Canadian biopharma Aurinia Pharmaceuticals (AUPH -0.17%) is undergoing a transformation. The company is embarking on a rare opportunity to deliver the first U.S. Food and Drug Administration (FDA) approved therapy for the treatment of lupus nephritis (LN), a serious inflammation of the kidneys caused by an autoimmune disorder called systemic lupus erythematosus (SLE).
On the heels of receiving positive clinical data from its phase 3 Aurora study in December, the company completed its submission for a New Drug Application (NDA) to the FDA for this promising treatment known as voclosporin. Aurinia expects this submission to be expedited via priority review, which will support its plans to launch in early 2021. With the biopharma company currently valued at nearly $1.7 billion and on the brink of a potential drug approval, do investors have a blockbuster opportunity on their hands?
Let's take a closer look.
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Deeper dive into voclosporin
Aurinia's voclosporin offers a massive opportunity for investors. The Aurora study created a lot of excitement by showing a favorable safety profile meeting both its primary and secondary targets. This offers lots of promise for patients with LN, a complex disease that has no approved therapies in the U.S., Europe, or Japan.
Voclosporin's potential patent life may be the key to Aurinia's success. The company expects that once the FDA and other regulatory agencies approve voclosporin, it will have robust patent protection until October 2027. The decision by the FDA to incorporate a dosing protocol will extend its U.S. protection further to Dec. 2037. The market opportunity as a first mover with robust patent protection shows that Aurinia has a potential blockbuster on its hands. The current SLE market size is projected to be $2.7 billion by 2026 and anticipated to grow at a compound annual growth rate (CAGR) of 7%. Considering nearly 50% of these SLE patients have lupus nephritis, Aurinia management's initial estimates suggest that the drug can make peak sales of more than $1 billion globally.
Furthermore, management sees additional opportunity for voclosporin in dye eye syndrome (DES) and proteinuric kidney diseases. Voclosporin in the form of an ophthalmic solution called VOS has shown meaningful efficacy results in its phase 2a results completed in early 2019. The trial showed that VOS is fairly differentiated and could potentially compete in the billion-dollar prescription dry eye market with further advances in the drug development process. Currently, management expects to report out results from the phase 2/3 Audrey trial of VOS by the end of fourth quarter.
Voclosporin may show promise in patients with proteinuric kidney diseases and focal segmental glomeruloscelerosis (FSGS), a rare kidney disease that causes scarring leading to kidney damage. Early clinical trials have shown that voclosporin reduces proteinuria (high levels of protein in urine), which correlates to better long term outcomes for patients with FSGS because it improves the podocyte function (key cells for filtration) in kidneys. It is currently in phase 2 and still enrolling patients, and management anticipates further clinical data updates later this year. These opportunities, if successful, will create more opportunities for top-line growth in the longer term over the coming years, driving the stock higher.
Experienced leadership
The company's experienced leadership and commercial team will be key for the launch in 2021. Aurinia has bolstered its leadership with the appointment of Max Colao as its first chief commercial officer. He brings 30 years of experience in commercial operations from working at Abeona Therapeutics, Alexion Pharmaceuticals, and Amgen leading product launches, commercialization, and pricing strategies.
Aurinia improved its commercial organization by appointing several vice presidents. This includes Chris Hayes (marketing), Fran Lynch (sales), Cara Felish (commercial operations), and Tim Hermes (market access). These individuals have proven experience in product launches related to therapies in nephrology and autoimmune diseases with experience at top companies such as AstraZeneca, Takeda Pharmaceutical, Mallinckrodt, and Ablynx (now Sanofi). This will provide Aurinia Pharmaceuticals an opportunity to build its brand and bring awareness to the drug before launch.
Financials and valuation
In the first quarter, Aurinia reported revenue of $315,000 and posted a net loss of $16.5 million or ($0.15) per share, beating the consensus estimates of ($0.20). Research and development costs increased to $13.8 million in the first quarter, which reflects the higher costs coming from the preparation of its NDA submission and other supporting activities. While an increase in spending activities may affect earnings, investors should consider Aurinia's commitment to R&D valuable in the long term growth of the company.
Aurinia is currently in a healthy financial position where its assets exceed its liabilities. The company's cash and investments of $286.1 million will be enough to support its operating needs until 2021. Also, its current liquidity ratio is 10.3, which implies that it has more short-term asset value relative to the value of its short-term liabilities. This value is higher than the broader biotech industry average of 6.9, which suggests the company is likely to meet its obligations that are due within the next 12 months. These metrics are considered to be ideal and will be beneficial to support the potential launch activities and other trials in the coming year.
Its stock is in an ideal position to run higher in the next 12 months. Aurinia currently has a price-to-book ratio of 6.4, which is lower than its peers such as Global Blood Therapeutics (7.4) and Axsome Therapeutics (18.4). This suggests that it stock is undervalued to its peers and could gain traction from the potential FDA approval and positive data from its clinical studies.
Aurinia's stock is trading near $16 and its nowhere near its 52-week high of $21.93. Considering it is only down 23% year to date, there's plenty of room to run. In the most recent quarter, 143 institutional investors held shares of Aurinia Pharmaceuticals with the most recent quarter showing 68 firms increasing their positions, 49 trimming their positions, and 26 holding their current positions. There were plenty of well-known trading firms such as Citadel, Susquehanna, and Point72 Asset Management that had increased their position by 25% to 35%, demonstrating that investors are optimistic about Aurinia's outlook.
Primed for the long run
Aurinia Pharmaceuticals may be the one-hit wonder that investors are looking for, as it possesses a potential blockbuster drug, a promising pipeline of treatments, and an experienced leadership team that can steer the company toward success. Financially, the company is in a healthy position and undervalued to its peers, which makes Aurinia's stock attractive to investors. Investors should consider adding shares of Aurinia Pharmaceuticals for the long run during the next dip.
