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Aurinia’s (NASDAQ:AUPH) value motion during the last 12 months appears predicated on 3 issues – key administration modifications, lackluster lupkynis gross sales, and most significantly, discontinuous whispers of M&A chatter. I say “discontinuous” as a result of the chatter retains occurring, then subsiding. A number of firms have been named as potential patrons, however poor gross sales, patent challenges, after which a number of fast hires within the C-Suite have challenged the buyout assumptions. Certainly, my earlier article on AUPH, written precisely a yr in the past, was primarily targeted on the buyout chatter. One yr therefore, there’s been no buyout, and the inventory is down 80%. What a poor present.
In that previous article, I talked about Bloomberg claiming Bristol Myers Squibb was fascinated with shopping for AUPH. Nothing panned out. Then I discussed a “Betaville uncommon alert” that got here out about a number of pharma firms – GlaxoSmithKline (NYSE:GSK), Roche (OTCQX:RHHBY) and Otsuka Pharmaceutical (OTCPK:OTSKF) – being fascinated with shopping for Aurinia. I additionally talked about synergies – “GSK has the opposite accepted LN drug, Roche has a section 3 candidate concentrating on LN, and Otsuka companions with Aurinia in Japan and another Asian territories.” The Otsuka hypothesis performed out via July this yr, although nothing has emerged from it but. GSK really needed to publicly deny stories that it was fascinated with shopping for AUPH.
In the meantime, in November final yr, In search of Alpha famous a slowing down of lupkynis gross sales:
Following the FDA approval for LUPKYNIS in January, Aurinia has secured over 1,265 affected person begin types (PSFs) as of Nov. 03. Throughout the quarter, the corporate secured 412 PSFs in comparison with 415 in Q2 2021, when the PSFs grew greater than 60% from Q1 2021.
So PFS in Q1 was 260 ish, which jumped 60% to 415 in Q2, however then stagnated in Q3, remaining at 412. Whereas the CEO termed this a slight slowdown and a seasonal variation, this was positively not nice information for AUPH. There was additionally a combined shelf providing, which introduced down the inventory round that point. The impression was considerably softened by long-term knowledge from the AURORA 2 trial, which confirmed voclosporin’s profit in LN sufferers.
Takeover hypothesis continued unabated all through this yr. In January, a STATNEWS report, citing Goldman Sachs’ session with Biogen (BIIB) for doable M&A, thought-about Aurinia as one of many takeover targets for Biogen, which it mentioned was contemplating shopping for into late stage property. That hypothesis, too, didn’t pan out; nonetheless, the inventory had a bit of experience out of it. Certainly, if I used to be naive, I’d think about these takeover speculations a little bit of manipulating the marketplace for brief spikes.
This up-and-down motion was bolstered by CEO feedback in mid-February claiming aggressive gross sales figures for the quarter, instantly adopted by a way more sobering gross sales steerage for 2022 which introduced down the inventory. The “aggressive” remark from the CEO, to be truthful, was for the continued This autumn quarter, whereas the outlook was for the subsequent 4 quarters. On In search of Alpha I learn that “on a year-over-year foundation, complete income has slipped ~53%.” Upon checking additional, I famous that This autumn 2021 income was $23.4mn, whereas This autumn 2020 income was $50.1mn. Whereas that’s, certainly, a 53% fall, what is just not obvious is the next:
Revenues had been $50.1 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively. The rise of $49.8 million in 2020 was as a result of upfront license cost acquired from Otsuka of $50 million, recorded as licensing income within the fourth quarter of 2020.
In order that was only a one time income. Anyway, at the least the steerage distinction between the corporate – $115-$135mn from the corporate versus road expectations of $178mn – that type of explains AUPH inventory’s subdued behaviour earlier this yr.
Within the earnings name that quarter, Maury Raycroft of Jefferies attributed a number of the causes behind the poor gross sales outlook to “discontinuation and adherence challenges.” Right here’s how the CEO responded to that query; and his response brings out a really broad downside with LN remedy itself:
All the things from tolerability to sufferers simply not choosing up prescriptions, which we try to flesh out extra. Keep in mind, we’re coping with primarily a affected person inhabitants that is an African-American, Hispanic and Asian feminine inhabitants within the U.S., and we are able to look to different illness states as analogs to know that adherence and longer-term compliance are a problem with that inhabitants on the whole.
I’m not positive if there’s ever been a examine researching the analogous illness states that may assist us perceive adherence and compliance as a problem in that inhabitants; nonetheless, such a perspective doesn’t bode nicely for the longer-term outlook for voclosporin gross sales. In keeping with the analyst, there’s an estimated 25% – 30% affected person discontinuations for lupkynis.
The state of affairs has not been helped by a patent problem from generic drugmaker Solar Pharma. Filed away inside their 10-Okay this yr is a few element about this problem to a key voclosporin patent. The corporate mentioned “We’re presently reviewing the petition and contemplating our response and subsequent steps,” however a patent problem from a longtime generic is at all times scary.
The IPR or inter partes evaluate problem was for the 036 patent, which has a time period until 2037 and has “claims directed at LUPKYNIS dosing protocol for lupus nephritis utilized in our medical trials.” Cantor analyst Olivia Brayer thinks this will harm takeover potential. As she mentioned, the choice “provides extra significant threat to Lupkynis’ mental property place,” including “the danger it provides to Lupkynis revenues seeking to 2027+, and in our view the larger readthrough is that an ongoing IPR may take potential M&A off the desk for the subsequent 12 months.” Aside from the truth that voclosporin is the second LN drug after GlaxoSmithKline’s Benlysta, this generic problem, if not concluded satisfactorily for Aurinia, may impression its long-term income potential. A willpower on patentability, relative to the IPR, is anticipated on or previous to July 26, 2023.
Aurinia has a lot of administration modifications over the previous couple of months. Prime stage administration leaving in a rush could point out a change in possession; nonetheless, fast new hires dampen that hypothesis. So whereas the “mutually agreed” sacking of the Chief Business Officer signifies a buyout, a fast hiring of three new govt, together with a brand new R&D chief, says in any other case.
Simply two days in the past:
“Sadly, we skilled a slight decline in new affected person begin types over the second quarter ended June 30, 2022, which is probably the results of diminished lupus nephritis diagnoses and affected person visits within the quarter,” Chief Government Peter Greenleaf mentioned.
This brought on a steerage reduce to $100-$105mn, which, though small, has not helped the inventory.
Financials
AUPH has a market cap of $1.08bn and $400 million of money, money equivalents, restricted money and investments as of October 31, 2022. Within the earlier quarter, the corporate made $55mn in income, which included a $30mn milestone cost from Otsuka for voclosporin’s European approval. Aurinia added 374 affected person begin types (PSFs) in the course of the third quarter 2022, as in comparison with 412 within the third quarter of 2021.
Whole price of gross sales and working bills for the three months ended September 30, 2022 was $65.3 million. This included R&D bills of $11mn and SG&A bills of $55mn.
Bottomline
AUPH shareholders have been vocal about the advantages – at the least for themselves – of a buyout, for over a yr. The explanation will be seen within the information, in all that’s been happening on the firm – lower than stellar voclosporin gross sales, a complete lack of a viable backup pipeline, and a patent problem that’s not been going their approach to this point. I believe I’ll keep on the sidelines.