the launch of LUPKYNIS. We will also review what's coming up in the back half of the year, a brief update on our ongoing clinical and R&D activities as well as a review of our financial position. So with respect to LUPKYNIS launch, as you all know by now, we were granted FDA approval around the end of January. And once we had the approval in hand, we got to work getting the therapy to patients. Max Colao is here today and he will provide more specifics in a few minutes. But in short, we are executing the plan and I have a great deal of confidence in the team and in the trends that we are currently seeing during the first quarter and into second quarter.

Max Colao, CFO

Thank you Peter and good afternoon everyone. Let me begin with the three takeaways that I learned from my remarks. Then I will provide some supporting details and key points. First, as Peter highlighted, I am pleased to report that our progress and results in the first quarter are in line with our expectations. Our rare disease commercial model is working. Second, the dynamics of launching in the COVID environment are proving to be even more of a challenge than we initially expected. And let me tell you, that's really saying something because we went into this environment with our eyes wide open. Even so, the headwinds have been stronger than forecast and so more about this in a minute as well. The third takeaway is more promising and that is an event both rare and significant that occurred after the quarter closed. It has the potential to generate additional momentum by providing clear payer guidance in establishing LUPKYNIS coverage policies. That's cause for excitement, not only for us but also for patients and their caregivers. I will provide details in just a minute. But first, how about some greater detail around the first quarter. The metrics I am going to share reflect 48 business days of activity post-approval. Over this time, we have tenaciously worked to drive LUPKYNIS adoption and to support HCPs and patients to gain access to treatment. To give you a sense of the magnitude behind this effort, more than 2,000 HCPs have attended our education programs. These have been a very effective forum for top KOLs to share their insight on the current state-of-the-art in treating with lupus nephritis and on LUPKYNIS in particular.

Joe Miller, CFO

Thank you Max and good afternoon everyone. As of March 31, 2021, Aurinia had cash, cash equivalents and investments of $361 million compared to $423 million at December 31, 2020. The decrease is primarily related to the commercial infrastructure spend to support the launch of LUPKYNIS coupled with an upfront investment made in connection with the previously discussed manufacturing facility and one-time milestone payments triggered by the approval and first commercial sale of LUPKYNIS, both of which were paid out in the quarter. Net cash used in operating activities was $53.5 million for the quarter ended March 31, 2021, compared to $22.6 million for the quarter ended March 31, 2020. The increase is primarily due to the commercial infrastructure spend to support the launch of LUPKYNIS. As a reminder, in the prior year, the company was still in the development phase of LUPKYNIS and as a result, we did not incur any material related selling expenses. The company believes we have sufficient capital financial resources to fund our current plans, which include funding commercial activities, manufacturing and packaging of commercial drug supply, conducting our planned R&D programs including our FDA related post-approval commitments and operating activities into at least 2023. For the quarter ended March 31, 2021, Aurinia recorded a consolidated net loss of $50.4 million or $0.40 per common share as compared to a net loss of $25.9 million or $0.23 per common share for the quarter ended March 31, 2020. Revenues were $1 million and $30,000 for the quarter ended March 31, 2021 and 2020, respectively. The increase was a result of commercial sales of LUPKYNIS which began in January 2021. Cost of sales were $48,000 and zero dollars for the quarters ended March 31, 2021 and 2020, respectively. The increase was related to the commercial sale of LUPKYNIS. Gross margin for the quarter was approximately 95%. Research and development expenses were $9.8 million and $13.8 million for the quarter ended March 31, 2021 and March 31, 2020, respectively. The decrease in expense is primarily due to lower contract research organization expenses and other third-party clinical trial expenses following the approval of LUPKYNIS, including a reduction in NDA preparation costs, capitalization of supply costs following approval as well as determination of the dry eye trial in Q4 of 2020. R&D share-based compensation expense in the quarter was approximately $1.1 million. Selling, general and administrative expenses were $39.3 million and $11.1 million for the quarters ended March 31, 2021 and March 31, 2020, respectively. The increase was primarily due to the expansion of our commercial infrastructure, administrative functions and patient assistance program, all in support of LUPKYNIS launch. Selling, general and administrative share-based compensation expense for the quarter was approximately $6.6 million. With that, I would like to hand the call back over to Peter for some closing remarks.

Peter Greenleaf, CEO

Okay. Thanks Joe and Max. And I want to thank you all for taking the time with us today. In closing, it's early days, but we are feeling good about the LUPKYNIS launch and we want you to hear directly from Otsuka who are executing the plan and right on track with our internal projections. As we review, there's going to be a lot of activity going on in the back half of the year and especially as things open up here in the states, we are excited about seeing greater progression. So we look forward to providing even more updates, additional updates in the quarters to come and the months to come. But for now, we would like to open it up to any questions that you might have. So let me now turn it over to the operator for opening up lines for question.

Operator, Operator

Your first question is coming from Alethia Young. Your line is live.

Alethia Young, Analyst

Hi guys. Thanks for taking my question and congrats on the new start numbers. It looks pretty good. A couple of things. One, I know it's early, but can you kind of give us your perspective on what you are seeing in the real world around titration? I know we have spoken to doctors about the titration regimen. So I just wondered how you think about that? And then just another question. Can you give us an update on some of the Medicaid formularies and different things like that, if that is indeed applicable in this talk about getting broader access? And then the last one is just, what you are hearing or how your sales force is detailing or educating against Gazyva, I am sorry, Benlysta actually, if it happens to come up in the conversations? Thanks.

Peter Greenleaf, CEO

Why don't I start out with the first and maybe the third question there and then I will ask Max to build on the third and maybe give us commentary on the government pay side of the equation. The simple answer, Alethia, on titration, this is for those that don't know this is the EGFR dosing protocol that we have in place. I guess our experience has been that it's only been a few weeks out there and limited access to direct information from office to office, is that it's on track. So our net calculations in terms of what we think of net value per patient per year seem to be playing out in the early weeks of the launch. So on track with what our assumptions would be my answer there, Alethia. And then on the Benlysta question, first, you can feel very comfortable that our team understands our data and understands theirs. And it’s not the primary topic that comes up in conversation, I think. And I would ask Max Colao to build on this from what he is hearing at the field level. The primary concern is getting physicians to, one, identify which patients might be appropriate for LUPKYNIS therapy and then ensuring that they are committed to differentiating the product versus other therapies that might be available or challenging them on why they may not have a sense of urgency to lower proteinuria in these patients. So there's a big education factor in trying to change the way physicians have historically treated. So I think that's coming up more often than the question, hey, when I am making a treatment decision, do I use Benlysta or do I use LUPKYNIS? So let me turn it to Max and see if he can dig a little more into maybe that question and the public payer side of the equation.

Max Colao, CFO

Yes. Thanks Peter. And thanks, Alethia. Yes, Peter's spot on. Really, what our focus is, is creating that urgency in terms of bringing the patient in and starting the treatment. We are definitely seeing that there's just a large number of patients with high levels of proteinuria that are not controlled. And so it's really working through creating that urgency and explaining the value proposition of LUPKYNIS. And so Medicaid, so it's a great question. As of April 1, we have now confirmed that 90% of Medicaid lives have coverage. We now are months out and the mandated Medicaid coverage is in place. So we confirm 90% of lives now having coverage.

Alethia Young, Analyst

Well, thanks. Congrats again.

Peter Greenleaf, CEO

Thanks Alethia. Any more questions?

Alethia Young, Analyst

No. I will hop back in the queue.

Peter Greenleaf, CEO

Okay. Thank you. Operator, next question?

Operator, Operator

Certainly. Your next question is coming from Ken Cacciatore. Your line is live.

Ken Cacciatore, Analyst

Hi. Thanks guys. Good evening. I know you reviewed a lot of different metrics. So I am just going to ask a couple here to help us out. Just wondering, as we get to the current moment, is the pace accelerating of enrollment forms and conversion of those enrollment forms? So could you take us up to real-time? Are you seeing a constant steady buildup? Or were we working through a little bit of a bolus? I would just love to hear how you frame that out? And then also, now that you have engaged the number of clinicians that you suggest, just wondering as you are getting almost a real-time survey of the patient landscape, can you talk about your views of actual patient size? I know it's a debate amongst us investors of how many LN patients are out there and accessible? I would think with your interactions, you are able to kind of get a really good sense of that. So can you talk about any learnings in this kind of early interaction? And then also, Peter, hate to ask the question, but there's been commentary previously from you all about is the street consensus number achievable. Can you just kind of frame your commentary around what you are seeing consensus and how we should be thinking about that? Thanks so much.

Peter Greenleaf, CEO

Okay. Thanks Ken. Well, first, let me just go into all the numbers that we gave for the quarter were sort of locked into the quarter. So I want to try to stay very consistent with that. What I can tell you about both patient start forms and the time from a patient start form turning into a patient on drug have both steadily increased and/or decreased, meaning our patient start forms per day per week continued to increase on pace, as Max said, with what our expectations are into Q2. And with that, a subsequent decrease we are seeing as policies start to come online, as part of our Aurinia Alliance work with physicians and patients starts to come more online, a decrease in the time it takes for a patient to go from an initial start form to actual drug. So we feel good about the numbers. Although we didn't quote exactly what the numbers are through this time period in the quarter, we feel good about the trends that we are seeing. So I will kind of leave it at that. One thing you did mention is, did we see a bolus of patients in the first quarter through patient start forms? Recall that we have an ongoing two-year extension in our AURORA, our original Phase 3 AURORA trial. So we didn't have a group of 30 or 40 patients that came out of that trial and went on to commercial drug. So there was no bolus there. And since we didn't have approval and our reps were newly trained, we were not out there identifying specifically patients for therapy to keep our reps in the right zone from a compliance standpoint. So what you see generated has been the grassroots effort in the first, just about, just under actually, two months of the first quarter of launch. You asked a question about patient size. I think our answer is going to be consistent here. I think we still believe they are somewhere between 80,000 to 100,000 patients with active lupus nephritis in the U.S. And of that, we think we have an ability to play in about 80% of those patients. Now, what I will put a strong caveat on is that we had seen in the COVID environment access restrictions at certain centers which is obvious. Many of the major medical institutions, especially tertiary care centers are pretty locked down, right. So lupus clinics and many of those centers are not happening or they are happening virtually. And as the data Max shared, patient visits in general and follow-up diagnostic visits for patients with lupus are down almost 50% according to a very sizable patient survey done by the World Lupus Foundation. So it's kind of hard to tell what we are learning in terms of the real world on-the-ground data because of the COVID environment. But we still stay very confident in those higher level numbers. As we learn more and things open up more, we will make sure to relay some of that information to the markets. And then lastly, your last question was centered around where consensus is. And I will just reiterate that we feel comfortable in the zone of where consensus is. And as we are hard-charging with our business, that has not changed in the first quarter. Any follow-on questions, Ken?

Ken Cacciatore, Analyst

No. Thanks Peter. I appreciate it. And thanks to the whole team.

Peter Greenleaf, CEO

Thank you. Operator, can we go to another question in the queue?

Operator, Operator

Certainly. Your next question is coming from Joseph Schwartz. Your line is live.

Joseph Schwartz, Analyst

Great. Thanks for all of the helpful insights about the launch. It's good to hear the encouraging leading indicators. I was wondering if you could just expand a little bit by passing on some of the most common adoption patterns you are seeing so far? For example, is it mostly physicians that you have met with in-person or virtual? Is that also the case? And who have submitted start forms? And for which patients are they reaching for voclosporin? Is it larger practices or academic practices versus smaller practices and community practices at this point, given what I heard you say about the greater appreciation for the importance of proteinuria at some places? Who have been the early adopters? And how do you expect the adoption patterns to evolve at the ground level?

Peter Greenleaf, CEO

Thanks Joe. And let me turn that right to Max Colao and he can give you a little bit more color from the first 60 days or so of what we are seeing in terms of doctor and physician trends. Max?

Max Colao, CFO

Sure. Thanks. Absolutely. So yes, so the prescribers, it’s 50% of them, it really kind of splits down the middle between rheumatologists and nephrologists, 50% on each side. Most of our prescribing at this point is in the community. Now, you know, most of the patients are in the community. The issue there is that, the physicians in the community will only have a handful of patients, right. So you have to reach many physicians in the community to drive adoption. In the lupus centers, we talked about this before, there are about 60 lupus centers in the United States. They are all within academic centers. They are definitely the areas where we have the most difficult time gaining access. Some of the lupus centers are actually still virtual. Some of them plan to be virtual until year-end. But we have gotten adoption in 50% of lupus centers. We have some leading lupus centers that are starting to lead the way, including Hawkins, UCSF, SUNY downstate. So we are pleased to see that we are making progress, even though it's more challenging because of the access issues.

Joseph Schwartz, Analyst

Yes. Right. I can appreciate that.

Max Colao, CFO

And I will make one more point which is in terms of patients. So the patients that are going on treatment are across all of Class III, IV, V primarily.

Joseph Schwartz, Analyst

Okay. That's where I was going next actually. And are you finding that physicians are, is there really no set of common patterns? How are the physicians choosing these patients? Is that the next patients that were set to come in any way? Are they reaching out in any cases to their worst cases? Is it patients that are the most refractory and advanced?

Max Colao, CFO

Yes. I would say that it reflects what we see to be the largest patient opportunities at launch, which is basically the patients that likely have been treated but are not achieving their proteinuria targets.

Peter Greenleaf, CEO

Yes. And Joe, the one thing I would add that was already said and I think it's an important point, we are seeing some regional differences, right. Like where access is much higher, we are seeing higher productivity. We think that trend is going to evolve as things open up in some other geographies more. That's the only thing I would add.

Joseph Schwartz, Analyst

Very helpful. Thanks again.

Peter Greenleaf, CEO

Thanks Joe. Operator, do we have another question?

Operator, Operator

Certainly. Your next question is coming from Maury Raycroft. Your line is live.

Maury Raycroft, Analyst

Everyone, congrats on the progress and thanks for my questions. First one is just checking in to see if it's possible to see some of the AURORA-2 data at EULAR? So I just wanted to clarify? And then or what else should we be expecting at the EULAR meeting?

Peter Greenleaf, CEO

Yes. Neil's on the phone. Neil, I don't know if we have submitted any of our, I think I don't know if the deadlines are for EULAR. But you want to give any commentary on what might be seen this year around AURORA-2 or the AURORA-2 year extension?

Neil Solomons, CMO

Yes. Obviously, the AURORA-2 continues in a blinded fashion. But there are interim cuts that are being made for the regulatory submissions. So there was a cut made obviously for the FDA submission and there was also a cut made for the MAA in Europe which is kind of the end of June. And there is a presentation at EULAR that has some of the AURORA-2 aggregate data that's going to be presented in June. We don't have the exact date or time and not been released yet. But you will see some of that. And obviously towards the back half of the year, there is ASN and ACR and it's our intention to submit even more data there.

Maury Raycroft, Analyst

Got it. Okay. That's helpful. And for the AURORA-2 extension data, just wondering if you tested that in your market research surveys with KOLs? And if that had any impact on their future use of LUPKYNIS? Or if there's any additional color you can provide on the market research and some of the results you saw there?

Peter Greenleaf, CEO

Yes. I mean, I will start and obviously, the guy who is the closest to it, Max Colao, should build on whatever I might miss here. But listen, I mean Max said it, right. Like the intention to utilize a drug by both rheumatologists and nephrologists is greater than 50%, right. So I think it's encouraging. And that's regardless of the AURORA-2 extension study. I wonder, Max, if we have done any research specifically asking about that but I think it's intuitive to assume that with that data, it's only going to strengthen our position. I mean it's primarily a safety study but showing that the drug continues to be safe after that time period is only going to strengthen doctors' conviction around the product and the amount of time they can use the product. Do we have anything specific, Max?

Max Colao, CFO

Not specific to AURORA-2. But what we do have specific to in the market research is that the efficacy messages are resonating and there's both strong recall and high impact from the efficacy messages. Definitely, we see that the physicians are looking for more safety data. And we believe that AURORA-2 will be important in helping to illustrate especially what the long-term treatment, the consequences of long-term treatment. So we are looking forward to that.

Maury Raycroft, Analyst

Got it. Okay. Thanks for taking my questions.

Peter Greenleaf, CEO

Thanks Maury. Operator, any other questions?

Operator, Operator

Absolutely. Your next question is coming from Justin Kim. Your line is live.

Justin Kim, Analyst

Hi. Good afternoon. Thanks for taking the question. Just one for me. Is the team able to characterize what a goal depth of engagement might be for a target prescriber? Maybe just to say it another way, how many interactions on average may be ideal before a physician has enough comfort in writing a script, etc.? And how that engagement has been impacted by the pandemic or improved over the recent months?

Peter Greenleaf, CEO

Yes. I think we actually have some of that data. And Max, I don't know if you want to go maybe into a little of that detail.

Max Colao, CFO

Yes. Sure. And I alluded to this. In the areas, really in the South where access is more open and actually we can get frequency with physicians, that's where we are seeing the highest levels of prescribing. And your question is spot on. It takes multiple engagements with a physician to get comfortable to identify the patient to get into Aurinia Alliance. On average across the nation, we have had about, I think it's about 2.5 engagements across all of the prescriber base. But in the areas where we see the highest prescribing, that average goes into like 7, 10 and above.

Justin Kim, Analyst

Got it. And maybe just another one as a follow-up. How long does the team expect to reach that doubling of the physicians engaged? Is there sort of a time estimate in terms of how long that might take?

Peter Greenleaf, CEO

Yes. Listen, I think we have our internal projections of reps getting out there and talking to doctors. But the live engagements are going to evolve. So I am not sure we have. We definitely don't hold that up as a metric to our sales force. We want you to see X number of physicians X number of times. Max, do you have a more quantifiable answer to that?

Max Colao, CFO

No. That's spot on. Because of the regional differences around access, we haven't set specific targets. But again, what we are seeing is that the frequency increases as things open up.

Justin Kim, Analyst

Understood. Thank so much. And congrats on the progress.

Peter Greenleaf, CEO

Thanks Justin. Operator, do we have another caller?

Operator, Operator

Yes. Your next question is coming from Ed Arce. Your line is live.

Ed Arce, Analyst

Hi everyone. Thanks for taking my questions and congrats on the early progress of the launch. First question is just on the first obvious tier as you just get into the launch which is patient access and reimbursement. You mentioned, at this point you have already got 120 million lives covered and 11 payers have actually published LUPKYNIS specific coverage plans. I was wondering, first, if you are free to disclose any of those 11 payers? And then with those policies, are there any specific sort of restrictions along the coverage pathway that are of interest, especially given the broad label and very favorable IVER recommendation? Just curious if there were any sort of odd restrictions placed by any of those? And then lastly, you mentioned the number of start forms and conversions. Again, it's early days. I am just wondering if there have been any payer declinations so far? Thanks again.

Peter Greenleaf, CEO

Max, I will give to you on the payer and other questions that I just ran through half of that color, but you are the closest. Max, you may be on mute.

Max Colao, CFO

Yes. Thanks for that. So the 11 payers include, let's see, Aetna, Cigna, Highmark, Anthem, a number of the Blue Crosses and HealthNow. So those are the ones that have published LUPKYNIS specific coverage policies. And like I said, all of them are aligning to the labeled indication. All of them are consistent with how LUPKYNIS is studied. And I would say, out of all those lives covered by the 11 policies, 90% of them don't have any step-through requirements. The ones that do, the primary step-through requirement is through MMF and steroids. So those are the coverage policies. Of course we have had payer denials. That's common just because even though if there isn't a LUPKYNIS specific policy, then it's unclear what the criteria is. And so you do, and this is typical in any rare disease launch, go through a denial, an appeal process on a set of prescriptions. That's just par for the course. But that's from what we have seen in terms of denials, appeals and working through the process, there's nothing really that stands out that would be different than what we have seen in other rare disease launches.

Ed Arce, Analyst

Great. Thanks Max. I appreciate it.

Peter Greenleaf, CEO

Operator, do we have another question?

Operator, Operator

Thank you. Your next question is coming from David Martin. Your line is live.

David Martin, Analyst

Yes. Thanks for taking my questions. The first one relates to the last question that you were asked. So the 11 payers that you named, what percent of the 100 million lives do they represent?

Peter Greenleaf, CEO

Yes. So on that one, it's hard to exactly quantify that. I would say, a kind of very rough estimate would be 20%.

David Martin, Analyst

And if amongst those 80 million other lives, there isn't a specific coverage plan in place, how are the request for reimbursement handled? And what is the reimbursement in those situations?

Peter Greenleaf, CEO

Yes. So every payer has a non-formulary request process. And simply, it's typically just a generic prior authorization type of form where the physician articulates the rationale of why they want to use the name therapy. And so that's the process if there isn't a coverage policy in place.

David Martin, Analyst

Okay. Another question, are any patients or many patients coming on to LUPKYNIS as they start MMF and steroids? Or are most of them coming on only after they failed those?

Peter Greenleaf, CEO

Yes. So we don't have visibility to exactly all of the treatments that the patients are on and when they started treatments. We don't have visibility through Aurinia Alliance. But I can just tell you anecdotally that we are hearing of newly diagnosed patients coming on LUPKYNIS even though the bulk of the patients that are on LUPKYNIS are ones that have been on other treatments and just are not getting to their proteinuria goal.

David Martin, Analyst

Okay. And last question. Has there been any pushback? Like you mentioned that some doctors are waiting for long-term safety data? Are any not prescribing it until they get that data because calcineurin inhibitors do have, the older ones have a history of long-term nephrotoxicity? And is there any pushback because there are cheaper calcineurin inhibitors on the market?

Peter Greenleaf, CEO

Well, let me start there. First off, I just want to make sure we put the right context out there. And calcineurin inhibitor data in terms of nephrotoxicity has been seen in primarily the transplant population and higher doses. That's not to say it doesn't, the problem doesn't accrue to us and it's not to say that we don't get the question, because we do. We do hear from some physicians out there, not a hesitancy to wait to utilize the product, but I think one of the areas we have got to focus on and really put intensity of our education efforts around impact, not just our data, but also around disease state awareness and what the impact of not aggressively treating is on these patients. We do hear that some physicians understand the data and will consider it for patients that they consider for first generation CNI, like this is a better CNI. Well, obviously those physicians don't even really understand how we studied the drug. And I think that's just a matter of education. But Max, you can build on and I wouldn't say that that is representative of the full community. I am just being completely clear that we do hear that question. I don't know that we hear a lot that I am not going to utilize the product until I see two-year data. Have we, Max?

Max Colao, CFO

I would characterize just very consistent when you launch a new therapy that's been studied in clinical trials, you have a subset of physicians that are cautious and they want to see more data, more safety data, right. And I think that's just very consistent with what we are seeing is very consistent with what we have seen in other launches.

David Martin, Analyst

Okay. Great. Thank you.

Peter Greenleaf, CEO

Thanks David. Operator, anyone else left in the queue?

Operator, Operator

There are no further questions in the queue at this time.

Peter Greenleaf, CEO

Okay. Beautiful. Well, listen, I want to thank everybody for joining us after business hours on the East Coast. As I said in my closing comments, I wanted to thank everyone and promise everyone that as we continue to make significant progress here, we will love to look forward to laying that out over the quarter in quarters and months to come. Thank you for your time tonight. Take care.

Operator, Operator

Thank you. Ladies and gentlemen, this does conclude today's event. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.