Aurinia Pharmaceuticals Inc (AUPH) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Aurinia Pharmaceuticals Fourth Quarter and Full Year 2017 Financial Results Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Celia Economides. Thank you, Ms. Economides. You may begin.

Thank you, operator. Good afternoon, everyone, and welcome to Aurinia's full year and Q4 2017 financial results and general business update. With me on the call today from Aurinia are Richard Glickman, Chief Executive Officer; and Dennis Bourgeault, Chief Financial Officer. Joining us for the Q&A will be Michael Martin, our Chief Operating Officer; Dr. Neil Solomons, our Chief Medical Officer; and Robert Huizinga, our EVP of Corporate Development.

This afternoon, we issued a press release detailing our fourth quarter and full year 2017 financial results and corporate update. The press release and financial statement package is available on our website at auriniapharma.com and a 40-F was filed with the SEC as well. I'd like to remind you that today's call is being webcast live on Aurinia's Investor Relations website, where you can also access -- which is also being recorded. A replay will be available on our website following today's call. The content of today's call is Aurinia's property. It cannot be reproduced or transcribed without our prior written consent.

During the course of this call, we may make forward-looking statements based on current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's press release, our most recent filings with Canadian securities authorities and the reports that we file on Form 6-K with the U.S. Securities and Exchange Commission.

All our statements are made as of today, March 15, 2018, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements.

With that, let me turn the call over to Richard. Richard?

Thank you, Celia, and thank you to everyone for joining us today as we review our 2017 full year results and provide a general business update.

First off, I'd like to commend our entire team for the tremendous progress that we made over the course of this year. It was a pivotal year for the company as we announced positive 48-week results from our Phase IIb AURA-LV study in lupus nephritis and we were able to fully fund our company and operations into 2020. If you recall, this study achieved the highest complete remission rates of any clinical trial in active lupus nephritis. With voclosporin layered on top of mycophenolate mofetil (inaudible) nearly doubled the remission rates as compared to the control group, which is just mycophenolate mofetil alone.

This is an achievement we are extremely proud of and we believe that if we can obtain approval for this drug, voclosporin, in lupus nephritis, it can provide a meaningful benefit to patients suffering from this debilitating disease.

Our Phase II data from AURA has garnered the attention of experts in lupus nephritis around the world and has been featured in several key medical and scientific conferences over the last year.

Our priority is now the successful execution of our AURORA Phase III trial in lupus nephritis. The trial is now in full swing and continues enrolling at sites around the world and we remain on track to complete enrollment in 18 months from our first patient in, which brings us to Q4 of this year. And as this is a 52-week study, we expect to see results towards the end of 2019. This is a global study and as of today, we have over 200 sites activated and able to enroll patients throughout the world with 26 of 29 countries now initiated.

You may recall that patients that have active lupus nephritis can be very, very ill. And in our Phase II trial, we enrolled some of the sickest patients ever studied in this disease. We have implemented several additional safety parameters in our Phase III study and are monitoring this very closely.

The (inaudible) reviews all adverse events on an ongoing basis and so far we believe the study is progressing very, very well. We continue to have motivated patients and investigators participating in this trial and are encouraged by the level of interest the trial has been garnering around the globe.

I have the utmost confidence in this team and its ability to replicate our Phase II results. This team has an unparalleled track record in shaping the current treatment landscape for lupus nephritis, where there are no currently approved FDA or EMEA therapies. And we believe we can execute a very successful Phase III program for voclosporin.

We have a wealth of data that has already been cultivated on voclosporin and the AURORA trial is the final piece of the puzzle. To that end and under voclosporin's Fast Track designation, we intend to utilize a rolling New Drug Application process, with the first module being submitted in the second half of 2018. We have plans to submit the CMC module in the first half of 2019 and the clinical module in the first half of 2020 following the completion of the Phase III AURORA trial with potential approval in late 2020 or early 2021.

In order to collect long-term data for voclosporin in lupus nephritis, we will also be initiating a 2-year extension study for patients in the Phase III trial with the first patient potentially entering the extension phase this June. This extension study will not impact our time lines for NDA submission or a potential approval.

Our commitment to lupus nephritis also goes beyond clinical trials. It's our goal to fill an unmet medical need. And upon consultation with a number of patients living with lupus, lupus nephritis and their care partners, we recently launched ALL IN, an educational program for people living with lupus nephritis. The program is designed to raise awareness of lupus nephritis and to support members of the lupus nephritis community.

Allinforlupusnephritis.com, the first component of our ALL IN program is a website that features educational information about lupus nephritis that have multiple resources, helpful links, personal stories and insights shared by people affected by lupus nephritis. This site has already received substantial interest from the community and we look forward to enhancing this program.

And we were also humbled last fall by the recognition bestowed upon us by the Lupus Foundation of America in awarding Aurinia the National Corporate Visionary Award. The foundation's work is crucial to the advancement of treatments for this disease and I am extremely proud of the contribution Aurinia is making to the understanding and treatment of this disease.

Our drive to succeed is fueled by patients and their families, who continue to inspire us as we work towards making innovative therapies available as quickly and efficiently as possible. With the AURORA Phase III trial progressing well and having secured the necessary fiscal resources, we continue to build our business and extract the maximum value we can out of our lead asset voclosporin.

Last fall, we announced our plans to expand our voclosporin renal franchise to include focal segmental glomerulosclerosis, FSGS, and minimal change disease.

Furthermore, we announced plans to evaluate our proprietary nanomicellar voclosporin ophthalmic solution, or VOS for short, for the treatment of keratoconjunctivitis sicca or dry eye syndrome. The advancement of these new indications in addition to lupus nephritis represents an expansion of our strategy, pipeline and commercial opportunities.

FSGS represents the largest segment in nephrotic syndrome and after productive consultation with their(inaudible), we have decided to initially focus our development efforts on FSGS. FSGS affects approximately 40,000 patients in the United States, accounting for 30% of patients with Nephrotic Syndrome.

Nephrotic Syndrome is a collection of symptoms that indicate kidney damage, including large amounts of protein in the urine, low levels of albumin and higher-than-normal fat and cholesterol levels in the blood and edema. Similar to lupus nephritis, early clinical response and reduction of proteinuria is thought to be critical for long-term kidney health.

We are focused specifically on FSGS, a lesion characterized by persistent scarring identified by biopsy and proteinuria. Though the guidelines exist for this treatment, currently there are no approved therapies for FSGS in the United States or the European Union.

Our Phase II proof-of-concept trial for voclosporin FSGS will be initiated in the second quarter of 2018. This will be an open-label study of approximately 20 treatment-naive patients. As we are enrolling essentially newly diagnosed patients (inaudible) disease, we expect enrollment to take as long as 12 months. However, we intend to have planned interim data readouts throughout the course of the trial.

We recently completed our pre-IND meeting with the FDA and our IND submission is imminent. The FDA is in agreement with the guidance we provided on our proof-of-concept study and we look forward to initiating this program. As a company that has been focused on lupus nephritis since its inception, expanding its scope to include other proteinuric renal diseases is synergistic with our current strategy and long-term vision of the company.

We seek to both provide treatment options for patients where high unmet medical need exists and remains while creating additional value for our shareholders.

As I mentioned, we also announced that we will be adapting VOS for the treatment of dry eye syndrome. Dry eye syndrome is a chronic disease, in which a lack of moisture and lubrication on the eye's surface results in irritation and inflammation of the eye. Dry eye is a multifactorial, heterogeneous disease estimated to affect greater than 20 million people in the United States. Currently, there are 2 FDA-approved products for the treatment of dry eye. However, we believe an opportunity for an improved treatment exists within this multibillion-dollar market. VOS is an aqueous, preservative-free, nanomicellar solution containing 0.2% voclosporin, intended for use in the treatment of dry eye. Studies have been completed in rabbit and dog models and a single Phase III study has been completed in 35 healthy volunteers in patients with dry eye. VOS has its own separate intellectual property from voclosporin with protection until 2031.

In April of last year, we announced an agreement granting Merck Animal Health worldwide rights to develop and commercialize VOS for the treatment of dry eye in dogs. Merck has previously conducted proof-of-concept research in dogs suffering from dry eye, which affects 1 out of every 22 dogs. We will be initiating a Phase IIa tolerability study on VOS versus the standard of care in the treatment of dry eye in the next quarter with data available before the end of the year.

Calcineurin inhibitors are a mainstay in the treatment of dry eye and the goal of this program is to develop a best-in-class treatment option. And upon completion, we will be evaluating the strategic alternatives for this asset.

That's it for our clinical programs. And now onto some general business. The company is now in a substantial growth phase, transitioning from an early-stage clinical company with one indication to a late-stage clinical company with multiple indications. To that end, we have added 2 new directors to enhance the expertise on our Board. We recently announced the appointment of Jay Hagan and Dr. Michael Hayden. And we are still going to be working with both of them as we continue on our current trajectory. Jay brings a wealth of business development experience and commercial experience to our Board and he has made significant contributions to the biotechnology industry during his career and his strategic expertise will prove extremely valuable as a board member. Michael's scientific acumen and clinical development track record is unparalleled and his skill set rounds out our board with world-class research and development experience, which will prove extremely valuable as well as we initiate our new indications and assess strategic growth options for Aurinia. Michael was recently named 1 of 50 Canadians born in the 20th century who has changed the world.

With that, I will turn the call over to Dennis Bourgeault, our CFO, to review the year-end and Q4 financials. Dennis?

Thank you, Richard. On the financial front, the audited financial statements of Aurinia have been prepared in accordance with IFRS as issued by the International Accounting Standards Board. The consolidated financial statements are presented in U.S. dollars, which is the company's functional and presentation currency. All amounts mentioned are in U.S. dollars, unless otherwise specified.

In 2017, we raised gross proceeds of $162.3 million from the March 20, 2017, public offering and we also received $12.8 million from the exercise of warrants and options.

Net cash used in operating activities in 2017 was $41.2 million compared to $18.7 million for the year ended 2016. As a result, at December 31, 2017, we had cash, cash equivalents and short-term investments of $173.5 million and working capital of $167.1 million compared to $39.6 million of cash and $33.5 million of working capital at December 31, 2016. We believe, based on our current plans, that we have sufficient financial resources to fund our existing LN program, which includes the completion of the AURORA trial and our NDA submission to the FDA, conduct the planned Phase II trials for FSGS and dry eye and fund supporting operations into 2020. Over the next 8 quarters, based on our current plans, we estimate an average burn rate of approximately $16 million per quarter.

We reported a consolidated net loss of $3.3 million or $0.04 per common share for the fourth quarter ended December 31, 2017, as compared to a consolidated net loss of $8.3 million or $0.21 per common share for the fourth quarter ended December 31, 2016. The loss for the fourth quarter ended December 31, 2017, reflected a $9 million reduction in the estimated fair value of derivative warrant liabilities compared to a reduction of $658,000 in the estimated fair value of derivative warrant liabilities for the fourth quarter ended December 31, 2016.

The net loss before this noncash change in estimated fair value of derivative warrant liabilities was $12.4 million for the fourth quarter ended December 31, 2017, compared to $9 million for the same period in 2016.

Research and development expenses, R&D, increased to $8.7 million in the fourth quarter of 2017 compared to $5.5 million in the fourth quarter of 2016, due primarily to increased AURORA clinical trial costs related to patient enrollment and treatment expenses.

Corporate, administrative and business development expenses also increased to $3.1 million for the fourth quarter of 2017 compared to $2.2 million for the fourth quarter of 2016, reflecting higher activity levels and increased personnel expenses, including an increase in noncash stock compensation to $653,000 for the fourth quarter ended December 31, 2017, compared to $314,000 for the same period in 2016.

For the year ended December 31, 2017, the company recorded a consolidated net loss of $70.9 million or $0.92 per common share, which included a noncash increase of $23.9 million related to the estimated fair value annual adjustment of derivative warrant liabilities at December 31, 2017. After adjusting for this noncash impact, the net loss before this change in estimated fair value of derivative warrant liabilities was $47 million. This compared to a consolidated net loss of $23.3 million or $0.66 per common share in 2016, which included a noncash reduction of $1.7 million in the estimated fair value of derivative warrant liabilities for the year ended December 31, 2016.

After adjusting for the noncash impact, the net loss before this change in estimated fair value of derivative warrant liabilities was $25 million. The change in the revaluation of derivative warrant liabilities is primarily driven by the change in our share price. Our share price of $4.53 was significantly higher at December 31, 2017, compared to our share price of $2.10 at December 31, 2016. This increase in price resulted in a large increase in the estimated fair value of derivative warrant liabilities. These derivative warrant liabilities will ultimately be eliminated on the exercise or forfeiture of the warrants and will not result in any cash outlay by the company.

We incurred R&D expenses of $33.9 million for the year ended December 31, 2017, as compared to $14.5 million for the year ended December 31, 2016. The increase in these expenses resulted primarily from the clinical and drug supply expenses associated with our AURORA trial, which commenced active patient enrollment and treatment in May of 2017.

R&D expenses for 2016 included costs related to the AURORA planning phase and completion costs for the Phase II AURA clinical trial. We incurred corporate administration and business development expenses of $12.1 million for the year ended December 31, 2017, as compared with $7 million for the same period in fiscal 2016. The increase in these expenses reflected overall higher activity levels, higher consulting fees, sponsorships and trade show expenses related to greater investor and public affair activities and higher personnel compensation costs, which included noncash stock compensation expense of $3.2 million for the year ended December 31, 2017, compared to $1 million for the year ended December 31, 2016.

With that, I will turn the call back over to Richard for some closing remarks. Richard?

Yes. Thank you, Dennis. Well, once again, I'd like to thank the team for the tremendous progress that was made last year. 2017 was an extraordinary pivotal year for the company. We are now a late-stage biotech company that's diversifying its portfolio and building out its core competencies. We are a nimble and dedicated team that continues to successfully execute upon our prestated milestones.

I'd like to end the formal part of this call by sharing a few thoughts at where we are today and how I feel Aurinia's business as we look to the future. I believe that Aurinia represents an extraordinary opportunity for patients and for investors. As a company, we have a drug candidate that if successful in Phase III has the potential to be the first approved therapy for the treatment of lupus nephritis. The efficacy and safety data supporting this drug is substantial. We have a clear regulatory path forward to approval and there's a solid intellectual property base behind this drug and we believe the market opportunity of this drug to be substantial. It is with great confidence that we continue the advancement of voclosporin in its final stage of development.

Furthermore, with our indication expansion initiatives, we are focusing on ways to extract maximum value out of voclosporin, while putting forth a minimal investment, which can benefit both patients and our shareholders.

With that, I'd like to turn the call back to the operator to open the line for the Q&A. Operator?

(Operator Instructions) Our first question comes from the line of Joseph Schwartz of Leerink Partners.

I was wondering, first of all, on the Phase III lupus nephritis program, have you been able to balance such expedient enrollment with quality control measures to make sure that the sites are likely to adhere to a rigorous protocol? And can you talk a little bit about the monitoring and things like that, that you've implemented in order to ensure robust results?

Okay, sure. I think I'll answer a little bit and I think I'll turn -- open up to maybe, Neil, to say some additional words as well. I think we learnt a lot in the Phase II trial and we learnt a lot particularly with our experience in Bangladesh and some of those territories, which we are not using in this trial. And so we learnt a very important thing actually, which is when you're dealing with clinicians, they need to understand and be really sensitive to when their patient is actually too sick to be treated. And so what we've done in this study is implemented a very, very comprehensive monitoring program. So as the patient enters into our trial, if anything, any parameter seems out of normal for that patient, they go through a very, very sophisticated medical review process before they're allotted into our trial. Furthermore, we have greater participation in countries like Europe and other countries where there are sort of, I think, more sophisticated and better medical systems to support the trials themselves. So we do extensive reach out to our various sites. We do extensive education to those sites. And I think while it's a fully blinded trial, the efforts have actually been paying off. I think that we are very selective on who comes into this trial. And even though we want to actually create as quickly as we can, we don't want to do that at the risk of not having quality patients. We are far more focused on making sure that right patients wound up in our study. Neil, do you have anything to add?

No. I think you said most of it, Richard. What I would say is that we have to tread that balance between getting the right patients in and -- getting appropriate patients in and also getting the right number of patients in. We learnt a lot from our Phase II study and we are kind of parlaying a lot of the learnings from that study through the medical monitors, which we've increased about fivefold the amount of medical monitoring support that we're implementing into the AURORA trial. And we're in constant contact with the site. We believe that's working. And I would say we're very confident moving forward that we're getting the balance right.

Excellent. And then as a follow-up, there's some literature that suggests that LN patients with different -- of different ethnicities might respond differently to a standard of care and other -- I'm wondering if you have any thoughts on what the patient disposition is likely to be in the Phase III and how that might compare to the Phase II?

Neil, do you want to answer that?

Yes, sure. I mean, Joe, there definitely is literature that suggests there may be some racial differences. In my opinion, some of those differences are probably secondary to local standards of care because I've also published a paper, which says pretty much the opposite. There's very little difference in outcomes according to different racial groups. We are stratifying by region, so that we will see any differences in outcome according to -- into -- according to regions of patients that come into the study. And in addition, the balance of the patients coming to this study is -- as Richard said before, more weighted for the European and the U.S. patients. So we believe that certain standard of care factors won't be an issue in the outcomes in this trial.

Our next question comes from the line of David Martin of Bloom Burton.

This is Antonia on the line for Dave. My first question is related to the FSGS program. What kind of readouts can we expect in the second half of the year? And then also what would you like to see there? And then my second question is related to the dry eye program. Have you had a meeting with the FDA? And if so, what has been the outcome of that?

Okay. So I think for the first part of your question related to FSGS, I did point out that this is a new disease area for us. And of course, when we're working with (inaudible), they give their best estimates on how many patients they're going to have and how quickly they're going to come at you and they're usually wrong. So it's a stretch goal for us to have data before the end of the year. And I've mentioned that before as well. That said, there will be interim looks. And possibly, Rob, did you want to elaborate further on that?

Sure. I can do that. I think one of the interim looks that we're most interested in is the directionality of the proteinuria. In other words, are we seeing a complete or partial remission in these patients? Remembering that if you look at Dan Cattran's paper from 2005 that even a partial remission in FSGS is really important to long-term renal survival. So the interim looks we're going to be having we'll be looking at changes in proteinuria along with stability of renal function.

And to your second question related to dry eye, we have had a meeting with FDA. That meeting went extraordinarily well. We have a clear path going forward right now. And so we're actually pretty excited by getting that one off the ground. As we mentioned that and we'll likely start this next quarter. It's really based on how quickly our drug supply will be ready and that's ongoing as we speak. But that program is actually being initiated. So we expect that (inaudible) will be initiated this year, but for us to be able to report out results of that study by the end of the year.

Our next question comes from the line of Savneet Uppal of RBC Capital Markets.

So my question is just on the enrollment of the AURORA trial. First question just has to do with the biopsies of the patients that you guys have enrolled thus far. Are you able to provide a split in terms of how many had a biopsy within 6 months or between 6 and 12 or beyond 12 months? And then also just a follow-up to that question, if you could talk about the recruitment differences between some of the U.S. sites and some of the international sites?

So Neil, did you -- do you want to talk a little bit about that difference ratio. How many in terms of biopsies I can tell you just doing out the math that there are -- the vast majority of our patients are actually in that 6-month range, but I'll let Neil elaborate on that.

Yes. I think that's right, Richard. There are very, very few outside of the 6-month range. We have very, very strict caveats and criteria around those slightly older biopsies and the message to the site has always been that we prefer biopsies in fact within weeks of entering into study. We're getting mostly of the vast majority of those. So all I can say is without giving the exact numbers that there are very few outside of the 6 months. In terms of the other things and the balance, I can't quite remember the question. Was it about the balance between patients in the U.S. and outside the U.S.? Can you repeat that?

Yes. Perhaps just a comment on how recruitment is progressing at some of the U.S. sites versus some of the international sites? Are you ahead of schedule, et cetera?

Well, in terms of our general recruitment, as Richard said earlier that we're on track to complete recruitment by the last quarter this year. That's going as we expect. Recruitment is going well in the U.S., is going well in other parts of the world. The balance of the study as we said before is more towards U.S. and European sites and that is actually happening, that was the intention and that's occurring.

I think it was important with the U.S. sites and balancing everything out is just making sure you have the right ethnicity range in your studies and right distribution. And so we've taken an approach where we have an extensive number of sites in the U.S. and we've actually had considerably more patients in this study already in the U.S. than we had in our previous studies. I think that distribution is important. But the other thing that we're doing as well is saying, "If you're looking for representation of U.S. population, looks like -- particularly when you're going in front of the FDA, being able to go to countries like the Dominican and being able to have genetically similar populations or to Latin America. So we're doing things -- we're doing several levels to make sure that when we eventually go in front of the regulators, we have a very full robust, I guess, spread between various ethnic populations.

(Operator Instructions) Our next question comes from the line of Vernon Bernardino of Seaport Global.

Just a few. Regarding the AURORA Phase III clinical trial, you had mentioned it's on track and you have Fast Track designation and you intend to utilize the rolling NDA process. Just wondering if you could go again -- I think you had mentioned the timing of the modules. And one question related to that is, what do you anticipate submitting as far as the first module, which you mentioned would be submitted in the second half?

Yes. I think -- let me answer that this way. In this process with Fast Track designation, the polite way of doing it is you actually present to the regulators your submission plan. So we're in the process of doing that. Because they have a flow as well. But our goal is to be ready to submit the first part of that before the end of the year, which was the preclinical section of the documents. And then early next year, sort of -- in the first half of next year to be, sort of, more precise or less precise, we have CMC section. And so while we will be ready to that, this also seems that the regulator body is actually ready to receive everything in a timely manner. But the whole goal of this process is to actually have those reviewed prior to actually submitting their clinical component. And that's supposed to speed up the -- obviously speed up the entire process -- the entire review process. Does that answer your question?

Yes. And regarding that, will many of these people at the FDA be the same ones who saw the AURA-LV study? And -- that's one question.

Neil, maybe you could take that one.

Yes, I mean -- I think there are changes in the division and obviously, it depends on the different modules that you're talking about. Certainly in the clinical section and we expect some of the same reviewers to be the same as so the Phase II. So we certainly have a relationship with the individuals out in the FDA.

(inaudible) have familiarity. Second question, if I may. With the Phase II proof-of-concept study in FSGS, that will be the same dose that you're using in the Phase III AURORA study?

Rob, do you want to answer that one because that's your program?

Yes. I will, actually. So yes, Vernon, thanks for the question. Yes, the low dose that was the successful dose in the AURA-LV, that's the dose we are taking forward in FSGS.

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to Mr. Richard Glickman for closing remarks.

Okay. Well, thank you for all taking time out of your afternoon to listen to our fourth quarter and our year-end results. So we look forward to the next quarter and the updates. I think we have a very, very exciting year ahead of us and things really are going well for this organization right now. So it's an exciting time for us. And so thank you, again, for taking the time this afternoon.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.