Aurinia Pharmaceuticals Inc.: Form 10-Q for the period ended Mar 31, 2025

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report") and our audited financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the U.S. Securities and Exchange Commission on February 27, 2025 (the “Form 10-K”) and with applicable Canadian securities regulatory authorities.

This Quarterly Report contains “forward-looking statements” within the meaning of U.S. federal securities laws and "forward-looking information" within the meaning of Canadian securities laws, and such statements may involve substantial risks and uncertainties. All statements, other than statements of historical facts included in this Quarterly Report, including statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, future expenses, business trends and other information referred to under this section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “design,” “estimate,” “predict,” “potential,” “plan,” “anticipate,” “target,” “forecast” or the negative of these terms and similar expressions intended to identify forward-looking statements. Forward-looking statements are not historical facts and reflect our current views with respect to future events. Forward-looking statements are also based on assumptions and are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

We discuss a number of risks, uncertainties and other factors in greater detail under the heading “Risk Factors” in Part I, Item 1A of the Form 10-K as well as in Part II, Item 1A of this Quarterly Report. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this discussion completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update our forward-looking statements publicly, or to update the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

Background

Aurinia is a biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, the Company introduced LUPKYNIS® (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active lupus nephritis (“LN”). Aurinia is also developing AUR200, a dual inhibitor of B cell activating factor (BAFF) and a proliferation inducing ligand (APRIL) for the potential treatment of autoimmune diseases.

Net Product Sales

For the three months ended March 31, 2025, net product sales were $60.0 million, up 25% from $48.1 million in the same period of 2024.

Cash Flow Provided by (Used in) Operating Activities

For the three months ended March 31, 2025, cash flow provided by (used in) operating activities was $1.3 million, compared to $(18.6) million in the same period of 2024. Excluding $11.1 million of cash payments made in connection with the November 2024 restructuring, cash flow generated from operations was $12.4 million for the three months ended March 31, 2025.

Cash Position

As of March 31, 2025, Aurinia had cash, cash equivalents, restricted cash and investments of $312.9 million compared to $358.5 million at December 31, 2024. For the three months ended March 31, 2025, the Company repurchased 5.8 million of its common shares for $47.4 million.

Results of Operations

Comparison of the Three Months ended March 31, 2025 and 2024

The following table sets forth our results of operations for the three months ended March 31, 2025 and 2024 (in thousands):

Net Product Sales

Aurinia sells LUPKYNIS to two specialty pharmacies and a specialty distributor in the U.S., and Aurinia sells LUPKYNIS inventory to its collaboration partner, Otsuka Pharmaceutical Co., Ltd. (“Otsuka”), for the European and Japanese market. The two specialty pharmacies, specialty distributor and Otsuka are considered our customers for accounting purposes.

For the three months ended March 31, 2025, net product sales were $60.0 million, up 25% from $48.1 million in the same period in 2024. The increase is primarily due to an increase in the number of LUPKYNIS cartons sold to specialty pharmacies, driven by further LN market penetration.

License, Collaboration and Royalty Revenue

License, collaboration and royalty revenue consists of revenue from a collaboration and licensing agreement with Otsuka to develop and commercialize oral voclosporin in Japan, the European Union (the “E.U.”), the U.K., Switzerland, Russia, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the “Otsuka Territories”) in exchange for: (i) a $50 million upfront cash payment; (ii) regulatory and commercial milestone payments; and (iii) royalties ranging from 10% to 20% on net sales in the Otsuka Territories. Otsuka has obtained regulatory approval of LUPKYNIS in Japan, the E.U., the U.K. and Switzerland.

License, collaboration and royalty revenue also consists of revenue from a commercial supply agreement with Otsuka to provide manufacturing and other services, including sharing the capacity of a dedicated manufacturing facility at Lonza Ltd. (the “Monoplant”), Aurinia’s contract manufacturing partner for voclosporin.

For the three months ended March 31, 2025, license, collaboration, and royalty revenue was $2.5 million, up 14% from $2.2 million in the same period in 2024. The increase is primarily due to manufacturing services provided to Otsuka for sharing the capacity of the Monoplant.

Cost of Revenue

Cost of revenue consists primarily of expense associated with: (i) amortization of the finance lease right-of-use asset recognized in connection with the Monoplant; (ii) manufacturing; and (iii) shipping, storage and distribution.

In December 2020, Aurinia entered into a manufacturing services agreement with Lonza Ltd. for the construction of the Monoplant. The construction of the Monoplant began in January 2021 and manufacturing of voclosporin began in late June 2023. The Monoplant is equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacturing of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand. Aurinia pays a quarterly fixed facility fee of 3.6 million Swiss Francs (approximately $4.0 million) for the exclusive right to use the Monoplant through March 31, 2030.

For the three months ended March 31, 2025, cost of revenue was $8.6 million, compared to $7.8 million in the same period in 2024. The increase is primarily due to an increase in Aurinia’s net sales of LUPKYNIS in the U.S. and net sales of LUPKYNIS inventory to Otsuka.

For the three months ended March 31, 2025, gross margin was 86%, compared to 85% in the same period in 2024.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to support growing sales of LUPKYNIS. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions. Non-personnel-related expense includes: (i) selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows; and (ii) other general and administrative costs, including consulting, legal, patent, insurance, accounting, information technology and facilities.

The following table summarizes our SG&A expense for three months ended March 31, 2025 and 2024 (in thousands):

The decrease in SG&A personnel expense was primarily a result of lower employee-related costs, including the reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards, resulting from our strategic restructuring efforts in 2024. The decrease in SG&A non-personnel expense was primarily a result of lower overhead, marketing, travel, sponsorship and trade show costs resulting from our strategic restructuring efforts in 2024.

We expect our SG&A expense to remain low in 2025 as compared to 2024 as we realize the full benefits of our strategic restructuring efforts.

Research and Development Expense

Research and development (“R&D”) expense consists of personnel and non-personnel expenses. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in research and development functions. Non-personnel-related expense includes subcontractors and materials used for R&D activities, including development, clinical trials, clinical supply and distribution, and other professional services.

The following table summarizes our R&D expense for the three months ended March 31, 2025 and 2024 (in thousands):

The decrease in R&D personnel-expense was primarily a result of lower employee-related costs as a result of a reduction of headcount from our strategic restructuring efforts in 2024, offset by an increase in share-based compensation as a result of a reversal in the prior year of non-cash, share-based compensation expense related to forfeited, unvested equity awards related to the 2024 restructuring. The increase in R&D non-personnel expense was primarily a result of clinical development for our AUR200 program and post-approval obligations with the FDA related to LUPKYNIS.

We expect our R&D expenses to increase for the foreseeable future as we advance AUR200 through clinical development and continue to meet our post-approval obligations with the FDA related to LUPKYNIS.

Restructuring Expense

Restructuring expense consists primarily of one-time termination benefits to affected employees, including severance and health care benefits, contract terminations and other costs related to our strategic restructuring efforts in 2024. On February 15, 2024, we announced a strategic restructuring that reduced headcount by approximately 25% and discontinued Aurinia’s AUR300 development program. On November 7, 2024, we announced another strategic restructuring that further reduced headcount by approximately 45% to sharpen the Company's focus on continued LUPKYNIS growth and the development of AUR200.

For the three months ended March 31, 2025 and 2024, restructuring expense was $1.5 million, and $6.7 million, respectively.

Other Expense (Income), Net

For the three months ended March 31, 2025, other expense (income), net was $4.4 million, compared to $(4.1) million in the same period in 2024. The change is primarily due to: (i) changes in the foreign exchange remeasurement of the finance lease liability recognized in connection with the Monoplant, which is denominated in Swiss Francs; and (ii) changes in the fair value assumptions related to our deferred compensation liability.

Liquidity and Capital Resources

As of March 31, 2025, Aurinia had cash, cash equivalents, restricted cash and investments of $312.9 million compared to $358.5 million at December 31, 2024. For the three months ended March 31, 2025, the Company repurchased 5.8 million of its common shares for $47.4 million. For the three months ended March 31, 2025, cash flow provided by (used in) operating activities was $1.3 million, compared to $(18.6) million in the same period in 2024. Excluding $11.1 million of cash payments made in connection with the November 2024 restructuring, cash flow generated from operations was $12.4 million for the three months ended March 31, 2025.

Based on our current operating plans and projections, the Company expects to fund future operations with existing cash or cash generated from operations.

The amount and timing of additional future funding needs, if any, will depend on many factors, including the success of our commercialization efforts for LUPKYNIS and our ability to control expenses. If necessary, we intend to raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all.

Critical Accounting Estimates

There have been no material changes to our critical accounting policies and significant judgments and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2024.

Off‑Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off‑balance sheet arrangements as such term is defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Act.

Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.

There have been no material changes to our quantitative and qualitative disclosures about market risks as described in our Annual Report on Form 10-K for the year ended December 31, 2024.

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2025, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2025, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, we identified important factors that could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report. There has been no material change in our risk factors subsequent to the filing of our prior reports referenced above, other than as set out below. However, the risks described in our reports are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.

Changes or developments in U.S. economic laws or policies, including the reaction of other countries thereto, may have a material adverse effect on our business

The U.S. federal government has announced that it has commenced a national security investigation of imports of “pharmaceuticals and pharmaceutical ingredients.” Depending on the findings of its investigation, the U.S. federal government could implement additional measures against the import of pharmaceuticals and pharmaceutical ingredients. The degree and extent of those measures or other measures the U.S. federal government could implement (such as pricing restrictions, tariffs or other trade restrictions or deterrents on foreign companies doing business outside of the U.S.) are unknown. Aurinia is an Alberta, Canada incorporated company, and we manufacture and import certain products in our supply chain into the U.S. from primarily Switzerland. If implemented, and depending on the degree and extent (including how directly they relate to our operations) of any changes or developments in U.S. economic laws or policies, additional measures against "pharmaceuticals and pharmaceutical ingredients" could have a material adverse effect on Aurinia’s business.

In addition, we export encapsulated voclosporin from the U.S. to our collaboration partner, Otsuka. Certain international governments have responded to other recent related economic policies announced by the U.S. with retaliatory action. If a government in one of the Otsuka Territories implemented a retaliatory action, such as a tariff, on the import of pharmaceutical products from the U.S., this could have a material adverse effect on Otsuka's voclosporin business which, in turn, could have a material adverse effect on our business.