Aurinia Pharmaceuticals Inc (AUPH) 2022 Q3 法說會逐字稿

Greetings, and welcome to the Aurinia Pharmaceuticals Inc Third Quarter 2022 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, [John Wolford], Investor Relations for Aurinia Pharmaceuticals. You may begin.

Thank you, Melissa, and thank you all for joining today's call and webcast to discuss Aurinia's third quarter 2022 results. Joining me this morning to lead the call are Peter Greenleaf, President and Chief Executive Officer; and Joe Miller, Chief Financial Officer.

This morning, Aurinia issued a press release announcing its financial results and recent operational highlights, and filed its quarterly report on Form 10-Q. For more information, please refer to Aurinia's filings with the U.S. Securities and Exchange Commission, which are also available on Aurinia's website at auriniapharma.com.

During this call, Aurinia -- 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 actual results may differ materially.

For a discussion of factors that could affect Aurinia's future financial results and business, please refer to the disclosures in Aurinia's press release and its quarterly report on Form 10-Q, along with Aurinia's 10-K and all of its recent filings with U.S. Securities and Exchange Commission and Canadian securities authorities.

Please note that all statements made during today's call are current as of today, November 3, 2022, unless otherwise noted, and are based upon information currently available to us at this time. Except as required by law, Aurinia assumes no obligation to update any such statements.

Let me now turn the call over to Aurinia's President and CEO, Peter Greenleaf. Peter?

Thanks, John, and good morning, everyone, and thank you for joining us. On today's call, we'll provide you with a review of our commercial business, including LUPKYNIS performance in the third quarter and year-to-date. We will then provide our updated expectations for the remainder of this year. And since we now have 3 quarters of results for 2022, we will also provide a preliminary view for 2023.

In addition to commercial performance, we will cover ongoing medical affairs and clinical work to reinforce LUPKYNIS benefits for patients. We'll then move on to providing an update on our global expansion efforts, R&D activities and an update on our intellectual property. I'll then turn the call over to Joe Miller to provide more details on the third quarter and year-to-date financial results and our overall strong financial position.

So let's get started with our third quarter business performance. Total net revenue for the quarter amounted to $55.8 million, which included a recognition of a onetime $30 million milestone payment from Otsuka to the achievement of the European Commission approval of LUPKYNIS.

Total net product revenues for LUPKYNIS are $25.5 million for the quarter, bringing the year-to-date total for LUPKYNIS net product revenues to $75.1 million. Total reported revenue for the 2022 fiscal year through September 30 was $105.6 million.

Moving to more detail behind the financial results. Total patients on therapy grew to 1,354 by the end of Q3, up from 1,274 at the end of Q2. The increase in patients on therapy this quarter was driven predominantly by improvements of prescription or patient start form converted rates and processing speed, alongside of new patients start forms.

Our patient conversion rates on to drug at 20 and 30 days continue to improve quarter-over-quarter. As of today, overall conversion rates of 60 days remained consistent with prior periods at approximately 84%.

Consistent with prior periods, adherence remained strong in approximately 80% at quarter end.

Looking at our patient start forms. We saw a slight decrease quarter-over-quarter moving from 409 in Q2 to 374 in Q3. Looking at our most recent data through October 31, PSF year-to-date were 1,357. These trends are clearly something we have been watching closely and have a tactical actions to address.

Our net realizable revenue per patient for LUPKYNIS in the quarter remains higher than our initial guidance of $65,000 per year. But as we discussed previously, we expect to approach this figure on an annualized basis as more patients go on and stay on therapy over time and is persistency, dosing and payer mix evolve.

What we've seen from our internal analysis of claims data is at several leading market indicators, including patient visits, new lupus nephritis diagnosis and the number of patient renal biopsies declined from Q2 to Q1 -- excuse me, from decline in Q2 versus Q1. These lower numbers foreshadowed a potential slowdown in the summer.

For visits that did happen, we also saw a lower amount of proteinuria testing, which declined approximately 15% in Q3 versus Q2. These numbers, coupled with both doctor and patient summer vacations, resulted in overall lower office volume and impacted our performance during the summer months in both rheumatology and nephrology offices.

Our internal analysis leads us to believe that these market events are temporary, seasonal or event driven in nature. While we are currently digging deeper to better understand what impact this will have on a going-forward basis, in the interim, we are driving tactical activity to power through these external market dynamics, which I'll now walk you through.

First, within our selling focus in health care provider driven efforts, what we have learned throughout the launch from our highest prescribing physicians is that high-frequency engagement is required to adequately deliver the LUPKYNIS clinical message and gain solid clinical adoption.

As a result, we're actively increasing our focus and frequency of high potential of decile 7 through 10 rheumatology and nephrology offices. We're setting clear expectations, tracking activity closely and even increasing our incentive targets for our field team in these areas.

We also know that physicians adopted a greater rate when they see sales represented frequently when they do that in combination with other program offerings. As a result, we are prioritizing peer-to-peer programs with an emphasis on a smaller, more personalized engagements because we feel this better meets the needs of busy physicians and aims in advancing their understanding of the overall clinical advantages of LUPKYNIS.

We recently launched a new campaign directed at high volume of lupus nephritis offices late in Q3. This campaign features a new core message of powerful graphic centered on underserved patient populations. Based on our early feedback, this campaign resonates strongly with our health care professionals.

The campaign has currently enhanced our sales force, and we will be updating our media and web properties as we move through the next couple of months and weeks. The campaign will also feature -- be a key feature alongside of our selling and medical efforts at these upcoming conferences, ASN and ACR, in the next few months.

In addition to our commercial execution, our medical affairs efforts related to LUPKYNIS are crucial to driving growth. Over the past few quarters, we have generated significant visibility with health care providers with a substantial in-person presence at the major medical conference.

We continue to submit new data from AURORA 1 and AURORA 2 for presentations at the conferences coming up, which include 14 abstracts accepted at lupus, ACR and ASN this year.

While much of our marketing approach is designed to increase the depth and frequency of prescribing among our existing base, we also want to ensure that first-time prescribers have a meaningful experience with our product and through Aurinia Alliance patient support team. We continue to make seamless first patient experiences with LUPKYNIS a key priority.

We can see direct evidence for our impact here in increased PSF approval rates as well as tied to receipt of throughout following initial prescription.

Along with our sales and support team focus and intensity, we have also increased our focus on the patient. We've recently made enhancements to our brand website, lupkynis.com, to provide additional information for patients and health care professionals.

In addition, we've enhanced and increased our focus directly and through online social media channels. In September, we began a new campaign with the Lupus Foundation of America directed towards lupus nephritis naive patients, with a series of lupus walks across the country.

The full campaign launched just last week, and we plan to continue to grow this campaign as we move into 2023.

Our existing anchor programs have always centered around patient, our efforts in advocacy and education, all of these continue. We, in addition, have a number of new programs that will launch over the next few months to help increase diagnosis, urgency of treatment, adherence and persistency, all moving directly to the patient.

Lastly, as we reported on previous calls, our payer access and approval rates are high. However, some payers still include administrative hurdles for patients initiating therapy. So just last week, we actually signed a contract with one of the largest national payers that will remove certain access hurdles to lessen the administrative work on our offices.

We will also shorten the average time to first commercial fill and further enhance the prescribing experience for physicians and patients, where we can drive the right motivation under the right terms, we will remain open to partnering with payers these access and also speed conversion.

Based on the third quarter revenue results and the PSF trend moments, as you saw in our press release, we're updating our 2022 LUPKYNIS net revenue guidance to $100 million to $105 million for 2022. In addition, with more than 3/4 of results for '22 now available, we are also providing preliminary LUPKYNIS net revenue guidance for 2023 in the range of $120 million to $140 million.

This represents a 17% to 37% growth, over at the midpoint of our revised estimating guidance for 2022. In order to achieve this growth, this growth is expected to be driven by an increase in the number of quarterly PSFs, improvements in conversion time, solid persistency curves and continued strong adherence.

Moving now to our globalization efforts for LUPKYNIS. In mid-December, in collaboration with our partner Otsuka, we achieved an important milestone as the European Commission granted marketing authorization of LUPKYNIS to treat adults with active lupus nephritis. The authorization is valid in all EU member states as well as Iceland, Liechtenstein, Norway and Northern Ireland.

Upon approval, we received a $30 million milestone from Otsuka and are eligible to receive additional regulatory and reimbursement milestones and low double-digit royalties on net sales once launched.

In the quarter, we began to recognize revenues for supply of product to Otsuka, which is reflected as product sales as well as collaboration revenues for CMC and R&D support, both under a cost-plus arrangement.

As a reminder, our updated 2022 net product guidance -- revenue guidance of $100 million to $105 million does not include this milestone payment, any royalty payments or any collaboration revenue related to our agreement with Otsuka in market LUPKYNIS in the European Union and Japan.

Marketing authorization applications have been submitted in Great Britain and Switzerland, with approvals expected in the first half of 2023. As a reminder, pricing and reimbursement approval in 3 of the 5 major countries in the European market will trigger a $10 million milestone to Aurinia.

In addition, our work in Japan remains on track. Upon approval, we would be eligible for an additional $10 million approval -- milestone related to and along with our double-digit royalties on net sales once launched.

The ongoing clinical updates for LUPKYNIS include the advancement of both the vocal pediatric study and ENLIGHT-LN registry. With the registry, which just -- which we have just initiated at the beginning of the year, we now have 38 active sites towards our goal of having 17 (sic) [75] total sites.

As a reminder, we plan to leverage real-world data collected from this study to gain further knowledge about patients taking LUPKYNIS and to help clinicians and payers improve patient care and ensure access to therapy. We remain on track to meet our post-approval FDA commitments.

Moving on to our research pipeline. We continue to advance IND-enabling work of AUR200 and AUR300, and we continue to work towards submitting INDs for both compounds by the end of 2023. These are important next steps in the advancement of our pipeline as well as to build long-term sustainable growth for the company.

And finally, I'd like to provide you an update on our ongoing IPR, or inter partes review, relating to our method of (inaudible) Since the PTAB institute in the IPR in July 26, we've been diligently working on our also defense to the IPR. In December, we and Sun mutually agreed to a 2.5-week extension to each of our upcoming filing deadlines.

With that extension, our wholesome defense is due to be filed after market tomorrow. The defense will be substantively disputed -- will substantively dispute all challenges raised by Sun in the IPR. The defense will be publicly available once filed, and we are confident the arguments that we are planning on presenting in that defense.

There are a number of future steps to be taken in the IPR proceeding, including further filings and oral arguments, culminating in a decision from the PTAB being expected on or before July 26 of 2023. In the meantime, our patent infringement lawsuit against Sun Pharmaceuticals in which we let the infringement by Sun Pharmaceuticals of our patent related to voclosporin (inaudible) ophthalmic solution remains ongoing.

I want to emphasize that we may be focused on taking all initiatives to protect and strengthen our IP position as a company, including other patent applications relating to LUPKYNIS that are filed and underway, which if granted, could add and grant us additional patent protection for LUPKYNIS.

Before I turn the call over to Joe, as a reminder, inclusive of the Otsuka milestone cash receipt, which was received on October 31, 2022, we now have approximately $400 million in cash on our balance sheet. This means we are well capitalized, and we have a great drug that we believe in will become -- eventually become a profitable franchise.

In line with this updated outlook, we intend to prioritize our spend to drive sales of LUPKYNIS and to allow the company to further invest in its current and future pipeline.

I'd now like to turn the call over to Joe Miller for a more detailed review of our financial results. And then I'll return at the end of the call for a quick recap and to open up to any questions you might have.

Joe?

Thank you, Peter, and hello, everyone. At September 30, 2022, we had cash, cash equivalents and restricted cash and investments of $376.6 million compared to $466.1 million at December 31, 2021. As Peter said, this does not include the cash receipt of the $30 million milestone payment from Otsuka related to EC approval that was recognized as revenue in the third quarter. The company received this payment on October 31, 2022, bringing cash, cash equivalents and restricted cash and investments at October 31, 2022, inclusive of the milestone to approximately $400 million.

We believe that we have sufficient financial resources to fund our current operations, which include funding commercial activities, including FDA-related post-approval commitments, manufacturing and packaging of commercial drug supply, funding our supporting commercial infrastructure, advancing our research and development programs and funding our working capital obligations for at least the next few years.

Total net revenue was $55.8 million and $14.7 million for the quarters ended September 30, 2022 and September 30, 2021, respectively, an increase of 280% period-over-period.

Total net revenue for the 9 months ended September 30, 2022, was $105.6 million and $22.2 million for the 9 months ended September 30, 2021. This represents an increase in excess of 375% year-over-year.

Revenue growth for both periods is primarily due to the recognition of a $30 million regulatory milestone from Otsuka following the EC approval of LUPKYNIS in September of 2022, coupled with an increase in product sales for LUPKYNIS, which was driven predominantly by further penetration in the lupus nephritis market.

Total cost of sales and operating expenses for the quarters ended September 30, 2022 and September 30, 2021, were $65.3 million and $65 million, respectively. Total cost of sales and operating expense for the 9 months ended September 30, 2022, were $189 million in comparison to $170.2 million for the 9 months ended September 30, 2021.

Cost of sales were $2.4 million and $254,000 for the quarters ended September 30, 2022 and September 30, 2021, respectively. Cost of sales were $4.3 million and $610,000 for the 9 months ended September 30, 2022 and 2021. The increase for both periods is primarily due to an increase in product-related revenue, a low-margin contribution for collaboration activities with our partner, Otsuka, coupled with an increase in our safety stock inventory reserves.

Gross margins for the 3 months ended September 30, 2022 and September 30, 2021, was approximately 96% and 98%. Gross margin for the 9 months ended September 30, 2022 and September 30, 2021, was approximately 96% and 97%, respectively.

Selling, general and administration, or SG&A expenses, inclusive of our share-based compensations was $52.2 million or $44.6 million for the quarters ended September 30, 2022 and September 30, 2021, respectively. SG&A expenses, inclusive of our share-based compensation expense, were $148.9 million and $128.8 million for the 9 months ended September 30, 2022 and September 30, 2021.

The increase for the 3 months ended September 30, 2022, was primarily due to an increase in professional fees related to corporate legal matters, increase in travel costs now that COVID has normalized and an increase in sponsorship and programs to support the commercialization of LUPKYNIS.

For the 9 months ended September 30, 2022, the increase also included higher salaries, incentive pay and employee benefits.

Noncash SG&A share-based compensation expense for the quarters ended September 30, 2022 and September 30, 2021, was $6.6 million and $6 million. Noncash SG&A share-based comp expense for the 9 months ended September 30, 2022, September 30, 2021, was $21.5 million and $19.2 million, respectively.

R&D expenses inclusive of share-based comp expense were $11 million and $20 million for the 3 months ended September 30, '22 and '21. For the 9 months ended September 30, 2022 and September 30, 2021, R&D expenses, inclusive of share-based comp expense, were $35.1 million and $40 million.

The primary driver for the decrease for both periods was that, in prior year, the company expensed a $10 million upfront license and accrued milestone obligation related to its AUR300 program, which was partially offset by additional development expenses related to the AUR200 and AUR300 programs for the current year period ending September 30, 2022.

Noncash R&D share-based compensation expense for the quarters ended September 30, 2022 and September 30, 2021, was $1.5 million and $1 million, respectively. Noncash R&D share-based comp expense for the 9 months ended September 30, 2022 and 2021 was $3.5 million and $3.2 million, respectively.

Interest income was $1.5 million and $106,000 for the 3 months ended September 30, 2022 and September 30, 2021. Interest income was $2.2 million and $420 million for the 9 months ended September 30, '22 and September 30, '21, respectively.

The increase in both periods is due to higher yields in our investment as a result of increasing interest rates.

For the quarters ended September 30, 2022, Aurinia recorded a net loss of $9 million or $0.06 net loss per common share as compared to a net loss of $50.3 million or $0.39 net loss per common share for the quarter ended September 30, 2021.

For the 9 months ended September 30, 2022, Aurinia recorded a net loss of $82.1 million or $0.58 net loss per common share as compared to a net loss of $147.6 million or $1.15 net loss per common share for the 9 months ended September 30, 2021.

With that, I'd like to hand the call back over to Peter for some closing remarks. Peter?

Thanks, Joe. As you heard throughout the call, we faced a number of challenges in the quarter, but we continue to remain optimistic on the overall opportunity. We're focused on delivering LUPKYNIS to patients in need, driving revenues in the U.S. globally, and we continue to operate with a healthy balance sheet, which will enable us to execute on our long-term strategy, including the advancement of our pipeline programs and the potential for opportunistic business development.

We look forward to keeping you updated along the way. I want to thank everyone again for joining us today. We'll now open up the call for any questions. Operator?

(Operator Instructions) Our first question comes from the line of Maury Raycroft with Jefferies.

This is Farzin on for Maury. Your sales expectations are low for the rest of the year and even a modest increase in the 2023 guidance. Can you provide more specifics on assumptions behind the guidance?

And maybe, Scott, I don't know if it's on the line, but any strategic initiatives you can take to basically get to boost traction at the major medical centers and turn things around?

Yes. So let me start with the run rate to end of the year and then sort of bridge that into guidance for next year. I think if you look at the PSF number that we've reported through the month of October, that gives you an idea of sort of how we're seeing current trends in terms of patient start forms, which, as I've said previously, I think the best way to think about patient start forms in the quarter is the knock-on effect to the next quarter and beyond.

And as you'll see for patient start forms year-to-date, we reported a number through October 31 of this year that shows that we were under 100 patient start forms for the full month of October.

Now we have 2 full months ahead of us, and we are starting to see a pickup on our dailies. But what I can tell you is that, that was a big factor that, alongside of some of the more macro trends of lower office visits, lower patient diagnosis, lower urine screens, that led us to a more modest growth into 2023.

The year-end number is pretty much the dies cast on. It's -- we saw the numbers of PSFs all the way through Q2 and Q3. And I think the year-end number is indicative of that. And it's kind of that simple. We've got 2 more months left of sales to report here in the months of November and December, obviously. And we felt we had a good lead on exactly where those months were going to come out, and we felt it was going to fall in the $100 million to $105 million range.

In terms of your question on activities we can do in the major medical centers, this is somewhere we've continued to put time and intensity against. And what I would tell you is we've looked at everything from a targeted approach with specialized representatives and reimbursement people and medical affairs efforts.

I think the sales process in these major medical centers is longer. And as you know, during the entirety of COVID, these major medical centers were locked down, and many remain to be fairly locked down in terms of access. But it is a key priority of ours. And when we start to see some significant movement in these centers, we will update you accordingly.

Our next question comes from the line of Ed Arce with H.C. Wainwright.

I joined a bit late, but -- so I may have missed it, but I just wanted to ask about the driver of the lower PSF, the lower diagnosis, the lower patient visits you just mentioned.

I'm curious really what's driving that because I don't really think COVID is an overwhelming driver at this point, certainly for third quarter. Just trying to get at what specifically is impacting those relative to, say, the second quarter.

And then separately, just wondering about the presidential opinion panel denial, if there's anything you can say about that and the defense filing that you're filing tomorrow and the deadline that was set for that.

All right. So let me try to give you my best articulation of what we're trying to figure out as the driver of these lower diagnosis not related to COVID. I mean, I think in the first year of the launch, we clearly reported that we were seeing lower office visits and lower rates of diagnosis of lupus nephritis due to COVID. And then we saw some slight recovery, and we're taking this from internal client's data. So we buy planes and go back when we look at those planes and move that offices, and that's what we're driving these numbers from.

So we saw some recovery. But then towards the summertime, leading it in the summer time, so from Q1 to Q2 and then Q2 into Q3, we saw a more steep decline in both diagnosis, urinalysis within those data claims and renal biopsies. While we don't know concretely, Ed, some of this effect, we think, is just sort of -- I don't want to call it summer seasonality, but there is some effect of patients going on vacations, doc going on vacations, office staff going on vacations.

Because we've seen this out a few years in a row. The last year, there was the Delta variant that we definitely believe it was the major driver. And this year, obviously, we don't see it as a COVID-related issue. But we do still clearly see that in the summertime, there is event happening to our patient population as it pertains to irregularity of their visit and, obviously, the platform that when they're in there.

As we continue to learn more about this, we'll report. But we are, as I said, starting to see a revival in the number of PSFs we're seeing, at least the rate of the PSFs that we're seeing, moving into October, end of October and into early November. So there's some encouraging signs there.

And as we continue to track that data in terms of the claims, when we have a view of sort of into Q3, into Q4, we'll try to give you a view as to whether it normalizes. But right now, the best answer I can give you is it happens -- it appears to have happened. It appears to affect the other drugs as well and then after another drugs that we track. And the summer period is the best we can compared it too.

Your second question was around the IPR. And as I mentioned in the call, we and Sun agreed to an extension to the date of the filing of the initial response, both from us and from Sun on to Friday of this week. So in order to get all our expert witnesses -- witness work done and everything we needed to do, we wanted to take the time to get a submission in by Friday, which is the due date.

So the expectation should be that it will come after market tomorrow. And that's on top with the filing and the issue of approval of that filing about a month back, I believe was.

And then your last question was on the denial of the review, as normal or rereviewed, as normal course of these go, obviously, when the PTAB decided to take up the review, the challenge or the company who's being challenged has the ability to go back to the PTAB and challenge that decision, which just about everybody does.

But the success rate on those challenges is actually quite low. And we've been guided by our lawyers to have a low expectation there. It is not a fulsome response, the fulsome response you will see go in at the close of business or after market tomorrow.

Okay. Great. One more follow-up, if I may. Just wondering what trends are you seeing recently or currently with persistence on patients existing on therapy?

Well, through 12 months, which is probably the -- that's not hard to look at. We reported 6 months, 9 months and 12 months. At 12 months, the number was 50%. So it's clearly an area we want to continue to work on. But when you benchmark that versus other chronic therapies in both lupus, so if you look at Benlysta as an example, or if you look at other RA therapies to have a rate of 50% at 12 months is actually quite good.

But, and I underscore but, we're not settling on that. We have data that chose patients continue to show consistent reduction in their proteinuria out to 3 years. And that this disease is, from what we know about the guidelines and the data, is not one that should be treated sporadically or on a flaring basis.

So we're not accepting that number, and we'll continue to work on, and we think we have the data to be able to work on persistency. But the answer is 50% at 12 months, Ed.

Our next question comes from the line of Stacy Ku with Cowen and Company.

So the first question is a bit of a follow-up on the last one. For 2023 revenue guidance, taking that midpoint of $120 million to $140 million for next year, and assuming roughly $80,000 per patient for that -- for the year, that would imply that you need to capture over 3,000 patients next year, with that discontinuation rate of 50%.

We are making a lot of broad assumptions, including pricing in these calculations. So can you just help us understand where assumptions might be too conservative or too optimistic, where you might have more conviction and where there might be a little bit more variability? So that's the first question.

And then a follow-up. Based on that persistency rates, can you just provide more commentary on the average durability of LUPKYNIS use? Is this being used more in induction versus maintenance? Just help us understand where that 50% discontinuation rate is coming from.

So let me start with your first question, which centered on how we should be thinking about the $120 million to $140 million guidance. The -- as I said in the call, we're factoring on prescription start forms, yes; persistency, yes; speed to improvement, yes. But I think you could see any one of those metrics do better than the other in order to get to these numbers.

Right now, we need to see a significant improvement in our patient start forms, for sure. But to say that we need to add 3,000 new patients at $80,000 a year, I think, is probably, I don't know if I would say that's aggressive. I mean, it's all based upon how you're individually forecasting all the other parameters.

The assumption that we continue to see improvements in getting patient on drug, getting them on drug quicker, working any backlog of patients are all in there. And in terms of our -- what the average net per patient is, as we've said, we think it's probably better to be more conservative towards the $65,000 to $70,000 net per patient per year.

Joe, am I missing anything there?

No. Peter, I think you got it -- captured it pretty well.

And I apologize for asking. Since you went through several questions there, can you jump to the -- and repeat the questions?

Yes. So based on that 50% persistent rate, just more commentary around the average durability of LUPKYNIS use, where you think this drug is being used, more induction, more in maintenance. Just help us understand that 12-month persistent rate.

Well, as we've reported in the past, and I don't think there's a lot of change here, there's -- we get -- when a patient discontinues drug, we try to -- or patients not just discontinues but over time, falls off drug, doesn't take a shipment, decides not to refill a prescription, we have a pretty bespoke patient support and physician support network called Aurinia Alliance.

So we follow up with the patient. We follow up with the physician. And what I can tell you is we get in a broad range of reasons. They're always doc and/or patient-driven. And the majority, I would say, are usually patient driven. And they're across the board, everything from patient lost to follow-up to patient decide to stop taking the drug, no answer, to patients could not tolerate the drug anymore. It's just a broad, broad range.

We're not seeing much from physicians in terms of them telling us that they have a belief that they should stop therapy at 12 months. But when a patient's proteinuria gets down to a level, at times, it appears that physicians have a tendency, some physicians to discontinue drug at 12 months, all of which we have data to support why a patient should not discontinue drug and why a physician should not discontinue drug.

The guidelines work in our direction here. The AURORA 2 data is in our favor here in terms of the results. So we do think we can continue to make headway there as part of our primary messaging. But the reasons for patients coming off drug on average, 50% after 12 months, are broad, broad range of reasons.

Our next question comes from the line of Joseph Schwartz with SVB Securities.

So you've given us some patient prescription data. And I was wondering if you could give us some insight on how the number of prescribers has been trending. Are you hitting a wall with the prescribing audience and not broadening it as much as you need to? Can you talk about how the prescriber audience has been trending lately? And what is your strategy there?

Got it. Well, the strategy, clearly, as I mentioned, is to go after the high decile. These are the docs that we know have a large number of lupus and a large number of lupus nephritis patients. And within that subset, a large number have already prescribed.

But let me give you the -- the total prescriber number to date through the end of the quarter was about 1,600, and that's off of a fairly large base of rheumatologists and nephrologists. So you should deduce, although on a semi-diluted basis, because our 7 to 10s are really where our focus are. When you start going down to your 1 through 6s, you're talking about docs who have very few patients.

So your effort gets spread really thin. But we still do think there's opportunity over time to increase our overall prescriber base. If you look at those who have prescribed, only about, I believe, the number is 45% have been repeat prescribers. 55% of that number had given us trial. So they've tried the product, but they have not become repeat prescribers.

We think that's a huge opportunity, too, Joe, going after those physicians who had experience -- had good experience and getting them to represcribe the product.

I think your next follow-on question will be, well, if a physician tries your product, why are they not prescribed it again? And I think while there is lots of reasons underlying, I think the most prominent one is probably that these physicians gave us one of their tough to treat patients right out of the gates. And they need to be more clinically sold over time.

So that's why our concentration is against those physicians and will remain there. But 1,600 and a high concentration on 7 to 10 deciles. Our growth rate in the total number as reported last quarter was 100 new physicians. I'm not sure what it is for this quarter, but we can get back to you on that.

Okay. And then I guess, why isn't there more urgency for...

Joe, we're losing you. We can't hear you on this end, Joe.

Okay. Let me try again. So...

That's better.

In general, why isn't there more urgency for physicians and patients to treat in general, especially when they have a new tool to do so? And how much control do you have over this phenomenon? It's not a small market. So even if it's decelerating overall, I wonder why you aren't able to take more (inaudible) is in still have relatively low market penetration?

Yes. So we lost you on the end, but I think I got the gist of the question, so I'll repeat it for others on the call. I think the question centered around why does it appear that there's a low sense of urgency to treat aggressively and to make sure that patients stay on drug over time.

It's surprising to me in that all the data that's out there, Joe, and the published data and the guidelines speak to treatment urgency with treatment targets, and they're pretty open-ended about time to treat.

Again, in the guidelines, they don't talk to treating flaring episodes. They talk to proteinuria treatment targets and that patient's proteinuria should be maintained. What we're seeing in actual practice, at least sort of claims data and the qualitative feedback that we have, is that there tends to be a desire to treat at very high levels of proteinuria. And that over time, that drug seems to be discontinued.

I'm not just talking about our drug. This thing is apparent in both the use of steroids and in MMF as well. So they're not keeping patients, it doesn't appear to us. They're keeping patients on MMF and steroids over time.

The only thing I can compare it to is sort of past experience in other markets. And when we launched infliximab back in gastroenterology back decades ago, gastroenterologists kind of did the same thing. They treated with a group of generic drugs. They treated flares. They were not aggressive with the therapies they use.

And you evolved to today, and biologics are a mainstay, they're probably close to first line today, and they keep patients pretty chronically on these drugs. It took a long time to develop that market and to get physicians to treat their -- to change their treatment paradigm.

And that's what I think we need to do here. There's an element of market development that needs to happen, moving physicians from what has historically been a very generic driven, not data-driven treatment protocol to one today where you have newly approved medicines operating on data and approvals, that need to shift that mindset.

And on the patient side, I think it's going to take education to make sure they understand that if this is not treated aggressively that it can cause, and this is data driven, patients to have kidney failure, patients to lose kidneys, patients to have a higher increase in likelihood of death and further morbidity, not just with our drug, all drugs.

So aggressive treatment and continuity of treatment are critical. My answer is market development is going to take time. How long will it take and the why? I think our market research shows that there's just this physician comfort that we need to continue to break through.

Okay. And maybe if I can ask one more related question about your new marketing campaign. It's clearly designed to be impactful. Why did you design it? So my question is, why did you design it this way? And why do you think it will...

Yes, you're falling out on us again, Joe, and let me recap, and you can just yell yes back. But I think you asked why we evolve the campaign to where we have today, and maybe ask why we didn't have that before. I didn't get the back end of the question. But I think what you're driving that is why do we evolve the campaign.

That's essentially it.

Okay. Well, listen, our data is strong across all patient types first. But our data is extremely strong in subtypes of African-American patients and Hispanic patients. And the majority of the patient population is African-American, Hispanic and female.

So I think what we've tried to do in our most recent is update our campaign with all data available to target it very much towards the majority of the patient population and to use the most impactful data that we have, which, at launch, of course, we didn't have the AURORA 2 data.

And coupled with the AURORA 2 data, this message is having strong resonance. We're putting a lot of discipline down on utilization of the tools, getting in the offices, consistency in the offices, et cetera. Not to say there was an emphasis on that at launch, there was, but we're just taking it down to the next level of discipline.

Our next question comes from the line of Ken Cacciatore with Cowen and Company.

I was late getting on. I know Stacy asked the question. Peter, I wanted to talk about the IPR challenge and the challenge in general from Sun. It strikes us that they don't have much to win here. And I know there's 2 different litigations here. You're suing them, they're suing you on LUPKYNIS, and you're suing them on the ophthalmology side.

But if they win, if Sun is able to win in this IPR process, they haven't certified Paragraph IV. I don't believe they can until the patent expires in 2027 or comes closer to that. And I think they have a few more years before they can certify against any other patent.

So what I'm asking and trying to get to is, why is this even happening? Shouldn't kind of business folks be able to reach an agreement that makes sense when there's really not much of a win here if Sun is able to win in the IPR?

You also are struggling, obviously, with the size of the product. So even if there is a "win" they can't launch for a while, the size of the product is struggling. Can you just help us understand why this is persisting and why we can't come to some kind of reasonable settlement amongst the parties?

I guess, I'll start with, yes, your conclusions are not inaccurate. I mean, the product has protection under method of use through the benefits of approval and with the hopeful addition of pediatric extension work we're doing out to 2028.

So you think strategically and you say, "Well, you don't have an end on file. You don't get 180 days first-mover advantage. You just know what fire back in a market that you don't necessarily know, even what the size is going to be."

This doesn't sound like a very good entry strategy or that the filing has anything to do with generic entry. I think we've said from outset that we think this is retaliatory and that we have ongoing litigation. And all I can tell you is, Ken, that we're keeping all options open to ensure that we extend the longevity and the strength of these facts, period.

And we're business people, so I think you can sort of see that all options means all options. We do think it's important to get our defense out there in the public domain to the challenges that were presented, so that's somewhat purposeful.

But our goal is not different from your conclusion, which is we would like these challenges to get resolution. I think Sun is probably in the same place. And we want to give confidence to our employees, our investors, our physicians and patients that this product has patent protection over the long haul.

So agreeing with your strategic questions about the why and leaving you with the message that we're keeping all options open to extend longevity. But that -- this Friday filing is important to get on the record, so people see what our primary defense are. And don't forget, we also have on track one patent on file with the PTO that if issued could give us even more ring-fencing around that, method use patent.

Our next question comes from the line of Justin Kim with Oppenheimer & Company.

Maybe just one. As we try to understand better this dynamic of finite versus chronic treatment with LUPKYNIS, just curious if the team plans to give longer-term metrics with persistency as it becomes available. Just wondering, are we going to go down the sort of 15-, 18-, 21-month persistency rates in the coming quarters?

Yes. All I can say is that we metric -- we are benchmarking that and we sort of think in a forecasting way the same way you would, which is we take the data that we have, i.e., the data we've reported, and we're not holding anything back here.

I hope investors see that were being transparent, probably even more so in some cases about the metrics that we're driving in the business. So there's nothing that would hold us back from reporting 18 months and beyond.

But in lieu of doing that and having any data that has barely been on the market 18 months here, we use other analog products, and lupus nephritis are different. But we do look at Benlysta and we look at products in the rheumatoid arthritis category and other arthropathies. And we look at MS and chronic diseases that have a level of acuity that doesn't necessarily account to if you don't take drug, you die.

But if you don't get drugs, you have more morbidity like diseases and see what we should be benchmarking against. So if you look at our benchmarks, 50% persistency at 12 months is actually quite good. But if you look at the data we have and the guideline expectation, to me, they fell quite short of that.

So we're not accepting it, although we look at other analog products like the anti-TNF class, for an example, in rheumatoid arthritis and say 50% is actually not doing that bad. It's actually quite good. So we forecast it based on analogs, and we'll report it when we've got it.

Our next question comes from the line of Sahil Dhingra with RBC Capital Markets.

This is Sahil for Doug Miehm. I had one question on the October PSF. So I think the monthly rate -- run rate for Q4 is currently $113 million versus $125 million for quarter 3.

I understand there were some summer seasonality in Q3, but why is October PSF run rate running below the monthly run rate of Q3? And then my follow-up question is for the guidance for next year, what kind of PSF run rate are you building in to achieve that $120 million to $140 million?

Well, we've not -- so I'll answer the last question first. We've not actually given guidance on forward-looking PSFs. So -- because there's variability in a quarter, right?

You can see our financials came through, maybe not where we wanted them, but they were carried through in a way where persistency and speed to getting patients on drug in the backlog of the drug and conversions drove a lot more than in the quarter did PSFs.

So yes, given the PSF projected forward, I think would give us a full sense of accuracy because you had one fall off on the other, you might not make a quarter. So all things have to work in harmony.

Your question on October, I think, is while I can give you answers that go backward and look at coming off of the summer, I can tell you that -- and we didn't report on this in the call because I don't want to just run through a list of excuses. We are seeing the trend move upwards in the most recent weeks. But don't forget that our highest-performing region out there in the country is the Southeast region.

And Florida gives us somewhere between, I don't know, a measurable number, call it, mid- to high single digits per week of PSFs. And the state of Florida has been pretty shut down. So -- because of the Hurricane Ian.

So I think that could be one factor that's there. The current coming back online numbers are leading me to believe that we're powering through that. So that's the only thing I can say that specifically could have impacted October.

Okay. Can you please remind me of the milestone payments that are expected?

Can you repeat the question?

Can you please remind me again on the milestone payments? So I think there's one for Japan and another European countries that was mentioned earlier in the prepared remarks.

Yes. Upon approval, so we just received a $30 million milestone on approval with the European Commission. That's received and banked in the quarter. The next would be when we get 3 major countries out of the 5 top European countries with approval and pricing reimbursement, that's another $10 million. And then there's a $10 million approval milestone in Japan.

And then coupled with that, and we estimate hopefully, that you're somewhere in the 24 time period for that approval. We have to file there in Japan, and we have to get approval. So in addition to that, the cost plus manufacturing arrangement, and we have a royalty rate that we believe in those markets as well.

Sorry, just one follow-up. What's the time line for the European $10 million?

It's very dependent country-specific. So we've not given a guide on that.

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

The docs I've talked to tend to say that if a patient's nephrotic, they'll choose LUPKYNIS. If the patient is fatigued, they'll choose Benlysta. I'm wondering if that's how you see it shaking out as well. And what proportion of these lupus nephritis patients are nephrotic and which ones are fatigued?

Well, I mean, to answer the question directly, if a patient is fatigued, they have a lupus. If a patient is showing persistent proteinuria, they have lupus nephritis. So I'm not surprised by that answer.

I don't know that I have the most recent view on how docs are selecting one versus the other. I can tell you that -- and you can look and ask the folks at GSK this, they're positioning the product as a lupus product. And they're talking about kidney health in lupus patients.

So the goal there is clearly to get patients before they ever become patients with lupus nephritis. We're positioning the product for where we're indicating, which is for lupus nephritis.

I don't have any, David, specific data on, are we getting the higher proteinuria patient than Benlysta, that I don't know. I can say that physicians seem to go to the MMF, and several was done before they ever go to either product. So the opportunity we have ahead of us is to start to get in front of just those patients that have already seen a course of MMF and steroids.

Okay. Next question is how much competition -- or how much sales do you see going to other calcineurin inhibitors? And how important is it to emphasize the lower nephrotoxicity with LUPKYNIS? And can you really do that before you get the biopsy results from AURORA? And when should we expect those results?

Well, the only data that we have to date, it's very strong data since we're the only ones who've reported data out this long is the data to look at kidney function as it relates to eGFR out to 3 years from the AURORA 1 and AURORA 2 extension study, which shows no degradation in terms of kidney function, at least as measured by eGFR.

Do we think we're losing patients based upon this fear of nephrotoxicity? I don't see it in the data, the market research that we have right now. There seem to be a group of physicians, nephrologists primarily, who have a strong opinion about calcineurin inhibitor, but they're a small percentage. And the overall utilization of calcineurin inhibitors according to our data, that being cyclosporine A in fact is actually quite low, less than 10% of overall lupus nephritis patients.

So while I think we compete there to a degree because we're part of our class, if we're only growing now, and we're only competing there, it's a small market opportunity. So I think we need to think and look bigger.

Your question on the data for the biopsy data is, remember, we had a substudy from the original AURORA study of a very small subset of patients that we actually did do, I believe, serial biopsies on. And then those biopsies were then reviewed by a central lab -- an outsourced central lab.

The 2 caveats, David, super small from what I understand, and I still do not know exactly what the readout time period. I know that the central lab continues to work on this, and they'll be looking -- they're looking at the pathology work. And then they have an oversight that's looking at their market as well.

So I don't have a definitive date for you, but I will underscore that it is a small end. And the reason it's a small end is because most patients, it's a difficult task to have a patient opt-in for an invasive procedure as part of doing a clinical trial.

Got it, got it. One last quick question. When patients discontinue LUPKYNIS, does the proteinuria rebound rapidly? Or does it pretty much stay where it is, maybe rebounding slowly?

The data-driven answer from our studies because I don't think we tracked it. And I would hesitate to give you -- because I'm not a practicing clinician what I see in practice. All I can tell you is we don't track it. But what we do know from the claims data we have is patients do cycle. It's just very variable across. So if they do flare again, they do get retreated.

Our final question this morning is a follow-up from the line of Maury Raycroft with Jefferies.

So you talked about the 2 patents -- like additional patents around -- to build defense around on the LUPKYNIS. Can you be more specific on what those patents are related to? And when did -- when should we expect those to be granted?

So the 2 patents on file, I believe, have an April action date or at least one has an April action date. They're ongoing. They center around 2 major areas. One is modifications and addition of new data and adjustments to the 036 patent.

So think about that as a evolution of the 036 patent. As a matter of fact, I think that patent addresses many of the challenges that are centered around the Sun challenge, while we think there's a lot of invalidity to them, new data and further enhancement through that could potentially be beneficial.

The second is our new data claims, which I can't really get into here. But of the patents issued, we'll be more than happy to talk about.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Greenleaf for any final comments.

I want to thank everyone for joining us this morning. We appreciate your time and your support, and we look forward to reporting back to you as we continue to progress through the launch over the next couple of months and quarters. Thank you very much.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.