Aurinia Pharmaceuticals: The Right Play Now (NASDAQ:AUPH)

Conformity and cowardice are the same thing. ― Marty Rubin

We last looked in on Aurinia Pharmaceuticals (NASDAQ:AUPH) with this piece nearly a year ago. The stock has had a wild ride. The company was the subject of heavy takeover speculation for many months. However, worries about potential litigation that could see LUPKYNIS exclusivity curtailed past 2027 have cooled that buyout chatter a bit recently.

The dispute is around a patent Aurinia obtained for the proprietary method of dosing LUPKYNIS based on personalized pharmacodynamic eGFR data, which is good through December 2037 which successful litigation would shorten by 10 years.

Company Overview

Aurinia Pharmaceuticals is a British Columbian based biotech company. It’s main current asset is called LUPKYNIS, which is the first FDA-approved oral therapy for lupus nephritis. This drug was approved in January of 2021.

Aurinia has a small pipeline of drug candidates targeting other autoimmune diseases. However, these assets are too early stage to be considered within this valuation. The stock currently trades around eight bucks a share and sports an approximate market capitalization of $1.1 billion.

Second Quarter Results

On August 4th, Aurinia Pharmaceuticals posted its second quarter numbers. Revenues rose over 325% on a year-over-year basis to $28.2 million as the company posted a GAAP loss of 25 cents a share for the quarter. Revenues were slightly higher than expectations while the loss was tad worse than the consensus. Management maintained full year net revenue guidance of $115-$135 million from sales of LUPKYNIS in FY2022.

In late July, the advisory committee of the European Medicines Agency or EMA issued a positive opinion LUPKYNIS, recommending its marketing authorization in the region. Full marketing approval should be hand by the end of this quarter for the European region.

Analyst Commentary & Balance Sheet

Since second quarter results were posted, five analyst firms including Oppenheimer and RBC Capital have reissued Buy ratings with price targets between $13 and $26 a share proffered. Two of these contain slight downward price target revisions.

Approximately 10% of the overall float is currently held short. Two directors bought a collective 10,000 shares in early March. Prior to that several insiders sold just over $1.2 million worth of shares in the first quarter of this year. That is the only insider activity in the stock so far in 2022.

After posting a net loss of $35.5 million for the second quarter, the company had just over $390 million in cash and marketable securities on its balance sheet at the close of the first half of this year. Aurinia has no long term debt.

Verdict

The current analyst consensus has the company losing just over 80 cents a share in FY2022 as revenues nearly triple to some $135 million. The analyst community expects that loss to be cut by a bit more than half in FY2023 on sales of just under $230 million.

Expectations for AUPH have come down within the analyst community since we last covered the company in September. Back then, analyst price targets were in the $23 to $35 range compared to $13 to $26 currently. Subtracting out net cash, the stock is priced at just over three times FY2023’s projected sales. Given growth prospects that seems a reasonable valuation even with the overhang of the patent dispute. Potential catalysts on the horizon are official marketing approval in Europe, any positive movement on the litigation front and a pick up in M&A rumors/interest.

Options against equity are lucrative even if at times liquidity is just so-so. Therefore, I continue to hold my ‘watch item‘ holding in AUPH via covered call positions.

You cannot discover new roads with old maps. ― Abhijit Naskar