Aurinia: Ready For Voclosporin’s Positive Jan. 2021 NDA Announcement, 45% Upside (NASDAQ:AUPH)


Graphic Source: Aurinia Pharmaceuticals, Inc.

Introduction: What is Aurinia Pharmaceuticals?

Aurinia Pharmaceuticals (NASDAQ: AUPH) is a late-stage clinical biopharmaceutical company aiming to develop and commercialize therapies for serious diseases with a “high” unmet medical need. They are currently developing Voclosporin for treating Lupus Nephritis (“LN”) in NDA-phase (Post-Phase 3) and Voclosporin – ophthalmic solution (“VOS”) for Dry Eye Syndrome (“DES”) in Phase 2. They aim to expand proteinuric kidney disease research.

Founded in 2012, Aurinia has since grown from 40 employees last year to 260+ employees in anticipation for the Voclosporin launch in 1H 2021 with offices in Canada [HQ], the US, and the UK. Aurinia’s pipeline is small but promising and they seem ready for commercialization in 2021.

Products/pipeline: Aurinia has two therapeutic candidates: voclosporin for treating Lupus Nephritis (“LN”) (NDA-stage) and voclosporin – ophthalmic solution for Dry Eye Syndrome (“DES”) (Phase 2/3). LN currently has no FDA-approved treatments for LN making the outsized potential for successful commercialization highly likely, even though GlaxoSmithKline’s (GSK) Benlysta for LN is closely following with their NDA application.

Customers/market: Aurinia’s clinical pipeline has a global potential market in 2022 of $7.18 billion, made up of Lupus Nephritis (ca 50% of systemic lupus erythematosus) at ca $1.25 billion and Dry Eye Syndrome at ca $5.9 billion with CAGRs of 7% and 6.9%, respectively. Several dominating competitors exist across DES including Novartis (NVS), Allergan, and Santen (OTCPK:SNPHY), amongst others. For LN, several large competing companies exist including GlaxoSmithKline (GSK), Bristol-Myers Squibb (BMY), AstraZeneca (AZN), ImmuPharma (OTC:IMMPF)/Avion, and Amgen (AMGN).

Strategy: Aurinia’s strategy is to optimize both the clinical and commercial value of Voclosporin with the end goal of becoming a global biopharmaceutical company in the renal/autoimmune franchise arena. This introduces medium-term goals of expanding their renal franchise with more renal indications and further usages of Voclosporin in the autoimmune sphere, particularly on proteinuric kidney diseases beyond LN. This can be seen through the ophthalmic application of voclosporin for DES.

In the short term, Aurinia finalized its NDA in July and plans for marketing by 2021 and to conduct pre-commercial plans for launching voclosporin. Additionally, they aim to conduct a Phase 2/3 AUDREY clinical trial for DES with results expected in 4Q 2020. Aurinia also aims to evaluate Voclosporin for other proteinuric kidney diseases and establish synergistic assets for clinical, regulatory, and therapeutic development.

On a less formal note, it seems Aurinia is pushing for self-sufficiency by running its pipeline independent of pharmaceutical partners capitalized by common stock issuances (latest in 2019). Aurinia is being conservative and focus-oriented not expanding their pipeline too large and keeping with lateral applications of their existing science.

Management: Aurinia has had a radical leadership switch up in 2Q 2019 when the previous CEO Richard Glickman announced his retirement plans in November 2018 and the new CEO was appointed in April 2019. Additionally, after the promising results of the Voclosporin Phase 3 study, Aurinia went through a large hiring to be ready for launch by year-end (2H 2020) including hiring Max Colao in Feb 2019 as Chief Commercial Officer (30+ years of commercial experience from Amgen, amongst others).

CEO: Peter Greenleaf acts as CEO and a member of the board of directors of Aurinia. He was brought to Aurinia in April 2019 to lead the next transition of Aurinia’s late-stage pipeline. Previously, Greenleaf led Cerecor (CERC) running unique hybrid strategies for both specialty pharmaceutical and biotech aspects of the firm and then as CEO for 1 year (2018-2019). Before Cerecor, he was Chairman and CEO of Sucampo Pharmaceuticals (2014-2018) and led Sucampo during the $1.2 billion Mallinckrodt (MNK) acquisition. He has 20+ years of experience leading biopharmaceutical firms.

Share price change during his leadership (April 2019 – Now: +145%) | Caveat: Greenleaf joined during the late-stage of Aurinia’s pipeline.

Chairman: George M. Milne has served as chairman of the board since May 2017. He previously served as Executive VP of Global R&D and President of Worldwide Strategic and Operations at Pfizer (PFE). He serves on several boards including Charles River Laboratories (CRL), Amylyx Pharmaceuticals, and as a Venture Partner at Radius Ventures.

Financial position: Aurinia has been non-revenue producing (<$1M) since inception; however, with $264 million in cash (1H 2020) and Voclosporin’s NDA being submitted to the FDA at the end of July 2020 while on a priority 6-month review track, investors may be very close to the top and bottom line results, as the commercialization begins. Aurinia manages to stay financially sound via minimal issuances of common stock until 2019 when Aurinia raised $205 million with cash outflow from operations costing the company only -$82 million on a TTM basis or -$63.5 million for 2019. All in all, it seems after the recent capital raise and Voclosporin’s proximity to commercialization on a globally reachable LN market size of approximately $1.1 billion (2020), Aurinia is in a good place.

Investment thesis: Few investments seem quite so clear as Aurinia. In the biopharmaceutical/biotech sphere, a key aspect is the likelihood of commercialization and although the risk is present in this investment due to first-mover advantage in the LN market, Aurinia is conservatively expected by analysts to do very well in 2021 with revenues moving from a 3-year average (2017-2019) of $0.4 million to 2021 at $93 million. This is due to the transition from a clinical-stage company to a commercial-stage with Voclosporin for LN, a disease with no FDA-approved treatments, though a few close competitors.

Aurinia has enough cash ($264 million) to make 2021’s commercialization successful on a previous cash burn (CFO+CAPEX) of -$64 million in 2019. With a small pipeline of only two products both in the late-stage, Aurinia’s focus is paying off and investors are starting to take notice of the NDA application submitted in July 2020 (final approval needed). The results of the NDA will arrive by Jan. 22 of 2021 and commercialization is expected in 2021 as well.

Investors have 3 months to decide whether they see the potential in Voclosporin for the $1.1 billion untouched LN market, but even 7.9% of that global market equates to revenues of $93 million on top of 2020 estimated revenues of $0.1 million. The following report shall explain further the potential and position of Aurinia, but for the summary, the author projects Aurinia Pharmaceuticals (AUPH) as a “buy” with a 1.5-year stock price target at $22.69 (+45% upside).

Pipeline: Just 2 products and a whole lot of promise

Aurinia

Graphic Source: Aurinia Pharmaceuticals, Inc.

Anticipated Revenue (1): Voclosporin for LN is currently Aurinia’s largest potential catalyst due to it completing Phase 3 and having already submitted the new drug application (“NDA”) in July of 2020, just behind GlaxoSmithKline’s Benlysta which is approved for SLE and is awaiting Registration post-Phase 3 for LN. Some 2017 estimates have stated that the market leader for LN will be in the realm of revenues of $145 million by 2025, a sizeable package for Aurinia, but potentially significantly higher based on the expectation that $145 million represents only 9.4% of the total market at 2025.

Investors are currently waiting for the required 6 months for the expedited NDA review with results to be announced before the end of January 2021 (PDUFA target action date). The FDA is not planning on holding an advisory committee meeting and Voclosporin was additionally granted FDA Fast Track designation back in 2016, due to the significant unmet need. As of 1H 2020, there were no FDA-approved treatments for LN.

Lupus Nephritis (“LN”) is a chronic disabling disorder caused by kidney inflammation affected by system lupus erythematosus (“SLE”). It results in a highly heterogeneous effect on several organs and tissue systems. It can be costly and lead to permanent kidney tissue damage which can be life-threatening.

As it can affect Voclosporin’s pricing, the treatment for SLE (broader less specific condition) has been estimated at +$20K/yearly and if untreated can progress into end-stage renal disease (“ESRD”) which can cost upwards of +$60K/per year, which means pricing may be reasonably between this rang averaged over a set period of years and summed. Additionally, an NIH report came about in 1H 2017 that forecasted the potential pricing of various immunotherapies in late-stage development for SLE or LN. This report outlined that Aurinia’s oral therapeutic Voclosporin would be priced between $50-100K/year, the highest range amongst the unapproved therapeutics with an estimated 10% discount to Benylsta. Other therapeutic pricing estimates were Anifrolumab at $54k/year and Lupuzor – $37K.

Competition:

Table Source: Self Created | Data Source: Various pipelines of each company

As seen above, there are several competing products for LN or its close target SLE. Historically, there have been other LN products that were unsuccessful at Phase 3 (e.g. BMY’s Abatacept), which can pose a final barrier to entry for LN, but investors should carefully watch the above products, particularly GSK’s Benlysta, which is the closest to leading the market. Aurinia does plan to do a 2-year extension study post-acceptance.

For more information on the launch-plan/clinical data see the Oppenheimer Fall Healthcare Conference Call (Sep 23, 2020).

Anticipated Revenue (2): Voclosporin ophthalmic solution (“VOS”) for DES is Aurinia’s second clinical therapeutic which on Sep. 28th 2020 completed their final patient treatment in their AUDREY Study (Phase 2/3). The results are expected to be reported in 4Q 2020. The AUDREY study builds on the positive head-to-head study from Phase 2a which was against an approved treatment, Restasis. Aurinia has stated they have the capital to take VOS through Phase 3, but consider partnering “ideal” for a broader roll-out to a more general patient population with a partner who retains the right resources/connections.

DES is a chronic irritation/inflammation of the eye that occurs when there is reduced tear production, imbalanced tear composition, or excessive tear evaporation. The symptoms range from constant eye irritation to scarring of the surface of the eye.

Competition: Currently, there are three FDA-approved therapies for DES with two being calcineurin inhibitors (“CNIs”). Aurinia is seeking to advance a therapy that has enhanced tolerability with less frequent need for dosing for the current 16 million diagnosed patients in the US. In July of 2019, Novartis stepped further into the area announcing its acquisition of Xiidra, another treatment for DES.

For more information on the clinical data see the Oppenheimer Fall Healthcare Conference Call (Sep 23, 2020).

Financial position: 2021 is the year for growth

AuriniaTable Source: Self Created | Data Source: Seeking Alpha – AUPH

Revenue/EPS: As seen above, the non-partnership model that Aurinia is running leads there to be no milestone payments that is atypical amongst biotechs focused on R&D. However, for investors coming now, forecasted revenue from Voclosporin is expected by analysts to arrive by fiscal year-end (“FYE”) 2021 in the amount of $93 million on an earnings per share (“EPS”) basis of ca -0.43 cents per share (-54 million in net loss), a stark improvement on 2019 (-$1.33) and 2020 (-$0.85).

Some 2017 estimates have established the LN market to hold up to $145M (9.4% market share) for the first therapeutic by 2025. Clearly, more informed 2020 analysts expect this market share to be far more penetrable than older estimates. Current Aurinia analysts expect Voclosporin to take up a 7.9% market share using 2021 revenue ($93.2M) and expected 2021 global market size ($1.09B) as benchmarks. The above estimates are quite rough, but deviations still don’t break the thesis that this is a relatively low market share and analysts seem to be more aggressive than older market studies, but still rather conservative in returns that investors will reap.

Balance sheet composition:

Balance sheet and financial position of Aurinia pharmaceuticals 2020 in 2021Table Source: Self Created | Data Source: Seeking Alpha – AUPH

Regarding the balance sheet and financial resources that Aurinia possesses, it can be seen that cash of $264 million (1H 2020) is sufficient and above the 3-year average ($202 million), primarily stemming from a capital raise in 2019 raising ca $192 million. Aurinia operates with minimal debt ($6 million), but also minimal liquidatable assets with net PPE at $6 million. All-in-all, there isn’t much concern here, after 2019’s capital raise filling the cash coffers until the company announces estimates for the cost of commercialization; however, investors will be expecting significant cash outlays as their revenue basis increases and profitability is pushed for.

Valuation: +45% upside expected in 2021, but 2020 is not forecastable

Valuation for Aurinia Pharmaceuticals with how much is AUPH worth in 2020 analyst expectations post Voclosporin launch in 2021Table Source: Self Created | Data Source: Seeking Alpha – AUPH

Due to Aurinia’s expected to transition from clinical-stage to commercial in 2021, 10 analyst estimates for revenue have been averaged to $93 million in 2021 (7.9% market share of LN). On a revenue basis, thankfully analysts have already laid expectations for the realistic discount back to realistic revenue multiples and a clear upside story presents itself. Clearly, what market share Aurinia can pull from GSK’s Benlysta will determine the success of the company, though we must consider GSK’s resources (cash of $10 billion in 1H 2020), and of course whether or not GSK’s priority is its LN therapeutic. Either way, Aurinia’s $264M should be enough to begin and successfully progress through commercialization bring revenue to $93 million by FYE 2021, though dependent on a smooth NDA approval by Jan 22, 2020.

In summary, the author expects Aurinia’s 1.5-year stock price to be $22.69 (45% upside).

ChartData by YCharts

Upcoming catalysts (1-12 months):

  • Voclosporin for LN PDUFA target action date (approval or not) of January 22, 2021.
  • VOS for DES with Phase 2/3 results expected in 4Q 2020.
  • GSK’s Benlysta therapeutic updates in 2020
  • Other competitor product updates

Conclusion

Aurinia Pharmaceuticals is a late-stage clinical biopharmaceutical company approaching the commercial stage with a pipeline of 2 therapeutics, 1 potentially being the 1st FDA-approved treatment for Lupus Nephritis, and the second being a Phase 2/3 dry eye syndrome therapeutic. Aurinia has $264 million in deployable cash (above the 3-year average $202 million) and is preparing for $93 million in revenue in 2021. There are many competitors for LN, but if Aurinia can be first-to-market then they will have a competitive advantage. It’s promising that they are currently laying the infrastructure for a successful immediate post-NDA launch in 1H 2020 while the NDA is still under file and results are expected by Jan 22, 2021. This is the day investors should watch for.

The author projects Aurinia Pharmaceuticals as a “buy” with a 1.5-year stock price target at $22.69 (+45% upside).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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