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What changed in Aurinia Pharmaceuticals Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Aurinia Pharmaceuticals Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+358 added−287 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-28)

Top changes in Aurinia Pharmaceuticals Inc.'s 2023 10-K

358 paragraphs added · 287 removed · 231 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

76 edited+61 added−28 removed138 unchanged
Biggest changeThis patent has the potential to provide an additional layer of patent protection for LUPKYNIS up to 2037. We intend to list this newly allowed patent in the Orange Book once issued. Study Updates • In December 2021, we announced the initiation of ENLIGHT-LN ® , a U.S. based prospective, observational registry of adult patients with LN treated with LUPKYNIS.
Biggest changeThe claims in this additional patent add further specificity on dosing consistent with the FDA approved product label. This patent has the potential to provide an additional layer of patent protection for LUPKYNIS up to 2037. U.S. Patent No. 11,622,991 is listed in the Orange Book.
As we and our competitors introduce new products and offerings, and as existing products evolve, we expect that we may become subject to additional competition.
As our competitors introduce new products and offerings, and as existing products evolve, we expect that we may become subject to additional competition.
Drug products intended for serious or life threatening conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint, which is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome, or an effect on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality and that is reasonably likely to predict an effect on irreversible morbidity or 12 mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.
Drug products intended for serious or life threatening conditions may be eligible for accelerated approval upon a determination that the product has an effect on a surrogate endpoint, which is a laboratory measurement or physical sign used as an indirect or substitute measurement representing a clinically meaningful outcome, or an effect on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.
Among other cost containment measures, the ACA established: 15 • an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; • a Medicare Part D coverage gap discount program, in which pharmaceutical manufacturers who wish to have their drugs covered under Part D must offer discounts for eligible beneficiaries during their coverage gap period, often referred to as the donut hole; and • a formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program.
Among other cost containment measures, the ACA established: • an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; • a Medicare Part D coverage gap discount program, in which pharmaceutical manufacturers who wish to have their drugs covered under Part D must offer discounts for eligible beneficiaries during their coverage gap period, often referred to as the donut hole; and • a formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program.
The ability to get patients into remission quickly correlates with better long-term kidney outcomes as noted above. Achieving a complete response, and most importantly, rapidly reducing the level of protein in urine, is also believed to be an important factor in delaying and/or reducing the rate of progression to kidney failure and need for replacement therapy.
The ability to get patients into remission quickly correlates with better long-term kidney outcomes as noted above. Achieving a complete response, and most importantly, rapidly reducing the level of protein in urine, is also believed to be an important factor in 7 delaying and/or reducing the rate of progression to kidney failure and need for replacement therapy.
Completion of AURORA 2 Continuation Study 7 On December 9, 2021, we announced positive topline results from the AURORA 2 two-year continuation study evaluating the long-term safety and tolerability of LUPKYNIS. AURORA 2 (NCT03597464) was a Phase 3 randomized, double-blind, placebo-controlled clinical trial to assess the long-term safety and tolerability of voclosporin, in addition to MMF and steroids.
Completion of AURORA 2 Continuation Study On December 9, 2021, we announced positive topline results from the AURORA 2 two-year continuation study evaluating the long-term safety and tolerability of LUPKYNIS. AURORA 2 (NCT03597464) was a Phase 3 randomized, double-blind, placebo-controlled clinical trial to assess the long-term safety and tolerability of voclosporin, in addition to MMF and steroids.
We, or our licensees, are required to seek and obtain regulatory approvals in the United States, Europe and 9 Japan in order to commercialize LUPKYNIS in these jurisdictions. Depending upon the circumstances surrounding the clinical evaluation of LUPKYNIS, we may undertake clinical trials, contract clinical trial activities to contract research organizations, or rely upon corporate partners for such development.
We, or our licensees, are required to seek and obtain regulatory approvals in the United States, Europe and Japan in order to commercialize LUPKYNIS in these jurisdictions. Depending upon the circumstances surrounding the clinical evaluation of LUPKYNIS, we may undertake clinical trials, contract clinical trial activities to contract research organizations, or rely upon corporate partners for such development.
An additional non-cumulative one-year period of marketing exclusivity is possible if during the data exclusivity period (the first eight years of the 10-year marketing exclusivity period), we (or our licensee or partner) obtain an authorization for one or more new therapeutic indications that are deemed to bring a significant clinical benefit compared to 14 existing therapies.
An additional non-cumulative one-year period of marketing exclusivity is possible if during the data exclusivity period (the first eight years of the 10-year marketing exclusivity period), we (or our licensee or partner) obtain an authorization for one or more new therapeutic indications that are deemed to bring a significant clinical benefit compared to existing therapies.
An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as 11 to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Within management, our human resources 17 function has global responsibility for advising and assisting the overall business on human resource matters and executing our overall human capital management strategies. Effective performance management is key to goal attainment. All our employees are provided with routine performance feedback aligned with our pay for performance philosophy, which ties compensation to performance.
Within management, our human resources function has global responsibility for advising and assisting the overall business on human resource matters and executing our overall human capital management strategies. Effective performance management is key to goal attainment. All our employees are provided with routine performance feedback aligned with our pay for performance philosophy, which ties compensation to performance.
Kidney failure is associated 6 with extremely poor health outcomes as a life-long, costly state in which patients are dependent upon dialysis or the availability of a kidney transplant. The population of people with LN will be in different cycles of their disease at any one time.
Kidney failure is associated with extremely poor health outcomes as a life-long, costly state in which patients are dependent upon dialysis or the availability of a kidney transplant. The population of people with LN will be in different cycles of their disease at any one time.
As noted above, we have obtained the requisite approvals for LUPKYNIS to treat active LN in adult patients in the United States and have received marketing approvals from the EC and MHRA. We believe this will allow us to make cost effective developmental decisions in a timely fashion.
As noted above, we have obtained the requisite approvals for LUPKYNIS to treat active LN in adult patients in the United States and have received marketing approvals from the EC, Swissmedic and MHRA. We believe this will allow us to make cost effective developmental decisions in a timely fashion.
Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. After the FDA evaluates an NDA, it will issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug for specific indications.
Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. 12 After the FDA evaluates an NDA, it will issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug for specific indications.
T-cell mediated immune response is an important feature of the pathogenesis of LN while the podocyte injury that occurs in conjunction with the ongoing immune insult in the kidney is an important factor in the clinical presentation of the disease. An early response in LN correlates with long-term outcomes and is clearly measured by proteinuria.
T-cell mediated immune response is an important feature of the pathogenesis of LN while the 8 podocyte injury that occurs in conjunction with the ongoing immune insult in the kidney is an important factor in the clinical presentation of the disease. An early response in LN correlates with long-term outcomes and is clearly measured by proteinuria.
Phase 2 usually involves trials in a limited patient population impacted by the disease to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy of the drug for specific targeted indications.
Phase 2 usually involves trials in a limited patient population impacted by the disease to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible adverse effects and safety risks; and (iii) 11 evaluate preliminarily the efficacy of the drug for specific targeted indications.
Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to all of the pre-clinical studies and clinical trials necessary to demonstrate safety and effectiveness.
Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; 14 however, an applicant submitting a full NDA would be required to conduct, or obtain a right of reference to all of the pre-clinical studies and clinical trials necessary to demonstrate safety and effectiveness.
Manufacturing of Drug Substance 16 Voclosporin requires a specialized drug substance manufacturing process and is manufactured by Lonza, our sole supplier for drug substance. Pricing for supply is determined through supply agreements between us and Lonza and is based on the kilograms produced and the cost of the raw materials used in the drug substance manufacturing process.
Manufacturing of Drug Substance Voclosporin requires a specialized drug substance manufacturing process and is manufactured by Lonza, our sole supplier for drug substance. Pricing for supply is determined through supply agreements between us and Lonza and is based on the kilograms produced and the cost of the raw materials used in the drug substance manufacturing process.
Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be provided to the FDA as part of a separate 10 submission to the IND.
Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be provided to the FDA as part of a separate submission to the IND.
Drugs designated as breakthrough therapies receive all the benefits of a fast track designation, as well as intensive guidance on efficient drug development and organizational commitment involving senior managers in the FDA. Post-Approval Requirements.
Drugs designated as breakthrough therapies receive all the benefits of a fast 13 track designation, as well as intensive guidance on efficient drug development and organizational commitment involving senior managers in the FDA. Post-Approval Requirements.
For us, by disclosing key aspects of ESG, Aurinia’s stakeholders can better understand our values, and what we are undertaking to address the long-term financial risks and impacts that affect us.
For us, by disclosing key aspects of ESG, our stakeholders can better understand our values, and what we are undertaking to address the long-term financial risks and impacts that affect us.
We offer a competitive benefit plan as part of our total rewards package. Health and Safety Our employees’ health, safety, and overall well-being is a priority for us.
We offer a competitive benefit plan as part of our total rewards package. 18 Health and Safety Our employees’ health, safety, and overall well-being is a priority for us.
HUMAN CAPITAL MANAGEMENT As of December 31, 2022, we employed approximately 300 employees in the United States, Canada, and the United Kingdom, all of whom are expected to support our vision, mission and values, and adhere to our Code of Ethics and Conduct.
HUMAN CAPITAL MANAGEMENT As of December 31, 2023, we employed approximately 300 employees in the United States, Canada, and the United Kingdom, all of whom are expected to support our vision, mission and values, and adhere to our Code of Ethics and Conduct.
Following this review meeting, PMDA may again hold another expert discussion (if necessary) and prepares a review report for final approval within the Japanese government. The standard time for approval of a J-NDA is approximately 12 months. In Japan, our products may be eligible for eight years of data exclusivity.
Following this review meeting, PMDA may again hold another expert discussion (if necessary) and prepares a review report for final approval within the Japanese government. The standard time for approval of a J-NDA is approximately 12 months. In Japan, LUPKYNIS may be eligible for eight years of data exclusivity.
In addition, particularly in the United States and increasingly in other countries, we could be required to provide discounts, rebates and/or other price concessions to state and federal governments and agencies in connection with purchases of our products that are reimbursed by such entities.
In addition, particularly in the United States and increasingly in other countries, we could be required to provide discounts, rebates and/or other price concessions to state and federal governments and agencies in connection with purchases of LUPKYNIS that are reimbursed by such entities.
REGULATORY We worked with Otsuka to prepare an MAA filing with the EMA that was filed during the first half of 2021; an MAA filing with Swissmedic that was filed during the second half of 2021, and an MAA filing submitted to the UK's Medicines and Healthcare products (MHRA) for approval in Great Britain.
REGULATORY We worked with our collaboration partner Otsuka to prepare an MAA filing with the EMA that was filed during the first half of 2021; an MAA filing with Swissmedic that was filed during the second half of 2021, and an MAA filing submitted to the UK's Medicines and Healthcare products (MHRA) for approval in Great Britain.
We have entered into a collaborative agreement with Lonza to build a dedicated manufacturing capacity within Lonza’s existing small molecule facility in Visp, Switzerland.
We have entered into a collaborative agreement with Lonza to use a dedicated manufacturing capacity within Lonza’s existing small molecule facility in Visp, Switzerland.
For example, another treatment was approved by the FDA for LN approximately one month before we received approval for LUPKYNIS, and physicians have and continue to treat LN in the United States using other drugs with off-label prescribing, such as a combination of MMF and steroids or tacrolimus.
For example, another treatment was approved by the FDA for LN approximately one month before we received approval for LUPKYNIS, and physicians have treated and continue to treat LN in the United States using other drugs with off-label prescribing, such as a combination of MMF and steroids or first generation CNIs such as tacrolimus.
We submitted the final study report for AURORA-2 continuation study (PMR) in March 2022 and a drug-drug interaction study (PMC) was submitted in October 2022. The remaining PMRs are all progressing within the expected timelines. We expect to complete two pediatric studies due in 2025 and 2031, and a milk only lactation study with a report due in 2026.
We submitted the final study report for AURORA-2 continuation study (PMR) in March 2022, a drug-drug interaction study (PMC) was submitted in October 2022 and a milk only lactation study was submitted in June 2023. The remaining PMRs are all progressing within the expected timelines. We expect to complete two pediatric studies due in 2025 and 2031.
In addition to patent rights, we have received "new chemical entity" exclusivity for LUPKYNIS in the United States, which provides for exclusivity until January 22, 2026, and “new chemical entity” exclusivity for voclosporin in certain other countries, which provides exclusivity for up to ten years in Europe. 8 In May 2019, we were granted U.S.
In addition to patent rights, we have received "new chemical entity" exclusivity for LUPKYNIS in the United States, which provides for exclusivity until January 22, 2026, and “new chemical entity” equivalent exclusivity for voclosporin in certain European countries, which provides exclusivity for up to ten years in Europe. In May 2019, we were granted U.S.
Specifically, this patent further refines the method of using LUPKYNIS in combination with MMF and corticosteroids using eGFR as a method of pharmacodynamically dosing LUPKYNIS in patients with LN. The newly allowed application provides patent coverage that supplements our existing ‘036 patent. The claims in this additional patent add further specificity on dosing consistent with the FDA approved product label.
Specifically, this patent further refines the method of using LUPKYNIS in combination with MMF and corticosteroids using eGFR as a method of pharmacodynamically dosing the product in patients with LN. The newly issued patent provides coverage that supplements the '036 patent. The claims in this additional patent add further specificity on dosing consistent with the FDA approved product label.
Additionally, in August 2022, the Inflation Reduction Act of 2022 was passed by the U.S. Congress which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal government, which will take effect in 2023.
Additionally, in August 2022, the Inflation Reduction Act of 2022 (IRA) was passed by the U.S. Congress which, among other things, includes policies that are designed to have a direct impact on drug prices and reduce drug spending by the federal 16 government, which took effect in 2023.
Similar to other autoimmune disorders, LN is a flaring and remitting disease. The disease can cycle from being in remission to being in an active flare, to achieving partial response and potentially to achieving a complete response and therefore back in remission. Treatment objectives between LN and other autoimmune diseases are remarkably similar.
The disease can cycle from being in remission to being in an active flare, to achieving partial response and potentially to achieving a complete response and therefore back in remission. Treatment objectives between LN and other autoimmune diseases are remarkably similar.
Many of the biotechnology, pharmaceutical or biopharmaceutical companies that could or do compete with us or our products have substantially greater financial and other resources, larger research and development staff, and more extensive marketing and manufacturing organization than we do.
Many of the biotechnology, pharmaceutical or biopharmaceutical companies that could or do compete with LUPKYNIS have substantially greater financial and other resources, larger research and development staff, and more extensive marketing and manufacturing organization than we do.
We believe key competitive factors that will affect the development and commercial success of LUPKYNIS and future potential product candidates include, but are not limited to, diagnosis, market development, efficacy, safety and tolerability profile, reliability, convenience of dosing, pricing, the level of generic competition and reimbursement.
We believe key competitive factors that will affect the development and commercial success of LUPKYNIS include, but are not limited to, diagnosis, market development, efficacy, safety and tolerability profile, reliability, convenience of dosing, pricing, the level and timing of generic competition and reimbursement.
We anticipate that patent protection for patents related to the composition of matter of voclosporin will be extended in the United States and certain other major markets, including Europe and Japan, until at least October 2027 under the Hatch-Waxman Act in the United States and comparable patent extension laws in other countries (including the Supplementary Protection Certificate program in Europe).
Patent protection for patents related to the composition of matter of voclosporin are expected to be extended in the United States and certain other major markets, including Europe and Japan, until at least October 2027 under the Hatch-Waxman Act in the United States and comparable patent extension laws in other countries (including the Supplementary Protection Certificate program in Europe).
Japan’s regulatory system requires the Japanese New Drug Application (J-NDA) documents to be prepared in the common technical document format. Once the applicant files the J-NDA, PMDA reviews the application and may carry out a GMP investigation of manufacturing site.
Japan’s regulatory system requires the J-NDA documents to be prepared in the common technical document format. Once the applicant files the J-NDA, PMDA reviews the application and may carry out a GMP investigation of manufacturing sites.
The clinical data generated in our Phase 2 AURA-LV and our Phase 3 AURORA studies has demonstrated that LUPKYNIS can achieve a more than two times higher rate of complete response than when given in combination with MMF and steroids.
The clinical data generated in our Phase 2 AURA-LV and our Phase 3 AURORA studies has demonstrated that LUPKYNIS can achieve an almost three times higher rate of complete response than when given in combination with MMF and steroids.
We have applied for a patent term extension, and are awaiting confirmation from the USPTO. As the patent term extension was not granted prior to the expiry of the patent term for our composition of matter patent for voclosporin, we applied for, and on July 19, 2022 received, an interim patent term extension until October 17, 2023.
We have applied for a patent term extension, and are awaiting confirmation from the USPTO. As the patent term extension was not granted prior to the expiry of the patent term for our composition of matter patent for voclosporin, we applied for, and have received, an interim patent term extension until October 17, 2024.
In line with our mission to changing the trajectory of autoimmune, kidney and rare diseases, we believe that we must take a wholistic approach to address/improve our impact on the communities we serve. Therefore, we've established environmental, social, and governance priorities.
In line with our mission to change the trajectory of autoimmune, kidney and rare diseases, we believe that we must take a holistic approach to address/improve our impact on the communities we serve. Therefore, we have established environmental, social, and governance priorities.
Coverage and Reimbursement In the United States and internationally, sales of LUPKYNIS and any other products that we market in the future, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability of adequate coverage and reimbursement from third-party payors, such as state and federal governments, managed care providers and private insurance plans.
Coverage and Reimbursement In the United States and internationally, sales of LUPKYNIS, and our ability to generate revenues on such sales, are dependent, in significant part, on the availability of adequate coverage and reimbursement from third-party payors, such as state and federal governments, managed care providers and private insurance plans.
Any legislation that impacts these areas could impact, in a significant way, our ability to generate revenues from sales of products in which we have a commercial interest. Political, economic and regulatory influences are subjecting the healthcare industry in the United States to fundamental changes.
Any legislation that impacts these areas could impact, in a significant way, our ability to generate revenues from sales of LUPKYNIS. Political, economic and regulatory influences are subjecting the healthcare industry in the United States to fundamental changes.
Certain documents are also filed with securities regulators in Canada and are available under our profile at the website www.sedar.com.
Certain documents are also filed with securities regulators in Canada and are available under our profile at the website www.sedarplus.ca.
It is possible that future legislation in the United States and other jurisdictions could be enacted to potentially impact reimbursement rates or rebates for the products we are developing and may develop in the future and could further impact the levels of discounts and rebates paid to federal and state government entities.
It is possible that future legislation in the United States and other jurisdictions could be enacted to potentially impact reimbursement rates or rebates for LUPKYNIS and could further impact the levels of discounts and rebates paid to federal and state government entities.
Compared to the active control group, the voclosporin-treated group showed an increase from baseline eGFR at the end of the studies of +2.7 mL/min. The study demonstrated a favorable risk/benefit profile over a three-year period, with safety comparable to AURORA 1, and sustained efficacy.
Compared to the active control group, the voclosporin-treated group showed an increase from baseline eGFR at the end of the studies of +2.7 mL/min. The study demonstrated a favorable risk/benefit profile over a three-year period, with safety comparable to AURORA 1, and sustained efficacy. INTELLECTUAL PROPERTY Patents and other proprietary rights are essential to our business.
The key tactics to achieve our corporate strategy are: • focusing on educating physicians, patients and payers to increase their awareness of the risks and impacts of LN as a disease (including that abnormal proteineuria levels can have significant impact on kidneys and the disease needs to be diagnosed and addressed quickly), and the benefits of LUPKYNIS (as demonstrated in our clinical trials) as a treatment option; • engaging Otsuka as a collaboration partner for the development and commercialization of LUPKYNIS in the Otsuka Territories; • conducting post-market studies to satisfy regulatory requirements and better understand LUPKYNIS' characteristics in real-world usage; • ensuring adequate supply of LUPKYNIS by entering into strategic long term supply agreements with our key suppliers; • conducting R&D activities to further the advancement of our existing pipeline; and • evaluating external assets with the potential to be synergistic and complementary to our clinical, regulatory and therapeutic areas of expertise.
The key tactics to achieve our corporate strategy are: • focusing on educating physicians, patients and payers to increase their awareness of the risks and impacts of LN as a disease (including that elevated proteineuria levels can have significant impact on kidneys and the disease needs to be diagnosed and addressed quickly), and the benefits of LUPKYNIS (as demonstrated in our clinical trials) as a treatment option; • engaging Otsuka as a collaboration partner for the development and commercialization of LUPKYNIS in the Otsuka Territories; • conducting post-marketing studies to satisfy regulatory requirements and better understand LUPKYNIS' characteristics in real-world usage; • ensuring adequate supply of LUPKYNIS by entering into strategic long term supply agreements with our key suppliers; and • evaluating external assets with the potential to be synergistic and complementary to our clinical, regulatory and therapeutic areas of expertise. 5 DEVELOPMENTS Conclusion and Overview of Strategic Review Process Effective February 14, 2024, the Board of Directors (the Board) elected to conclude its strategic review process.
This patent has the potential to provide an additional layer of patent protection for LUPKYNIS up to 2037. We intend to list this newly allowed patent in the Orange Book once issued. COMPETITION The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology and intense competition.
This patent has the potential to provide an additional layer of patent protection for LUPKYNIS up to 2037, and is listed in the Orange Book. COMPETITION The pharmaceutical and biotechnology industries are characterized by rapidly evolving technology and intense competition.
Our registered office is located at #201, 17873 -106A Avenue, Edmonton, Alberta, Canada and our U.S. commercial office is located at 77 Upper Rock Circle, Suite 700, Rockville, Maryland 20850. Our website address is www.auriniapharma.com and our investor relations website is located at https://ir.auriniapharma.com.
Our U.S. commercial office is located at 77 Upper Rock Circle, Suite 700, Rockville, Maryland 20850. Our website address is www.auriniapharma.com and our investor relations website is located at https://ir.auriniapharma.com.
The mechanism of action of LUPKYNIS has been validated with certain earlier generation CNIs for the prevention of rejection in patients undergoing solid organ transplants and in several autoimmune indications, including uveitis, keratoconjunctivitis sicca, psoriasis, rheumatoid arthritis, and for LN in Japan.
The mechanism of action of LUPKYNIS has been validated with certain earlier generation CNIs for the prevention of rejection in patients undergoing solid organ transplants and in several autoimmune indications, including uveitis, keratoconjunctivitis sicca, psoriasis, rheumatoid arthritis, and for LN in Japan. We believe that LUPKYNIS possesses pharmacologic properties with the potential to demonstrate best-in-class differentiation.
Item 1. Business OVERVIEW Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations that are impacted by autoimmune, kidney and rare diseases with a high unmet medical need. In January 2021, we introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active LN.
Item 1. Business OVERVIEW Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, we introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active LN.
Otsuka is required under the Otsuka License Agreement to use commercially reasonable efforts to prepare and submit filings for regulatory approvals in the other territories in which we have granted them rights, including Japan and selected other European countries.
Otsuka is required under the Otsuka License Agreement to use commercially reasonable efforts to prepare and submit filings for regulatory approvals in the other territories in which we have granted them rights, including Japan, (in which the Japanese New Drug Application (J-NDA) was submitted on November 10, 2023) and selected other European countries.
The Governance & Nomination Committee of our Board of Directors is responsible for ensuring the mentioned goals are pursued and are assessed periodically. Progress on these goals will be disclosed in future sustainability reports. We are working on preparing our first ESG report, and expect to make that report public in 2023.
The Governance & Nomination Committee of our Board of Directors is responsible for ensuring our ESG goals are pursued and assessed periodically. Progress on these goals will be disclosed in future sustainability reports.
These ultimately led to the EC and MHRA approvals received in the second half of 2022, while the Swissmedic review is ongoing. In February 2022, Swissmedic also granted orphan drug designation to voclosporin.
These ultimately led to the European Commission (EC) and MHRA approvals received in the second half of 2022 and the Swissmedic approval was received in the first half of 2023. In February 2022, Swissmedic also granted orphan drug designation to voclosporin.
The dedicated facility (also referred to as monoplant) will be equipped with state-of-the-art manufacturing equipment to provide cost and production efficiencies for the manufacture of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand.
The dedicated facility (also referred to as monoplant) is equipped with state-of- 17 the-art manufacturing equipment to provide cost and production efficiencies for the manufacture of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand. We maintain sole dedicated use of the monoplant by paying a required quarterly fixed facility fee.
A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. 13 During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA) or an NDA submitted under section 505(b)(2) of the FDCA by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval.
During the exclusivity period, the FDA may not accept for review an abbreviated new drug application (ANDA) or an NDA submitted under section 505(b)(2) of the FDCA by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval.
(Otsuka) as a collaboration partner for the development and commercialization of LUPKYNIS in the European Union (EU) and Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the Otsuka Territories).
We continue to conduct clinical and regulatory activities to support the LUPKYNIS development program. We contracted with Otsuka Pharmaceutical Co., Ltd. (Otsuka) as a collaboration partner for the development and commercialization of LUPKYNIS in the European Union (EU), Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the Otsuka Territories).
Government Regulation Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Compliance with these laws, rules, and regulations has not had a material effect upon our capital expenditures, results of operations, or competitive position, and we do not currently anticipate material capital expenditures for environmental control facilities.
Compliance with these laws, rules, and regulations has not had a material effect upon our capital expenditures, results of operations, or competitive position, and we do not currently anticipate material capital expenditures for environmental control facilities.
ESG also includes Social and Governance aspects, such as employee well being, talent development and retention, cybersecurity, fair remuneration, employee recognition, and many others. ESG helps break down how an organization is managing risks and opportunities for its stakeholders. A company’s stakeholders have a vested interest in the business, and includes members such as employees, customers, investors, and the Board.
ESG helps break down how an organization is managing risks and opportunities for its stakeholders. A company’s stakeholders have a vested interest in the business, and includes members such as employees, customers, investors, and the Board.
However, a generic cannot launch until two years later (or a total of 10 years after the first marketing authorization in the EU of the innovator product), or three years later (or a total of 11 years after the first marketing authorization in the EU of the innovator product) if the marketing authorization holder obtains marketing authorization for a new indication with significant clinical benefit within the eight-year data exclusivity period.
However, a generic cannot launch until two years later (or a total of 10 years after the first marketing authorization in the EU of the innovator product), or three years later (or a total of 11 years after the first marketing authorization in the EU of the innovator product) if the marketing authorization holder obtains marketing authorization for a new indication with significant clinical benefit within the eight-year data exclusivity period. 15 When conducting clinical trials in the EU, we must adhere to the provisions of the European Union Clinical Trials Directive (Directive 2001/20/EC) and the laws and regulations of the EU member states implementing them.
The newly allowed application provides patent coverage that supplements Aurinia’s existing U.S. Patent No. 10,286,036, which is listed in the Orange Book and claims an FDA-approved method of using LUPKYNIS. The claims in this additional patent add further specificity on dosing consistent with the FDA approved product label.
Specifically, this patent further refines the method of using LUPKYNIS in combination with MMF and corticosteroids using eGFR as a method of pharmacodynamically dosing the product in patients with LN. The newly issued patent provides coverage that supplements Aurinia’s existing U.S. Patent No. 10,286,036, which is listed in the Orange Book and claims an FDA-approved method of using LUPKYNIS.
Although only the jurisdictions of the United States, Europe and Japan are discussed in this section, we may also seek regulatory approval in other jurisdictions in the future and may initiate other clinical studies if and where appropriate.
Although only the jurisdictions of the United States, Europe and Japan are discussed in this section, we may also seek regulatory approval in other jurisdictions in the future and may initiate other clinical studies if and where appropriate. 10 Government Regulation Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments.
Pricing for these services is determined by a supply agreement between Catalent and us. We expect that Catalent will continue to provide contract manufacturing services with respect to encapsulating voclosporin in order to manufacture voclosporin 7.9 mg capsules that are required for our future commercial and clinical supply needs.
We expect that Catalent will continue to provide contract manufacturing services with respect to encapsulating voclosporin in order to manufacture voclosporin 7.9 mg capsules that are required for our future commercial and clinical supply needs. We have entered into an agreement for a backup manufacturing encapsulation site in Beinheim, France expected to obtain regulatory approval in 2025.
For example, if any of our products receive marketing approval in the EEA, we expect they will benefit from eight years of data exclusivity and 10 years of marketing exclusivity.
For example, now that LUPKYNIS has received marketing approval in the EEA, we expect that we and Otsuka will benefit from eight years of data exclusivity and 10 years of marketing exclusivity from approval.
The clinical data generated in our AURORA 2 continuation study demonstrated a continuation of these results over an aggregate of a three year period for the patients that enrolled, with no severe unexpected safety signals. The price of LUPKYNIS is based on one unit of 60 capsules we refer to as a “wallet”.
The clinical data generated in our AURORA 2 continuation study demonstrated a continuation of these results over an aggregate of a three year period for the patients that enrolled, with no severe unexpected safety signals and evidence of better preservation of kidney function in the LUPKYNIS-treated group.
The National Institute of Diabetes and Digestive and Kidney Diseases estimates that up to 50% of adults with SLE are diagnosed with LN at some point in their journey with lupus. Using the research and publication analyses, we estimate the number of SLE patients diagnosed with LN to be about 80,000 to 120,000 in the United States.
Market Potential and Commercial Considerations The National Institute of Diabetes and Digestive and Kidney Diseases estimates that up to 50% of adults with SLE are diagnosed with LN at some point in their journey with lupus.
Material Licensing Contracts For terms of material licensing contracts, refer to Part IV, Item 15, Note 10 – License and Collaboration Agreements.
The commercial team consists of sales, marketing, commercial operations, commercial supply chain, patient services and market access. Material Licensing Contracts For terms of material licensing contracts, refer to Part IV, Item 15, Note 10 – License and Collaboration Agreements.
Upon completion of the monoplant expected in 2023, we will maintain sole dedicated use of the monoplant by paying a required quarterly fixed facility fee. We anticipate regulatory approvals of the monoplant for use for commercial products in 2025. Encapsulation Catalent Pharma Solutions (Catalent) is currently the sole supplier for the preparation of our voclosporin 7.9 mg capsules.
We anticipate regulatory approvals of the monoplant for use for commercial products in 2025. Encapsulation Catalent Pharma Solutions (Catalent) is currently the sole supplier for the preparation of our voclosporin 7.9 mg capsules. Pricing for these services is determined by a supply agreement between Catalent and us.
CORPORATE INFORMATION Aurinia is organized under the Business Corporations Act (Alberta). We have two wholly-owned subsidiaries: Aurinia Pharma U.S., Inc., (Delaware incorporated) and Aurinia Pharma Limited (United Kingdom incorporated). Our principal executive office is located at #1203-4464 Markham Street, Victoria, British Columbia, V8Z 7X8, Canada and our phone number is +1 (250) 744-2487.
CORPORATE INFORMATION Aurinia is organized under the Business Corporations Act (Alberta). We have two wholly-owned subsidiaries: Aurinia Pharma US, Inc., (Delaware incorporated) and Aurinia Pharma Limited (United Kingdom incorporated). Our head and registered office is #140, 14315 - 118 Avenue, Edmonton, Alberta, Canada T5L 4S6 and our phone number is +1 (250) 744-2487.
Pricing for these services is determined by a supply agreement between us and our supplier. We expect that our supplier will continue to provide contract manufacturing services with respect to the packaging of LUPKYNIS commercial cartons for the U.S. market.
We expect that our supplier will continue to provide contract manufacturing services with respect to the packaging of LUPKYNIS commercial cartons for the U.S. market. Marketing, Sales and Distribution We have built a commercial organization with deep expertise and a focus on rheumatology and nephrology to support the commercialization of LUPKYNIS.
We have also established periodic mental health sessions to help our employees during this unprecedented time to manage stress and anxiety. Under the oversight of the Audit Committee of our Board of Directors, we have established a Whistleblower Policy, which includes that we maintain a whistleblower hotline that is available to all our employees to report any concerns.
Under the oversight of the Audit Committee of our Board of Directors, we have established a Whistleblower Policy, which includes that we maintain a whistleblower hotline that is available to all our employees to report any concerns. The hotline is facilitated by an independent third party and all communications are routed to our General Counsel for investigation and resolution.
DEVELOPMENTS Regulatory/Commercial • On September 15, 2022, the European Commission (EC) granted marketing authorization of LUPKYNIS in the EU. The centralized marketing authorization is valid in all EU member states as well as in Iceland, Liechtenstein, Norway 5 and Northern Ireland.
On September 15, 2022, the EC granted marketing authorization of LUPKYNIS. The centralized marketing authorization is valid in all EU member states as well as in Iceland, Liechtenstein, Norway and Northern Ireland. The approval triggered a $30.0 million milestone payment to us, which was recognized as collaboration revenue for the year ended December 31, 2022.
The hotline is facilitated by an independent third party and all communications are routed to our General Counsel for investigation and resolution. The single exception to this routing is if a complaint implicates the General Counsel, in which case it will automatically go to the Chair of the Audit Committee.
The single exception to this routing is if a complaint implicates the General Counsel, in which case it will go to the Chair of the Audit Committee. We also have defined a Bullying and Harassment Policy, which is available to our employees on our internal website.
We have entered into an agreement for a backup manufacturing encapsulation site in Beinheim, France expected to be completed in 2025. Packaging We currently use a sole supplier for the blistering and packaging of LUPKYNIS commercial cartons for sale in the United States and for the blistering of semi finished products.
Packaging We currently use a sole supplier for the blistering and packaging of LUPKYNIS commercial cartons for sale in the United States and for the blistering of semi finished products. Pricing for these services is determined by a supply agreement between us and our supplier.
On January 25, 2023, the PTAB terminated the IPR. • On January 24, 2023, we announced that the United States Patent and Trademark Office (USPTO) has allowed a method of use patent application titled IMPROVED PROTOCOL FOR TREATMENT OF LUPUS NEPHRITIS. Aurinia’s newly allowed U.S.
Regulatory/Commercial On April 11, 2023, we announced that the United States Patent and Trademark Office (USPTO) had issued a new and refined method of use patent titled IMPROVED PROTOCOL FOR TREATMENT OF LUPUS NEPHRITIS. Our newly issued U.S. Patent (No. 11,622,991) reflects the unique and proprietary dosing regimen of its currently marketed product, LUPKYNIS.
We are committed to providing safe and healthy working conditions and an atmosphere of open communication for all our employees. In response to the COVID-19 pandemic, we implemented safety and health standards and protocols for our employees while continuing to offer a safe environment as an essential service to our customers.
We are committed to providing safe and healthy working conditions and an atmosphere of open communication for all our employees. We have also established periodic mental health sessions to help our employees manage stress and anxiety.
As of February 28, 2023, the wholesale acquisition cost (WAC) of a LUPKYNIS wallet is $4,561.
The price of LUPKYNIS is based on one unit of 60 capsules we refer to as a “wallet”. As of January 1, 2024, the wholesale acquisition cost (WAC) of a LUPKYNIS wallet is $4,898.
In January 2023, the USPTO allowed a method of use patent application titled IMPROVED PROTOCOL FOR TREATMENT OF LUPUS NEPHRITIS. This newly allowed patent application reflects the unique and proprietary dosing regimen of LUPKYNIS.
This may lead to the granting of similar claims in other major global pharmaceutical markets. 9 In April 2023, the USPTO issued a new and refined method of use patent. Our newly issued U.S. Patent (No. 11,622,991) reflects the unique and proprietary dosing regimen of LUPKYNIS.
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We continue to conduct pre-clinical, clinical and regulatory activities to support the LUPKYNIS development program as well as our other assets. We engaged with Otsuka Pharmaceutical Co., Ltd.
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On November 29, 2022 the Medicines and Healthcare products Regulatory Agency (MHRA) had granted marketing authorization of LUPKYNIS in Great Britain. On April 24, 2023, LUPKYNIS received regulatory approval in Switzerland. During the third quarter of 2023, the Company received notification that the pricing and reimbursement milestone was secured.
Removed
Earlier generation CNIs have demonstrated efficacy for a number of conditions, including transplant and other autoimmune diseases; however, side effects exist which can limit their long-term use and tolerability. Some clinical complications of earlier 4 generation CNIs include hypertension, hyperlipidemia, diabetes, and both acute and chronic nephrotoxicity.
Added
As a result, this triggered a $10.0 million milestone which was recognized as collaboration revenue for the year ended December 31, 2023. On November 10, 2023, Otsuka filed a new drug application (NDA) for voclosporin for the treatment of LN with the Japanese Ministry of Health, Labour, and Welfare for the manufacture and sale in Japan of voclosporin.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our products (including LUPKYNIS). As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Biggest changeAccordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. 27 Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect LUPKYNIS.
HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; • the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services (similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation); • consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; • the U.S. federal Civil Monetary Penalties law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; and • analogous state laws and regulations, such as state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
HITECH also created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions; • the federal false statements statute, which prohibits knowingly and willfully falsifying, concealing, or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items, or services (similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation); • consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; • the U.S. federal Civil Monetary Penalties law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; and • analogous state laws and regulations, such as state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by nongovernmental third-party payors, including private insurers; and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the 37 federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • the FCA imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay 33 money to the federal government.
A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; • the FCA imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government.
If there is any conflict, dispute, disagreement or issue of non-performance between us and our licensing partners (such as Otsuka) regarding our rights or obligations under the licensing agreement, we may owe damages, our licensor may have a right to terminate the affected license, and our and our partner’s ability to utilize the affected intellectual property in our drug discovery and development efforts, and our ability to ensure into collaboration or marketing agreements for an affected product, may be adversely affected.
If there is any conflict, dispute, disagreement or issue of non- 26 performance between us and our licensing partners (such as Otsuka) regarding our rights or obligations under the licensing agreement, we may owe damages, our licensor may have a right to terminate the affected license, and our and our partner’s ability to utilize the affected intellectual property in our drug discovery and development efforts, and our ability to ensure into collaboration or marketing agreements for an affected product, may be adversely affected.
We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
We have adopted a code of conduct applicable to all of 39 our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
If our operations, including anticipated activities to be conducted by our sales team, were to be found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and 34 administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
If our operations, including anticipated activities to be conducted by our sales team, were to be found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.
Our ongoing compliance with these types of mandatory reporting requirements could result in additional requests for information from regulatory bodies that govern our products and, depending on the scope of a potential product issue that a regulatory body may decide to pursue, could potentially also result in a request from the agency to conduct a product recall or to strengthen warnings and/or revise other 30 label information about the product.
Our ongoing compliance with these types of mandatory reporting requirements could result in additional requests for information from regulatory bodies that govern our products and, depending on the scope of a potential product issue that a regulatory body may decide to pursue, could potentially also result in a request from the agency to conduct a product recall or to strengthen warnings and/or revise other label information about the product.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. 23 We may need to license certain intellectual property from third parties, and such licenses may not be available on commercially reasonable terms.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. We may need to license certain intellectual property from third parties, and such licenses may not be available on commercially reasonable terms.
Recently, there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
Recently, there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to 42 product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to market acceptance of our products. Our ability to successfully commercialize LUPKYNIS will depend in part on the extent to which coverage and adequate reimbursement of LUPKYNIS will be available from government health administration authorities, private health insurers and other organizations.
Adequate coverage and reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payors is critical to market acceptance of LUPKYNIS. Our ability to successfully commercialize LUPKYNIS will depend in part on the extent to which coverage and adequate reimbursement of LUPKYNIS will be available from government health administration authorities, private health insurers and other organizations.
To that end, we must be able to manage our development and commercialization efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, if necessary, sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our company.
To that end, we must be able to manage our development and commercialization efforts and clinical trials effectively and hire, train and integrate additional management, administrative and, 40 if necessary, sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing our Company.
This risk is especially relevant for us because pharmaceutical companies have experienced significant share price volatility in recent years. We may become the target of securities litigation in the future. The outcome of litigation is necessarily uncertain, and we could be forced to expend significant resources in the defense of such suits, and we may not prevail.
This risk is especially relevant for us because pharmaceutical companies have experienced significant share price volatility in recent years. We are and may become in the future the target of securities litigation. The outcome of litigation is necessarily uncertain, and we could be forced to expend significant resources in the defense of such suits, and we may not prevail.
Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the studied product, the number and nature of competing treatments and ongoing clinical trials of competing products for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the clinical trial.
Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the studied product, the number and nature of competing treatments and ongoing clinical trials of competing products for the same indication, the proximity of 31 patients to clinical sites and the eligibility criteria for the clinical trial.
If any of these events were to occur, our operating results and financial condition would be adversely affected. In addition, drug and chemical manufacturers are subject to GMP regulations and various regulatory inspections, including those conducted by the FDA, to ensure strict compliance with GMP and other government regulations.
If any of these events were to occur, our operating results and financial condition would be adversely affected. 35 In addition, drug and chemical manufacturers are subject to GMP regulations and various regulatory inspections, including those conducted by the FDA, to ensure strict compliance with GMP and other government regulations.
Further, we would be forced to discontinue production of LUPKYNIS, which would harm our profitability. We maintain product liability insurance coverage; however, there is no guarantee that our current coverage will be sufficient or that we can secure insurance coverage in the future at commercially viable rates or with the appropriate limits.
Further, we would be forced to discontinue production of LUPKYNIS, which would 43 harm our profitability. We maintain product liability insurance coverage; however, there is no guarantee that our current coverage will be sufficient or that we can secure insurance coverage in the future at commercially viable rates or with the appropriate limits.
Any adverse discoveries may yield various results, including: a. regulatory authorities may require us to take LUPKYNIS off the market; b. regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies; c. we may be required to change the way LUPKYNIS is administered, impose other risk-management measures, conduct additional clinical trials or change the labeling of LUPKYNIS; d. we may be subject to limitations on how we may promote LUPKYNIS; e. sales of LUPKYNIS may decrease significantly; 29 f. refusal to approve pending applications or supplements to approve application that we submit; g. recall of products; h. refusal to permit the import or export of LUPKYNIS; and i. we may be subject to litigation or product liability claims.
Any adverse discoveries may yield various results, including: a. regulatory authorities may require us to take LUPKYNIS off the market; b. regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies; 32 c. we may be required to change the way LUPKYNIS is administered, impose other risk-management measures, conduct additional clinical trials or change the labeling of LUPKYNIS; d. we may be subject to limitations on how we may promote LUPKYNIS; e. sales of LUPKYNIS may decrease significantly; f. refusal to approve pending applications or supplements to approve application that we submit; g. recall of products; h. refusal to permit the import or export of LUPKYNIS; and i. we may be subject to litigation or product liability claims.
General Business Risks If the estimates we make, or the assumptions on which we rely, in preparing our consolidated financial statements are incorrect, our actual results may vary from those reflected in our projections and accruals. 41 Our consolidated financial statements have been prepared in accordance with U.S. GAAP.
General Business Risks If the estimates we make, or the assumptions on which we rely, in preparing our consolidated financial statements are incorrect, our actual results may vary from those reflected in our projections and accruals. Our consolidated financial statements have been prepared in accordance with U.S. GAAP.
We also expect to have quarter-to-quarter fluctuations in expenses, some of which could be significant, due to research, development, clinical trial activities, regulatory activities, commercialization activities and business development. The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results.
We also expect to have quarter-to-quarter fluctuations in expenses, some of which could be significant, due to clinical trial activities, regulatory activities, commercialization activities and business development. The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results.
Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in our common shares. Future issuances of equity securities by us may cause the price of the common shares to fall.
Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in our common shares. Future issuances of debt and equity securities by us may cause the price of the common shares to fall.
If we do not successfully identify, develop, and commercialize new 28 products based upon our approach, we will not be able to diversify our portfolio which could result in harm to our financial position and impact the trading price of our common shares.
If we do not successfully identify, develop, and commercialize new products based upon our approach, we will not be able to diversify our portfolio which could result in harm to our financial position and impact the trading price of our common shares.
We have broad discretion in the use of our cash and cash equivalents and may not use them effectively. Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our common shares.
We have broad discretion in the use of our cash and cash equivalents and may not use them effectively. 46 Our management has broad discretion to use our cash and cash equivalents to fund our operations and could spend these funds in ways that do not improve our results of operations or enhance the value of our common shares.
In particular, there have been recent judicial 38 and Congressional challenges to the ACA, which could have an impact on coverage and reimbursement for healthcare services covered by plans authorized by the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.
In particular, there have been recent judicial and Congressional challenges to the ACA, which could have an impact on coverage and reimbursement for healthcare services covered by plans authorized by the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.
Furthermore, it may not be possible for investors to enforce against us, or those persons not in the United States, judgments obtained in U.S. courts 40 based upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States.
Furthermore, it may not be possible for investors to enforce against us, or those persons not in the United States, judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States.
We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives and corporate governance practices. 42 As a public company, we incur significant legal, accounting, and other expenses.
We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management is required to devote substantial time to compliance initiatives and corporate governance practices. As a public company, we incur significant legal, accounting, and other expenses.
As a result of any widespread health concern, including the COVID-19 pandemic, we have and may continue to experience disruptions that severely impact our business, commercialization, pre-clinical studies, and clinical trials, including: a. delays or difficulties in enrolling patients in our clinical trials; b. delays or difficulties in building out and maintaining commercial infrastructure; c. delays in recruiting for key positions; d. delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; e. interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal, provincial or state governments, employers, and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints; f. interruption or delays in the operations of applicable regulatory authorities, which could impact the ability to obtain applicable regulatory approvals, and could impact on ability to commercialize internationally or receive milestone payments from licensees; 21 g. interruption or delays in receiving supplies of our drugs or manufacturing products from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages, and disruptions in delivery systems; h. limitations on employee resources that would otherwise be focused on the conduct of our commercial and promotional activities, pre-clinical studies and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; i. limited ability to access accounts and healthcare professionals, in person or at all, to provide medical information to promote our drug; j. staffing shortages at healthcare professionals' offices that may limit the ability to administratively process prescriptions; and k. reductions in patient visits to physicians and new patients might have limited access to prescribers.
As a result of any widespread health concern, such as a pandemic, we have and may continue to experience disruptions that severely impact our business, commercialization and clinical trials, including: a. delays or difficulties in enrolling patients in our clinical trials; b. delays or difficulties in building out and maintaining commercial infrastructure; c. delays in recruiting for key positions; d. delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; e. interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal, provincial or state governments, employers, and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints; f. interruption or delays in the operations of applicable regulatory authorities, which could impact the ability to obtain applicable regulatory approvals, and could impact on ability to commercialize internationally or receive milestone payments from licensees; g. interruption or delays in receiving supplies of our drugs or manufacturing products from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages, and disruptions in delivery systems; h. limitations on employee resources that would otherwise be focused on the conduct of our commercial and promotional activities and clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; i. limited ability to access accounts and healthcare professionals, in person or at all, to provide medical information to promote our drug; j. staffing shortages at healthcare professionals' offices that may limit the ability to administratively process prescriptions; and k. reductions in patient visits to physicians and new patients might have limited access to prescribers.
In addition, reimbursement may be limited or unavailable in certain market segments which could make it difficult for us to sell LUPKYNIS profitably. Adverse pricing limitations might hinder our ability to recoup our investment in LUPKYNIS.
In addition, reimbursement may be limited or unavailable in certain market segments which could make it difficult for us or our partners to sell LUPKYNIS profitably. Adverse pricing limitations might hinder our ability to recoup our investment in LUPKYNIS.
The nature of the potential obligations prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay. We rely on third parties to conduct our clinical trials.
The nature of the potential obligations prevents us from making a reasonable estimate of the maximum potential amount we could be required to pay. 34 We rely on third parties to conduct our clinical trials.
Regardless of whether we have complied with the law, a government investigation could negatively impact our business practices, harm our reputation, divert the attention of management and increase our expenses.
Regardless of 38 whether we have complied with the law, a government investigation could negatively impact our business practices, harm our reputation, divert the attention of management and increase our expenses.
In the U.S, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives, including the ACA.
In the U.S, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives, including the ACA and IRA.
If we are unable to establish and maintain adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to commercialize LUPKYNIS appropriately and may not become profitable. Part of our strategy to commercialize LUPKYNIS in the United States is to maintain a direct sales force.
If we are unable to establish and maintain adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to commercialize LUPKYNIS appropriately and may not become profitable. Part of our strategy to commercialize LUPKYNIS in the United States is to maintain a direct field work force.
Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for our approved product could have a material 22 adverse effect on our operating results, our ability to raise capital needed to commercialize LUPKYNIS and on our overall financial condition.
Our inability to promptly obtain coverage and 24 profitable payment rates from both government funded and private payors for our approved product could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize LUPKYNIS and on our overall financial condition.
Significant differences between actual and estimated customer inventory levels may result in excessive or insufficient stocking, which could result in our holding substantial quantities of unsold customer inventory, or inadequate supplies of products in the distribution channels. 20 Our customers make the ultimate determination of the amount of inventory to hold.
Significant differences between actual and estimated customer inventory levels may result in excessive or insufficient stocking, which could result in substantial quantities of unsold customer inventory, or inadequate supplies of products in the distribution channels. Our customers make the ultimate determination of the amount of inventory to hold.
Regulatory bodies may also require or request the withdrawal of the product from the market. Any of these post-marketing regulatory actions could materially affect our sales and, therefore, have the potential to adversely affect our business, financial condition, results of operations and cash flows.
Regulatory bodies may also require or request the withdrawal of the product from the market. Any of these post-marketing regulatory actions could materially affect our sales and increase our costs and, therefore, have the potential to adversely affect our business, financial condition, results of operations and cash flows.
We may face substantial competition, which may result in others discovering, developing, or commercializing products before, or more successfully than we do.
We may face substantial competition, which may result in others discovering, developing, or commercializing products more successfully than we do.
The extent to which a widespread health concern may impact our business, commercialization, pre-clinical studies, and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread, business closures or business disruptions and the effectiveness of vaccinations and actions taken in Canada, the United States and other countries to contain and treat the disease.
The extent to which a widespread health concern may impact our business, 47 commercialization, and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread, business closures or business disruptions and the effectiveness of vaccinations and actions taken in Canada, the United States and other countries to contain and treat the disease.
These products may compete with our products (including LUPKYNIS), and our intellectual property rights may not be effective or sufficient to prevent them from competing. 24 Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
These products may compete with LUPKYNIS, and our intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
Our activities to date have been limited to, among other things, organizing and staffing our company, business planning, business development, raising capital, developing, manufacturing, and, more recently, marketing and commercializing LUPKYNIS. In addition to undertaking nonclinical studies, and conducting clinical trials and business development.
Our activities to date have been limited to, among other things, organizing and staffing our Company, business planning, business development, raising capital, developing, manufacturing, and, marketing and commercializing LUPKYNIS, in addition to undertaking nonclinical studies, and conducting clinical trials and business development.
Our suppliers rely on some materials that were originally sourced from the areas impacted by the armed conflict which may increase supply disruptions. This could, in turn, adversely impact our ability to manufacture LUPKYNIS.
Our suppliers rely on some materials that were originally sourced from the areas impacted by the armed conflict which may increase supply disruptions. This could, in turn, adversely impact our ability to manufacture and distribute LUPKYNIS.
A successful commercialization depends on our ability to, amongst other things: • achieve and maintain compliance with regulatory requirements; • create and sustain market demand for and achieve market acceptance of LUPKYNIS through our marketing and sales activities and other arrangements established for the promotion of LUPKYNIS, on a timeline that aligns with our regulatory or intellectual property protection periods; • educate physicians and patients about the benefits, administration and use of LUPKYNIS; • train, deploy, and support a qualified sales force; • ensure that our third-party manufacturers manufacture LUPKYNIS in sufficient quantities, in compliance with requirements of the FDA, and at acceptable quality and pricing levels in order to meet commercial demand; • ensure that our third-party manufacturers develop, validate and maintain commercially viable manufacturing processes that are compliant with GMP regulations; • implement and maintain agreements with wholesalers, special pharmacy partners, distributors, and group purchasing organizations on commercially reasonable terms; • ensure that our entire supply chain efficiently and consistently delivers LUPKYNIS to our customers; • receive adequate levels of coverage and reimbursement for LUPKYNIS from commercial health plans and governmental health programs; • provide co-pay assistance to help qualified patients with out-of-pocket costs associated with their LUPKYNIS prescription and/or other programs to ensure patient access to our product; • obtain acceptance of LUPKYNIS as safe and effective by patients and the medical community; • influence the nature of publicity related to LUPKYNIS relative to the publicity related to our competitors’ products; and • maintain and defend our patent protection and regulatory exclusivity for LUPKYNIS.
A successful commercialization depends on our ability to, amongst other things: • achieve and maintain compliance with regulatory requirements; • create and sustain market demand for and achieve market acceptance of LUPKYNIS, grow the market through our marketing and sales activities and other arrangements established for the promotion of LUPKYNIS, on a timeline that aligns with our regulatory or intellectual property protection periods; • educate physicians and patients about the importance of screening, routine monitoring along with treating to guidelines, benefits, administration and use of LUPKYNIS; • train, deploy, and support a qualified field work force; • ensure that our third-party manufacturers manufacture LUPKYNIS in sufficient quantities, in compliance with requirements of the FDA, and at acceptable quality and pricing levels in order to meet commercial demand; • ensure that our third-party manufacturers develop, validate and maintain commercially viable manufacturing processes that are compliant with GMP regulations; • implement and maintain agreements with wholesalers, special pharmacy partners, distributors, and group purchasing organizations on commercially reasonable terms; • ensure that our entire supply chain efficiently and consistently delivers LUPKYNIS to our customers; • receive adequate levels of coverage and reimbursement for LUPKYNIS from commercial health plans and governmental health programs; • provide co-pay assistance to help qualified patients with out-of-pocket costs associated with their LUPKYNIS prescription and/or other programs to ensure patient access to our product; • obtain acceptance of LUPKYNIS as safe and effective by patients and the medical community; • influence the nature of publicity related to LUPKYNIS relative to the publicity related to our competitors’ products; and • maintain and defend our patent protection and regulatory exclusivity for LUPKYNIS.
Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our short-term investments and continuous monitoring of our portfolio's overall risk profile, the value of our short-term investments may nevertheless decline.
Each of these events may cause us to record charges to reduce the carrying value of our investment portfolio or sell investments 30 for less than our acquisition cost. Although we attempt to mitigate these risks through diversification of our investments and continuous monitoring of our portfolio's overall risk profile, the value of our investments may nevertheless decline.
Any adverse developments affecting manufacturing operations for our product may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products.
Any adverse developments affecting manufacturing operations for our product may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of LUPKYNIS.
If any licensee or authorized sub-licensee of our products violates, or is alleged to have violated, any laws or regulations during the performance of their obligations for us, it is possible that we could suffer financial and reputational harm, or other negative outcomes, including possible legal consequences.
If any licensee or authorized sub-licensee of LUPKYNIS violates, or is alleged to have violated, any laws or regulations during the performance of their obligations for us, it is possible that we could suffer financial and reputational harm, or other negative outcomes, including possible legal consequences.
Additionally, should an event occur that causes or is deemed to cause a change in the residency of Aurinia Pharmaceuticals Inc. from Canada to the United States, for example, we may be subject to certain tax rules that could cause a deemed disposition of our assets for tax purposes.
Additionally, should an event occur that causes or is deemed to cause a change in the residency of Aurinia from Canada to the United States, for example, we 45 may be subject to certain tax rules that could cause a deemed disposition of our assets for tax purposes.
Levels of market acceptance for LUPKYNIS could be impacted by several factors, many of which are not within our control, including but not limited to: • limitations or warnings contained in the approved labeling; • changes in the standard of care for the targeted indication; • limitations in the approved clinical indication; • demonstrated clinical safety and efficacy compared to other products; • potential for significant adverse side effects; • sales, marketing, and distribution support; • availability and extent of reimbursement from managed care plans and other third-party payors; • timing of market introduction • the degree of cost-effectiveness; • the COVID-19 pandemic; • availability of alternative therapies at similar or lower cost, including generic and over-the-counter products; • whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy; • adverse publicity about our product or favorable publicity about competitive products; • convenience and ease of administration of our products; and • potential product liability claims.
Levels of market acceptance for LUPKYNIS could be impacted by several factors, many of which are not within our control, including but not limited to: • limitations or warnings contained in the approved labeling; • changes in the standard of care for the targeted indication; • limitations in the approved clinical indication; • demonstrated clinical safety and efficacy compared to other products; • potential for significant adverse side effects; • sales, marketing, and distribution support; • availability and extent of reimbursement from managed care plans and other third-party payors; • timing of market introduction; • the degree of cost-effectiveness; • widespread health concerns, such as pandemics; • availability of alternative therapies at similar or lower cost, including generic and over-the-counter products; • whether the product is designated under physician treatment guidelines as a first-line therapy or as a second- or third-line therapy; • adverse publicity about our product or favorable publicity about competitive products; • convenience and ease of administration of LUPKYNIS; and • potential product liability claims.
To the extent there is an impact from a widespread health concern, such as the COVID-19 pandemic, on our business, it has not had, and we anticipate that it would continue to not have, a steady impact but instead an uneven impact on various aspects of our business and operations as the variants of the virus infect different parts of the geographic regions in which we operate at different times and to different degrees.
To the extent there is an impact from a widespread health concern on our business, it has not had, and we anticipate that it would continue to not have, a steady impact but instead an uneven impact on various aspects of our business and operations as the variants of the virus infect different parts of the geographic regions in which we operate at different times and to different degrees.
Price controls and price pressure may be imposed in foreign and U.S. markets, which may adversely affect our future profitability. LUPKYNIS may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could harm our business.
LUPKYNIS may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business. Price controls and price pressure may be imposed in foreign and U.S. markets, which may adversely affect our future profitability. LUPKYNIS may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could harm our business.
For example, the Biden administration has indicated that lowering prescription drug prices is a priority, but we do not yet know what steps the administration will take, whether or to what degree they may impact us or our products, or whether such steps will be successful.
For example, the Biden administration has indicated that lowering prescription drug prices is a priority, but we do not yet know what steps the administration will take, whether or to what degree they may impact us or LUPKYNIS, or whether such steps will be successful.
There can be no assurance that we will be able to generate a positive cash flow from our operations, that additional capital or other types of financing will be available when needed or that these financings will be on terms favorable or acceptable to us.
There can be no assurance that we will be able to generate a positive cash flow from our operations, that additional capital or other types of financing will be available when needed or that these financings will be on terms favorable or acceptable to us if available at all.
We rely on third parties for the supply and manufacture of LUPKYNIS , which can be unpredictable in terms of quality, cost, timing, and availability. If we encounter any such difficulties, our ability to supply LUPKYNIS for commercial sale could be delayed or halted entirely. Manufacturers of pharmaceutical products often encounter difficulties in production, especially in scaling up initial production.
We rely on third parties for the supply and manufacture of LUPKYNIS , which can be unpredictable in terms of quality, cost, timing, and availability. If we encounter any such difficulties, our ability to supply LUPKYNIS for commercial sale could be delayed or halted entirely. Manufacturers of pharmaceutical products often encounter difficulties in production.
In response to the ongoing armed conflict in Ukraine, the U.S. government, numerous state governments, the EU and other countries in which we conduct business have imposed a wide range of economic sanctions that restrict commerce and business dealings with Russia, certain regions of Ukraine and certain entities.
In response to the ongoing armed conflicts in Ukraine and in the Middle East, the U.S. government, numerous state governments, the EU and other countries in which we conduct business have imposed a wide range of economic sanctions that restrict commerce and business dealings with Russia, certain regions of Ukraine, certain regions in the Middle East and certain entities.
The failure of Otsuka to devote sufficient time and effort to the development and commercialization of LUPKYNIS, or the failure of Otsuka to meet their obligations to us, including for future royalty and milestone payments; to adequately deploy business continuity plans in the event of a crisis; and/or satisfactorily resolve significant disagreements with us or address other factors, could harm our financial results and operations.
The failure of Otsuka to devote sufficient time and effort to the development and commercialization of LUPKYNIS, or the failure of Otsuka to meet their obligations to us, including for future royalties, milestone payments, manufacturing services payments and other collaboration payments; to adequately deploy business continuity plans in the event of a crisis; and/or satisfactorily resolve significant disagreements with us or address other factors, could harm our financial results and operations.
The trading price of the common shares could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including the results and adequacy of our pre-clinical studies and clinical trials, as well as those of our collaborators, or our competitors; the results of our operations, such as quarterly or annual sales figures; other evidence of the safety or effectiveness of LUPKYNIS or those of our competitors; announcements of technological innovations or new products by our competitors; governmental regulatory actions; developments with collaborators; developments (including litigation) concerning our patents or other proprietary rights of competitors; period-to-period fluctuations in operating results; guidance we may provide as to the commercial performance of LUPKYNIS; changes in estimates of our performance by securities analysts; market conditions for biotechnology stocks in general; global or local political, economic, social and health crises; market rumors; and other factors not within our control could impact the market price of the common shares, regardless of our operating performance.
The trading price of the common shares could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including the results and adequacy of our pre-clinical studies and clinical trials, as well as those of our collaborators, or our competitors; the results of our operations, such as quarterly or annual sales figures; other evidence of the safety or effectiveness of LUPKYNIS or those of our competitors; announcements of technological innovations or new products by our competitors; governmental regulatory actions; developments with collaborators; developments (including litigation) concerning our patents or other proprietary rights of competitors; period-to-period fluctuations in operating results; guidance we may provide as to the commercial performance of LUPKYNIS; changes in estimates of our performance by securities analysts; market conditions for biotechnology stocks in general; our ability to repurchase our common shares under any share repurchase program on favorable terms or at all; global or local political, economic, social and health crises; market rumors; and other factors not within our control could impact the market price of the common shares, regardless of our operating performance.
Products produced by us may be found to be, or to contain substances that are harmful to the health of our patients and customers and which, in extreme cases, may cause serious health conditions or death. This sort of finding may expose us to substantial risk of litigation and liability.
LUPKYNIS may be found to be, or to contain substances that are harmful to the health of our patients and customers and which, in extreme cases, may cause serious health conditions or death. This sort of finding may expose us to substantial risk of litigation and liability.
As a result, there can be no assurance that: • patent applications will result in the issuance of patents; • additional proprietary products developed will be patentable; • patents issued will provide adequate protection or any competitive advantages; • patents issued will not be successfully challenged and invalidated by third parties; • our products, including LUPKYNIS, do not infringe the patents or intellectual property of others; • that our patents or regulatory protections will provide sufficient duration for our products to reach a level of profitability; or • that we will be able to obtain any extensions of the applicable patent terms.
As a result, there can be no assurance that: • patent applications will result in the issuance of patents; • patents issued will provide adequate protection or any competitive advantages; • patents issued will not be successfully challenged and invalidated by third parties; • LUPKYNIS does not infringe the patents or intellectual property of others; • that our patents or regulatory protections will provide sufficient duration for LUPKYNIS to reach a level of profitability; or • that we will be able to obtain any extensions of the applicable patent terms.
An unfavorable outcome or settlement may harm our business, products and product candidates, results of operations, financial condition, and corporate reputation. In addition, regardless of outcome, investigations, allegations of wrongdoing, and litigation can be costly, time-consuming, and disruptive to our business and operations.
An unfavorable outcome or settlement may harm our business, LUPKYNIS, results of operations, financial condition, and corporate reputation. In addition, regardless of outcome, 41 investigations, allegations of wrongdoing, and litigation can be costly, time-consuming, and disruptive to our business and operations.
Otsuka, accounted for approximately 20% of the Company's net revenue for the year ended December 31, 2022. We also depend Otsuka to comply with all applicable laws relative to the development and commercialization of LUPKYNIS in those countries.
Otsuka, accounted for approximately 8% of the Company's total net revenue for the year ended December 31, 2023. We also depend on Otsuka to comply with all applicable laws relative to the development and commercialization of LUPKYNIS in those countries.
As we only received FDA approval for LUPKYNIS in 2021, there is an absence of historical sales data. This has resulted in our revenue from product sales being, and we expect will continue to be, difficult to predict.
Our operating results are difficult to predict and will likely fluctuate from quarter to quarter and year to year. As we only received FDA approval for LUPKYNIS in 2021, there is an absence of historical sales data. This has resulted in our revenue from product sales being, and we expect will continue to be, difficult to predict.
While we have obtained approval by the EC and MHRA, specific jurisdictions covered by those approvals (and approvals in other jurisdictions) also require additional regulatory approvals, such as pricing and reimbursement approval, before sales can commence in those jurisdictions.
While we have obtained approval by the EC and MHRA, specific jurisdictions covered by those approvals (and approvals in other jurisdictions) also require additional regulatory approvals, such as pricing and reimbursement approval, before sales can commence in those jurisdictions. Not all of those jurisdictions have provided all such approvals to date.
We and our third-party manufacturing contractors are subject to regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products.
Drug manufacturing processes involve the controlled use of hazardous materials. We and our third-party manufacturing contractors are subject to regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products.
We have limited experience in drug formulation or manufacturing and rely exclusively on third parties, in many cases as sole provider, to formulate and manufacture LUPKYNIS , and any disruption or loss of these relationships could delay our development and commercialization efforts. 31 We have no experience in drug formulation or manufacturing and do not intend to establish our own manufacturing facilities.
We have limited experience in drug formulation or manufacturing and rely exclusively on third parties, in many cases as sole provider, to formulate and manufacture LUPKYNIS , and any disruption or loss of these relationships could delay our development and commercialization efforts.
The failure of Otsuka or future licensing partners could harm our business or results of operations and the global reputation of LUPKYNIS. 27 Our portfolio of short -term investments is subject to market, interest and credit risk that may reduce its value. We maintain a portfolio of short-term investments.
The failure of Otsuka or future licensing partners could harm our business or results of operations and the global reputation of LUPKYNIS. Our portfolio of investments is subject to market, interest and credit risk that may reduce its value. We maintain a portfolio of investments. Changes in the value of our portfolio of investments could adversely affect our earnings.
Risks Related to Government Regulation Our relationships with customers, healthcare providers, and third-party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits on future earnings.
We could be harmed if our third-party distributors do not comply with these standards and regulations. 36 Risks Related to Government Regulation Our relationships with customers, healthcare providers, and third-party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, exclusion from government healthcare programs, contractual damages, reputational harm and diminished profits on future earnings.
Any such acquisitions will be accompanied by certain risks including, but not limited to: a. exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research; b. higher than anticipated acquisition costs and expenses; c. the difficulty and expense of integrating operations, systems, and personnel of acquired companies; d. disruption of our ongoing business; e. inability to retain key customers, distributors, vendors and other business partners of the acquired company; f. diversion of management’s time and attention; and g. possible dilution to shareholders.
Any such acquisitions will be accompanied by certain risks including, but not limited to: • exposure to unknown liabilities of acquired companies and the unknown issues with any associated technologies or research; • inability to recognize expected benefit of synergies and fully recognize return on investment; • higher than anticipated acquisition costs and expenses; • the difficulty and expense of integrating operations, systems, and personnel of acquired companies; • disruption of our ongoing business; • inability to retain key customers, distributors, vendors and other business partners of the acquired company; • diversion of management’s time and attention; and • possible dilution to shareholders.
Risks Related to Our Industry Unstable markets and economic conditions may have harmful consequences to business, financial condition, and trading price of our common shares. Global economic conditions weakened in 2022 driven by high inflation, supply chain challenges and the impacts of the Russia-Ukraine war.
Risks Related to Our Industry Unstable markets and economic conditions may have harmful consequences to business, financial condition, and trading price of our common shares. Global economic conditions have been impacted by high inflation, supply chain challenges and the impacts of global hostilities, such as the Russia-Ukraine war.
LUPKYNIS may not achieve or maintain expected levels of market acceptance among physicians, patients, the medical community, and third-party payors, which could harm our business, financial condition and results of operations and could cause the market value of our common shares to decline.
Our failure to develop the market for, forecast or successfully market LUPKYNIS could harm our business, as it could reduce our market potential. 23 LUPKYNIS may not achieve or maintain expected levels of market acceptance among physicians, patients, the medical community, and third-party payors, which could harm our business, financial condition and results of operations and could cause the market value of our common shares to decline.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources. In recent years, shareholder activists have become involved in numerous public companies.
Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays or both, which could make us subject to regulatory penalties or fines due to non-fulfillment of our post-marketing requirements and post-marketing commitments with the FDA. We may not be successful in our efforts to build out a pipeline of product candidates.
Delays or failures in planned patient enrollment and/or retention may result in increased costs, program delays or both, which could make us subject to regulatory penalties or fines due to non-fulfillment of our post-marketing requirements and post-marketing commitments with the FDA.
Our estimates of the number of patients who have received or might have been candidates to use LUPKYNIS may not accurately reflect the true market for LUPKYNIS or the extent to which it will actually be used by patients. Our failure to forecast and successfully market LUPKYNIS could harm our business, as it could reduce our market potential.
Our estimates of the number of patients who have received or might have been candidates to use LUPKYNIS may not accurately reflect the true market for LUPKYNIS or the extent to which it will actually be used by patients.
We have incurred losses and anticipate that our losses may increase as we continue to expand and develop our business (including developing our pipeline of potential products) and commercialize LUPKYNIS. As of December 31, 2022, we had an accumulated deficit of $864.3 million.
We have incurred losses and anticipate that our losses may increase as we continue to expand and develop our business and commercialize LUPKYNIS. As of December 31, 2023, we had an accumulated deficit of $942.3 million.
In addition, responding to any enforcement action or related investigation may result in a diversion of management’s attention and resources and significant defense costs and other professional fees. 35 Compliance with governmental regulation and other legal obligations related to privacy, data protection and information security could result in additional costs and liabilities to us or inhibit our ability to collect and process data, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.
Compliance with governmental regulation and other legal obligations related to privacy, data protection and information security could result in additional costs and liabilities to us or inhibit our ability to collect and process data, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.
Sales of our product can be greatly affected by the customer inventory levels that our customers carry. We monitor customer inventory of our product using a combination of methods, including reports from our customers, and our own internal estimates. Our estimates of customer inventory may differ significantly from actual customer inventory levels.
We monitor customer inventory of our product using a combination of methods, including reports from our customers, and our own internal estimates. Our estimates of customer inventory may differ significantly from actual customer inventory levels.
We are currently a single approved product company with limited commercial sales experience and if we are not able to achieve our financial targets related to commercializing LUPKYNIS , then we may need to curtail or cease operations.
We are currently a single approved product company with commercial sales experience since January 2021 and if we are not able to achieve our financial targets related to commercializing LUPKYNIS , then we may need to curtail or cease operations. Our business strategy is to optimize the clinical and commercial value of LUPKYNIS.
There are numerous examples of unsuccessful product launches and failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than we have. 19 We have limited experience commercializing pharmaceutical products as an organization.
There are numerous examples of unsuccessful product launches and failures to meet high expectations of market potential, including by pharmaceutical companies with more experience and resources than we have. We have limited experience commercializing pharmaceutical products as an organization, having received marketing approval for LUPKYNIS, our sole commercial product, in January 2021.
Our future performance may be impacted by our ability to generate royalty or other revenues (such as commercial and regulatory milestones, product revenue or upfront collaboration payments) from licenses (such as the license granted to Otsuka) and the successful commercialization of LUPKYNIS or other products we may develop or acquire.
Our future performance may be impacted by our ability to generate royalty or other revenues (such as commercial and regulatory milestones and product revenue) from licenses (such as the license granted to Otsuka) and the successful commercialization of LUPKYNIS. We anticipate that some of our revenues in the future may be derived from products licensed to pharmaceutical and biotechnology companies.
We anticipate that some of our revenues in the future may be derived from products licensed to pharmaceutical and biotechnology companies. Accordingly, these revenues will depend, in large part, upon the success of these companies, and our operating results may fluctuate substantially due to reductions and delays in their research, development, and marketing expenditures.
Accordingly, these revenues will depend, in large part, upon the success of these companies, and our operating results may fluctuate substantially due to reductions and delays in their research, development, and marketing expenditures.
Although we received FDA approval and commenced commercialization of LUPKYNIS in the United States in January 2021, we have and may continue to incur losses and there can be no assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained basis.
Although we received FDA approval and commenced commercialization of LUPKYNIS in the United States in January 2021, we have and may continue to incur losses and there can be no assurance that we will be able to generate sufficient product revenue to become profitable at all or on a sustained basis. 28 Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or cause any guidance we may provide to be inaccurate.
Unauthorized disclosures of such information could subject us to complaints or lawsuits for damages, in Canada, the United States or other jurisdictions, or could otherwise have a negative impact on our business, financial condition, results of operations, reputation and credibility. 25 Risks Related to Financial Position and Need for Additional Capital We expect to continue to have negative cash flow and we may never achieve or maintain profitability.
Unauthorized disclosures of such information could subject us to complaints or lawsuits for damages, in Canada, the United States or other jurisdictions, or could otherwise have a negative impact on our business, financial condition, results of operations, reputation and credibility.
If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers our efforts to commercialize successfully could be harmed, which would negatively impact our ability to generate product revenue.
If we are unable to effectively train our field work force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers, our efforts to commercialize successfully could be harmed, which would negatively impact our ability to generate product revenue. 22 Our ability to successfully commercialize LUPKYNIS will depend on effectively deploying the field work force we have established and maintaining marketing, manufacturing, and distribution capabilities or relationships.
In addition, because we do not maintain “key person” life insurance on any of our officers, employees, or consultants, any delay in replacing such persons, or an inability to replace them with persons of similar expertise, could harm our business, financial condition, and results of operations. 36 We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategies.
In addition, because we do not maintain “key person” life insurance on any of our officers, employees, or consultants, any delay in replacing such persons, or an inability to replace them with persons of similar expertise, could harm our business, financial condition, and results of operations.
To the extent a widespread health concern harms our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report. LUPKYNIS may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.
To the extent a widespread health concern harms our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe lease approximately 4,375 square feet of space in Edmonton, Alberta, which is used for general and administrative purposes. We lease approximately 30,531 square feet of space in Rockville, Maryland, which serves as our commercial office and is used for marketing as well as general and administrative purposes.
Biggest changeItem 2. Properties update We lease approximately 4,375 square feet of space in Edmonton, Alberta, which is primarily our headquarters and is used for general and administrative purposes. We lease approximately 30,531 square feet of space in Rockville, Maryland, which serves as our commercial office and is used for marketing as well as general and administrative purposes.
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Item 2. Properties We lease approximately 13,206 square foot facility in Victoria, British Columbia, which is used primarily as our headquarters as well as for research and development and administrative purposes. As of December 31, 2022, the fixed lease term ended for Victoria and we entered a month to month lease.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings Information pertaining to legal proceedings can be found under in Note 13 Commitments and Contingencies to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 44 PART II
Biggest changeItem 3. Legal Proceedings Information pertaining to legal proceedings can be found under in Note 13 Commitments and Contingencies to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 50 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe historical share price performance of our common shares shown in the performance graph is not necessarily indicative of future share price performance. 45 Cumulative Total Return Date Ended Ticker December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Aurinia Pharmaceuticals Inc.
Biggest changeCumulative Total Return Date Ended Ticker December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Aurinia Pharmaceuticals Inc.
Any future determination regarding the declaration and payment of dividends (in any currency), if any, will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other facts our Board of Directors may deem relevant.
Any future determination regarding the declaration and payment of dividends or share repurchases, if any, will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other facts our Board of Directors may deem relevant.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information Our common shares are traded on The Nasdaq Global Market under the symbol "AUPH". Holders of Record As of February 22, 2023, there were approximately 45 registered holders of record of our common shares.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market Information Our common shares are traded on The Nasdaq Global Market under the symbol "AUPH". Holders of Record As of February 12, 2024, there were approximately 110 registered holders of record of our common shares.
Recent Sales of Unregistered Securities During the year ended December 31, 2022, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K. Issuer Purchases of Equity Securities We did not repurchase any securities during the three months ended December 31, 2022.
Recent Sales of Unregistered Securities During the year ended December 31, 2023, we did not issue or sell any unregistered securities not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Stock Performance Graph The following graph shows the value of an investment of $100 from December 31, 2017 through December 31, 2022, in our common shares, the Nasdaq Biotechnology Index, and Nasdaq Composite Index.
Stock Performance Graph The following graph shows the value of an investment of $100 from December 31, 2018 through December 31, 2023, in our common shares, the Nasdaq Biotechnology Index, and Nasdaq Composite Index. The historical share price performance of our common shares shown in the performance graph is not necessarily indicative of future share price performance.
AUPH $ 100.00 $ 150.55 $ 447.24 $ 305.30 $ 504.86 $ 95.36 NASDAQ Biotechnology Index ^NBI $ 100.00 $ 90.68 $ 112.81 $ 141.78 $ 140.88 $ 125.52 NASDAQ Composite Index ^IXIC $ 100.00 $ 96.12 $ 129.97 $ 186.69 $ 226.63 $ 151.61 This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, except to the extent that we specifically incorporate this information by reference therein, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
AUPH $ 100.00 $ 297.07 $ 202.79 $ 335.34 $ 63.34 $ 131.82 NASDAQ Biotechnology Index ^NBI $ 100.00 $ 124.41 $ 156.36 $ 155.37 $ 138.42 $ 143.60 NASDAQ Composite Index ^IXIC $ 100.00 $ 135.23 $ 194.24 $ 235.78 $ 157.74 $ 226.24 This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by 51 reference into any of our filings under the Securities Act, except to the extent that we specifically incorporate this information by reference therein, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers None. Item 6. Reserved. Not required.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers We did not repurchase any securities during the year ended December 31, 2023. Item 6. Reserved. Not applicable.
Removed
Securities Authorized for Issuance Under Equity Compensation Plans Information about our equity compensation plans are incorporated by reference to Item 12 of Part III of this Annual Report.
Added
Dividends While we historically have not paid cash dividends (in any currency) and do not have a current intention to pay cash dividends, we continually review our capital allocation strategies, including, among other things, payment of cash dividends, share repurchases and acquisitions.
Removed
Dividends We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business and operations, including the commercialization of LUPKYNIS and further advancement of our pipeline, and we do not anticipate paying any cash dividends in the foreseeable future.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTaking into consideration the cash, cash equivalents and restricted cash and investments as of December 31, 2022, we believe that our cash position is sufficient to fund our current plans which include funding commercial activities, including our FDA related post-approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our R&D programs and funding our working capital obligations for at least the next few years.
Biggest changeTaking into consideration the cash, cash equivalents and restricted cash and investments as of December 31, 2023, we believe that our cash position is sufficient to fund our current plans which include funding commercial activities, such as our FDA related post-approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our LUPKYNIS (voclosporin) related R&D programs and funding our working capital obligations for at least the next few years. 57 The following table summarizes our cash flows for December 31, 2023, 2022 and 2021: (in thousands) 2023 2022 2021 Net cash (used in) provided by: Operating activities $ (33,461) $ (79,529) $ (157,692) Investing activities (6,706) (60,632) (103,870) Financing activities (5,130) 2,433 221,112 Net change in cash and cash equivalents $ (45,297) $ (137,728) $ (40,450) Cash Flows from Operating Activities Net cash used in operating activities for the year ended December 31, 2023 was $33.5 million, compared to $79.5 million, for the year ended December 31, 2022.
November 2021 ATM facility In November 2021, we entered into an Open Market Sale Agreement under which we issued 10.2 million common shares, resulting in net proceeds of $196.7 million through December 31, 2022. There were no sales subsequent to December 31, 2021. In February 2022, we terminated the Open Market Sale Agreement and no further sales occurred.
November 2021 ATM facility In November 2021, we entered into an Open Market Sale Agreement under which we issued 10.2 million common shares, resulting in net proceeds of $196.7 million through December 31, 2021. There were no sales subsequent to December 31, 2021. In February 2022, we terminated the Open Market Sale Agreement and no further sales occurred.
LUPKYNIS also potentially stabilizes podocytes, which can protect against proteinuria. Voclosporin, the active ingredient in LUPKYNIS, is made by a modification of a single amino acid of the cyclosporine molecule.
LUPKYNIS also potentially stabilizes podocytes, which can protect against proteinuria. 52 Voclosporin, the active ingredient in LUPKYNIS, is made by a modification of a single amino acid of the cyclosporine molecule.
A discussion of changes in our cash flow from the year ended December 31, 2020 to the year ended December 31, 2021 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 2021 Form 10-K.
A discussion of changes in our cash flow from the year ended December 31, 2021 to the year ended December 31, 2022 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 2022 Form 10-K.
You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The following generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” The following generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Product Revenues 47 In the United States (and territories), we sell LUPKYNIS primarily to specialty pharmacies and specialty distributors. These customers subsequently resell our products to health care providers and patients. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer.
Product Revenues In the United States (and territories), we sell LUPKYNIS primarily to specialty pharmacies and specialty distributors. These customers subsequently dispense LUPKYNIS to health care providers and patients. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer.
Our material cash requirements include the following: • short-term per annum expenses for human capital (which includes estimates for personnel headcount, performance bonuses, salaries, benefits and commissions); • payor and government rebates and co-payment programs; • marketing and promotional services; • corporate insurance premiums; • cash requirements related to R&D projects, clinical trials, milestone expenses and post-approval related studies and support; • short-term and long-term lease liabilities included on our consolidated balance sheet or Note 15 Leases for further details; • deferred compensation arrangements included on our consolidated balance sheet or Note 14, Deferred Compensation and Other Non-Current Liabilities for further details; and • purchases for inventory and production costs to support our commercial and clinical product supply requirements, as well as capital expenditures.
Our material cash requirements include the following: • short-term per annum expenses for human capital (which includes estimates for personnel headcount, performance bonuses, salaries, benefits and commissions); • payor and government rebates and co-payment programs; • marketing and promotional services; • corporate insurance premiums; 58 • cash requirements related to R&D projects, clinical trials and post-approval related studies and support; • short-term and long-term lease liabilities included on our consolidated balance sheet or Note 15, Leases for further details; • deferred compensation arrangements included on our consolidated balance sheet or Note 14, Deferred Compensation and Other Non-Current Liabilities for further details; • severance costs and potential contract termination costs related to our restructuring program; and • purchases for inventory and production costs to support our commercial and clinical product supply requirements, as well as capital expenditures.
We intend to use the net proceeds to fund our operations, which includes, but is not limited to, commercial activities, including our FDA related post approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our R&D programs and funding our working capital obligations.
We intend to use the net proceeds to fund our operations, which include, but are not limited to, commercial activities, including our FDA related post approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our R&D programs and funding our working capital obligations.
The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees, development, regulatory and commercial milestone payments, payments for collaboration services we provide through our contract manufacturers, and royalties on net sales of licensed products.
The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees, development, regulatory and commercial milestone payments, payments for collaboration services we provide through our contract manufacturers, payments for manufacturing services and royalties on net sales of licensed products. Each of these payments results in license, collaboration and royalty revenues.
We spent approximately $13.5 million and $16.0 million on early stage pre-clinical research programs in the years ended December 31, 2022 and 2021, respectively. The spend does not include internal resource expenses as we currently do not track these for early stage research programs, prior to IND.
We spent approximately $17.4 million and $13.5 million on early stage pre-clinical research programs in the years ended December 31, 2023 and 2022, respectively. The spend does not include internal resource expenses as we currently do not track these for early stage research programs, prior to IND.
We anticipate our long-term cash requirements to be approximately $157.5 million, which does not include per annum requirements related to human capital, insurance and government payor rebates, each of which we anticipate to fluctuate based on future requirements (those per annum amounts, calculated on a short-term cash requirement basis, amount to approximately $104.9 million).
We anticipate our long-term cash requirements to be approximately $134.0 million, which does not include per annum requirements related to human capital, insurance and government payor rebates, each of which we anticipate to fluctuate based on future requirements (those per annum amounts, calculated on a short-term cash requirement basis, amount to approximately $116.0 million).
On September 15, 2022, the EC granted marketing authorization of LUPKYNIS. The centralized marketing authorization is valid in all EU member states as well as in Iceland, Liechtenstein, Norway and Northern Ireland. The approval triggered a $30.0 million milestone payment to us, which was recognized as collaboration revenue during the third quarter in 2022.
On September 15, 2022, the EC granted marketing authorization of LUPKYNIS. The centralized marketing authorization is valid in all EU member states as well as in Iceland, Liechtenstein, Norway and Northern Ireland. The approval triggered a $30.0 million milestone payment to us, which was recognized as collaboration revenue for the year ended December 31, 2022.
As of December 31, 2022, we did not have any material adjustments to variable consideration estimates based on actual results. License, Collaboration and Other Revenues We enter into out-licensing agreements in which we license certain rights to our product candidates to third parties.
As of December 31, 2023, we did not have any material adjustments to variable consideration estimates based on actual results. 53 License, Collaboration and Royalty Revenues We enter into out-licensing agreements in which we license certain rights to LUPKYNIS to third parties.
There are several factors that we believe could impact our future cash requirements, including: • the amount of revenue received from commercial sales of LUPKYNIS, from our licensing partners and potential future drug candidates; • the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related regulatory requirements and activities; • our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; • the number and characteristics of the R&D assets we seek to acquire, develop or commercialize; • the expenses needed to attract and retain skilled personnel as well as any other personnel changes that we may implement; and • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. 52
There are several factors that we believe could impact our future cash requirements, including: • the amount of revenue received from commercial sales of LUPKYNIS, from our licensing partners; • the scope, rate of progress, results and costs of our clinical trials and other related regulatory requirements and activities; • our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; • the expenses needed to attract and retain skilled personnel as well as any other personnel changes that we may implement; • the timing of our restructuring program and our ability to execute successfully on the restructuring; and • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. 59
Pursuant to ASC Topic 710 – Compensation , we recognize future benefits provided by employee retention arrangements, as deferred compensation, which is recognized when we determine that it is probable to make future payments.
In 2012, deferred compensation arrangements were approved by a resolution of the board of directors. Pursuant to ASC Topic 710 – Compensation , we recognize future benefits provided by employee retention arrangements, as deferred compensation, which is recognized when we determine that it is probable to make future payments.
Material Cash Requirements As of December 31, 2022, our material short-term cash requirements are approximately $181.4 million.
Material Cash Requirements As of December 31, 2023, our material short-term cash requirements are approximately $170.0 million.
Cash, cash equivalents and restricted cash and investments are primarily held in U.S. dollars. As of December 31, 2022 and 2021, we had working capital of $396.4 million and $472.7 million, respectively. We are devoting the majority of our operational efforts and financial resources towards the commercialization and post approval commitments of our approved drug, LUPKYNIS.
As of December 31, 2023 and 2022, we had working capital of $347.6 million and $396.4 million, respectively. We are devoting the majority of our operational efforts and financial resources towards the commercialization and post approval commitments of our approved drug, LUPKYNIS.
Discussion of historical items and year-to-year comparisons between 2021 and 2020 that are not included in this discussion can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 28, 2022 and such comparisons are incorporated herein by reference. 46 Overview Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations that are impacted by autoimmune, kidney and rare diseases with a high unmet medical need.
Discussion of historical items and year-to-year comparisons between 2022 and 2021 that are not included in this discussion can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023 and such comparisons are incorporated herein by reference.
Liquidity and Capital Resources As of December 31, 2022, we had cash, cash equivalents and restricted cash of $94.2 million and short-term investments of $295.2 million compared to cash, cash equivalents and restricted cash of $231.9 million and short-term investments of $234.2 million at December 31, 2021.
Liquidity and Capital Resources As of December 31, 2023, we had cash, cash equivalents and restricted cash of $48.9 million and investments of $301.8 million compared to cash, cash equivalents and restricted cash of $94.2 million and short-term investments of $295.2 million at December 31, 2022. Cash, cash equivalents and restricted cash and investments are primarily held in U.S. dollars.
As a result, we are unable to determine the duration and completion costs of our R&D projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. 50 Other Expenses (Income), Net Other income was $1.5 million for the year ended December 31, 2022 compared to other expense of $0.6 million for the year ended December 31, 2021.
We are unable to determine the duration and completion costs of our R&D projects. Other Expense (Income), Net Other expense (income), net was $8.4 million for the year ended December 31, 2023 compared to other income of $(1.5) million for the year ended December 31, 2022.
Impact of Recently Issued Accounting Pronouncements For information of recent accounting pronouncements and their impact on our consolidated financial statements or disclosures, see Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report. 48 Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table sets forth our results of operations for the years ended December 31, 2022 and 2021: Years Ended December 31, (in thousands) 2022 2021 Change Revenue: Product revenue, net $ 103,468 $ 45,488 $ 57,980 License and collaboration revenue 30,562 117 30,445 Total revenue, net 134,030 45,605 88,425 Operating expenses: Cost of sales 5,664 1,091 4,573 Selling, general and administrative 196,371 173,536 22,835 Research and development 44,988 51,139 (6,151) Other (income) expense, net (1,523) 574 (2,097) Total cost of sales and operating expenses 245,500 226,340 19,160 Loss from operations (111,470) (180,735) 69,265 Interest income 5,118 529 4,589 Net loss before income taxes (106,352) (180,206) 73,854 Income tax expense 1,828 760 1,068 Net loss $ (108,180) $ (180,966) $ 72,786 Revenues Total net revenue were $134.0 million and $45.6 million for the years ended December 31, 2022 and 2021, respectively.
Impact of Recently Issued Accounting Pronouncements For information of recent accounting pronouncements and their impact on our consolidated financial statements or disclosures, see Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report. 54 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table sets forth our results of operations for the years ended December 31, 2023 and 2022: Years Ended December 31, (in thousands) 2023 2022 Change Revenue: Product revenue, net $ 158,533 $ 103,468 $ 55,065 License, collaboration and royalty revenue 16,980 30,562 (13,582) Total revenue, net 175,513 134,030 41,483 Operating expenses Cost of sales 14,148 5,664 8,484 Selling, general and administrative 195,036 196,371 (1,335) Research and development 49,641 44,988 4,653 Other expense (income), net 8,379 (1,523) 9,902 Total cost of sales and operating expenses 267,204 245,500 21,704 Loss from operations (91,691) (111,470) 19,779 Interest expense (2,775) — (2,775) Interest income 16,997 5,118 11,879 Net loss before income taxes (77,469) (106,352) 28,883 Income tax expense 551 1,828 (1,277) Net loss $ (78,020) $ (108,180) $ 30,160 Total Revenue, net Total net revenue was $175.5 million and $134.0 million for the years ended December 31, 2023 and 2022, respectively.
The increase was mainly due to higher yields on our investments as a result of increasing interest rates.
Interest Income Interest income was $17.0 million for the year ended December 31, 2023 compared to $5.1 million for the year ended December 31, 2022. The increase was mainly due to higher yields on our investments as a result of higher interest rates.
Gross margin for the years ended December 31, 2022 and 2021 was approximately 96% and 98%, respectively. 49 Selling, General and Administrative Expenses SG&A expenses increased to $196.4 million for the year ended December 31, 2022 compared to $173.5 million for the year ended December 31, 2021.
Selling, General and Administrative Expenses SG&A expenses decreased to $195.0 million for the year ended December 31, 2023 compared to $196.4 million for the year ended December 31, 2022.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was $60.6 million compared to $103.9 million for the year ended December 31, 2021.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $6.7 million compared to $60.6 million for the year ended December 31, 2022. The decrease was primarily due to the timing of purchases of investments and capital payment for the monoplant, offset by proceeds of maturities of investments.
Cash Flows from Financing Activities Cash provided by financing activities for the year ended December 31, 2022 was $2.4 million compared to cash provided by financing activities of $221.1 million for the year ended December 31, 2021.
Cash Flows from Financing Activities Cash used in financing activities for the year ended December 31, 2023 was $5.1 million compared to cash provided by financing activities of $2.4 million for the year ended December 31, 2022. The change is primarily due to the quarterly lease payments for our monoplant finance lease, which commenced during the second quarter of 2023.
SG&A expenses consisted of the following: Years Ended December 31, Change (in thousands) 2022 2021 Salaries, incentive pay and employee benefits $ 82,129 $ 78,991 $ 3,138 Professional fees and services 58,759 45,551 13,208 Share-based compensation expense 28,438 26,432 2,006 Other corporate costs 15,826 14,733 1,093 Travel, trade shows and sponsorships 11,219 7,829 3,390 $ 196,371 $ 173,536 $ 22,835 The primary drivers for the increase of $22.8 million in SG&A were an increase of professional fees and services mainly related to corporate legal matters and pharmacovigilance; and travel, trade shows and sponsorships to support the commercialization of LUPKYNIS.
SG&A expenses consisted of the following: Years Ended December 31, (in thousands) 2023 2022 Change Salaries, incentive pay and employee benefits $ 82,768 $ 82,129 $ 639 Professional fees and services 51,161 58,759 (7,598) Share-based compensation expense 36,511 28,438 8,073 Other public company costs, facility costs, insurance, information technology, amortization of property and equipment 13,315 15,826 (2,511) Travel, trade shows and sponsorships 11,281 11,219 62 $ 195,036 $ 196,371 $ (1,335) The primary drivers for the decrease in SG&A were a decrease of professional fees and services due to a reduction in expenses associated with corporate legal matters and insurance partially offset by an increase in share-based compensation expense.
In January 2021, we introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active LN. We continue to conduct pre-clinical, clinical and regulatory activities to support the LUPKYNIS development program as well as our other assets. We engaged with Otsuka as a collaboration partner for development and commercialization of LUPKYNIS in the Otsuka Territories.
Overview Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, we introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active LN. We continue to conduct clinical and regulatory activities to support the LUPKYNIS development program.
Additionally, salaries, incentive pay and employee benefits increased due to inflationary increases and routine year over year merit and promotion increases. We expense SG&A costs in the periods in which they are incurred. We anticipate continuing to incur significant expenses in SG&A to support the commercialization of LUPKYNIS.
We expense SG&A costs in the periods in which they are incurred. We anticipate continuing to incur significant expenses in SG&A to support the commercialization of LUPKYNIS. Research and Development Expenses R&D expenses increased to $49.6 million for the year ended December 31, 2023 compared to $45.0 million for the year ended December 31, 2022.
The decrease in net cash used for operating activities is primarily due to an increase in cash receipts from sales of LUPKYNIS and the milestone payment received from Otsuka in 2022 related to the EC marketing authorization.
The decrease is primarily due to an increase in cash receipts from sales of LUPKYNIS. See "Total Revenue, net" above for further discussion regarding our increased sales of LUPKYNIS.
Revenues from our two main customers in the U.S. accounted for approximately 45% and 35%, respectively, of our total revenues for the year ended December 31, 2022. Cost of Sales Cost of sales were $5.7 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively.
The percentage of total revenues, net from our main customers were as follows: 2023 2022 2021 U.S. main commercial customers 91% 80% 100% Collaboration partnership 8% 20% —% Product Revenue, net Product Revenue, net was $158.5 million and $103.5 million for the years ended December 31, 2023 and 2022, respectively.
R&D expenses consisted of the following: Years Ended December 31, Change (in thousands) 2022 2021 Contract research organizations (CRO) and developmental expenses $ 18,451 $ 31,098 $ (12,647) Clinical supply and distribution 8,614 4,180 4,434 Salaries, incentive pay and employee benefits 14,034 11,008 3,026 Share-based compensation expense 3,271 4,442 (1,171) Other costs 618 411 207 $ 44,988 $ 51,139 $ (6,151) The primary drivers for the decrease of R&D were due to the $10.0 million upfront license and accrued milestone expense within the CRO and developmental expenses line item for AUR300 in the prior year, offset partially by additional expenses related to AUR200 and AUR300 for the year ended December 31, 2022.
R&D expenses consisted of the following: 56 Years Ended December 31, (in thousands) 2023 2022 Change Contract research organizations (CRO) and developmental expenses $ 17,858 $ 18,451 $ (593) Clinical supply and distribution 9,104 8,614 490 Salaries, incentive pay and employee benefits 14,546 14,034 512 Share-based compensation expense 7,533 3,271 4,262 Travel, insurance, patent annuity fees, legal fees and other 600 618 (18) $ 49,641 $ 44,988 $ 4,653 The primary driver for the increase in R&D expenses was due to the increase in share-based compensation expense.
We expect our R&D expenses will increase as we continue to meet our post-approval obligations for LUPKYNIS with the FDA, invest in R&D activities related to developing voclosporin and product candidates, and as programs advance into later stages of development and we begin to conduct larger clinical trials.
The increase in spend on our pre-clinical research programs was offset by a decrease in spend associated with clinical voclosporin associated studies. We expect our R&D expenses will decrease going forward as we cease future development on AUR200 and AUR300 and focus our efforts on the development of voclosporin and our FDA post-approval obligations for LUPKYNIS.
Deferred Compensation Arrangements We have recorded deferred compensation arrangements in liabilities for estimated future employee benefits relating to applicable historical employment arrangements. In 2012, deferred compensation arrangements were approved by a resolution of the board of directors.
Certain agreements may include terms where we can partially bill for manufacturing services before the serves are provided, resulting in a deferred revenue which is to be recognized once the performance obligation is satisfied. Deferred Compensation Arrangements We have recorded deferred compensation arrangements in liabilities for estimated future employee benefits relating to applicable historical employment arrangements.
Removed
We continue to progress with regulatory approval with Otsuka in the other Otsuka Territories. Our net product revenue in 2022 increased to $103.5 million from $45.5 million in 2021. We did not have any products approved for sale before 2021.
Added
We contracted with Otsuka as a collaboration partner for development and commercialization of LUPKYNIS in the Otsuka Territories. Effective February 14, 2024, the Company's Board of Directors elected to conclude its strategic review process and determined that it was in the best interest of the Company and its shareholders to undergo a restructuring.
Removed
We expect our net product revenue to continue to increase as we continue to execute on our post approval commercialization strategy for LUPKYNIS.
Added
In principal, the corporate restructuring will involve the Company reaffirming its commitment to enhancing value and driving LUPKYNIS growth, while maintaining a sharp focus on operating efficiencies and maximizing cash flows. As a result, the Company is ceasing future development efforts on AUR200 and its pre-clinical asset AUR300.
Removed
Our total cost of sales and operating expenses increased in 2022 to $245.5 million from $226.3 million in 2021, primarily as a result of additional efforts related to the commercialization of LUPKYNIS, along with an increase in cost of sales recognized for product sales.
Added
On November 29, 2022 the Medicines and Healthcare products Regulatory Agency (MHRA) had granted marketing authorization of LUPKYNIS in Great Britain. On April 24, 2023, LUPKYNIS received regulatory approval in Switzerland. During the third quarter of 2023, the Company received notification that the pricing and reimbursement milestone was secured.
Removed
We anticipate continuing to spend in R&D to support our development programs and post approval commitments to the FDA for LUPKYNIS and in respect of our two additional assets, AUR200 and AUR300.
Added
As a result, this triggered a $10.0 million milestone which was recognized as collaboration revenue for the year ended December 31, 2023. On November 13, 2023, Otsuka filed a new drug application (NDA) for voclosporin for the treatment of lupus nephritis (LN) with the Japanese Ministry of Health, Labour, and Welfare for the manufacture and sale in Japan of voclosporin.
Removed
We ended 2022 with $389.4 million in cash, cash equivalents and restricted cash and short-term investments, which we believe to be sufficient to fund our current business plans for at least the next few years.
Added
Our main collaboration partnership is with Otsuka. In 2023 and 2022, we recognized $16.0 million and $30.6 million, respectively, in license, collaboration and royalty revenue from Otsuka. Manufacturing Services Revenue: Our agreements may include manufacturing services to be performed by us on behalf of the counterparty.
Removed
Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. We recorded $50.0 million for upfront, non-refundable revenue in 2020 related to the Otsuka agreement.
Added
If these services are determined to be distinct from the other promises or performance obligations identified in the arrangement, we recognize the transaction price allocated to these services as revenue either over time based on an appropriate measure of progress when the performance by us does not create an asset with an alternative use and we have an enforceable right to payment for the performance completed to date or at a point in time as the related performance obligations are satisfied.
Removed
The upfront fee of $50.0 million was fixed consideration for the transfer of the license and distribution rights and was recognized upon transfer in December 2020. In 2022, we recognized $30.6 million in license and collaboration revenue from Otsuka.
Added
The Company currently has two main customers for U.S. commercial sales of LUPKYNIS and a collaboration partnership with Otsuka for sales of semi-finished product and license, collaboration and royalty revenue in Otsuka Territories.
Removed
Our total net revenue during 2022 increased primarily as a result of net product revenue from our two main customers for LUPKYNIS driven predominantly by further penetration in the LN market, as well as the recognition of a $30.0 million milestone payment from Otsuka following the EC granting marketing authorization of LUPKYNIS in September 2022.
Added
The increase is primarily due to an increase of LUPKYNIS sales to our two main customers, driven predominantly by further penetration of the LN market.
Removed
The increase was primarily due to an increase in product related revenue, coupled with an increase in our inventory reserves which were mainly related to reserves on process validation batches used for FDA approval.
Added
The market penetration can be demonstrated, in part, by 1,791 additional prescriptions (which we generally refer to as patient start forms (PSFs)) received during the year ended December 31, 2023 compared to 1,650 PSFs received during the year ended December 31, 2022.
Removed
Research and Development Expenses R&D expenses decreased to $45.0 million for the year ended December 31, 2022 compared to $51.1 million for the year ended December 31, 2021.
Added
Additionally, during the fourth quarter of 2023, the Company added approximately 101 new patients, which includes, restarts (patients coming back onto therapy who do not require PSF) and an estimate of new patients beginning therapy in the hospital channel.
Removed
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and R&D is highly uncertain.
Added
Patient restarts and estimated patients coming through the hospital channel are newly reported in the fourth quarter since they have achieved numerical significance for the first time. Lastly, our 12-month persistency rate has increased from approximately 50% at December 31, 2022 to approximately 55% at December 31, 2023.
Removed
The primary driver for the change was the revaluation of deferred compensation based on a change in discount rate. Interest Income Interest income was $5.1 million for the year ended December 31, 2022 compared to $0.5 million for the year ended December 31, 2021.
Added
These factors have 55 contributed to an increase in our patients on therapy with approximately 2,066 patients on LUPKYNIS therapy at December 31, 2023, compared with 1,525 at December 31, 2022. License, Collaboration and Royalty Revenue License, collaboration and royalty revenue was $17.0 million and $30.6 million for the years ended December 31, 2023 and 2022, respectively.
Removed
We are also expending efforts towards the development of our AUR200 and AUR300 assets.
Added
For the year ended December 31, 2023, license, collaboration and royalty revenue included a $10.0 million pricing and reimbursement milestone in September 2023 and additional collaboration and manufacturing services revenue from Otsuka.
Removed
The following table summarizes our cash flows for December 31, 2022, 2021 and 2020: (in thousands) 2022 2021 2020 Net cash (used in) provided by: Operating activities $ (79,529) $ (157,692) $ (69,858) Investing activities (60,632) (103,870) (158,186) Financing activities 2,433 221,112 194,375 Net change in cash and cash equivalents $ (137,728) $ (40,450) $ (33,669) Cash Flows from Operating Activities Net cash used in operating activities for the year ended December 31, 2022 was $79.5 million, compared to $157.7 million, for the year ended December 31, 2021.
Added
For the year ended December 31, 2022, license, collaboration and royalty revenue was primarily due to the recognition of a $30.0 million regulatory milestone from Otsuka following the EC marketing authorization of LUPKYNIS in September 2022. Cost of Sales Cost of sales were $14.1 million and $5.7 million for the years ended December 31, 2023 and 2022, respectively.
Removed
Net cash used in both periods was primarily related to the continued investment in commercialization activities, payments made for our ongoing post approval obligations, advancement of our pipeline, and inventory purchases partially offset by cash receipts from sales of LUPKYNIS.
Added
The increase is primarily due to an increase in sales of LUPKYNIS, coupled with the amortization of the monoplant finance right-of-use asset, which was placed into service in late June 2023. Gross margin for the years ended December 31, 2023 and 2022 was approximately 92% and 96%, respectively.
Removed
Investing activities during 2022 consisted primarily of $524.0 million for purchases of investments of commercial paper and corporate bonds offset by $464.3 million in proceeds as discussed in Note 4 of the audited consolidated financial statements for the year ended December 31, 2022 .
Added
The primary drivers for other expense for the year ended 2023 were expenses related to shareholder matters and the foreign exchange loss related to the revaluation of the monoplant finance lease liability, which commenced in June 2023 and is denominated in CHF.
Removed
The decrease in cash used in investing activities is 51 mainly related to the shift to a shorter duration of investments in our portfolio in 2022 in addition to upfront lease and license payments made in 2021 not recurring in 2022.
Removed
The decrease in cash provided by financing activities is mainly due to the Company not completing financings and less stock option exercises occurring in 2022.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+1 added−0 removed4 unchanged
Biggest changeAs of December 31, 2022, we had approximately $2.2 million of foreign denominated third-party payables included in the Company's accounts payable and accrued liabilities balance. An assumed 10% fluctuation in the exchange rates would have an approximate $0.2 million fluctuation in the amounts due.
Biggest changeAn assumed 10% fluctuation in the Swiss Franc compared to the U.S. dollar would have an approximate $9.0 million fluctuation in the valuation of the lease liability. As of December 31, 2023, we had approximately $1.9 million of foreign denominated third-party payables included in the Company's accounts payable and accrued liabilities balance.
We do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio, due to the short-term nature of the investments and our current ability to hold these investments to maturity.
We do not believe that the results of operations or cash flows would be affected to any significant degree 60 by a sudden change in market interest rates relative to our investment portfolio, due to the short-term nature of the investments and our current ability to hold these investments to maturity.
We regularly communicate with our customers regarding the status of receivable balances and have not experienced any issues with collectability. The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Our standard credit terms range from 30 to 45 days.
We regularly communicate with our customers regarding the status of receivable balances and have not experienced any issues with collectability. The timing between the recognition of revenue and the receipt of payment is not significant. Our standard credit terms range from 30 to 45 days.
As of December 31, 2022, a hypothetical annual change of 100 basis points on the interest rates of our investments would result in a $3.0 million fluctuation of interest income in our portfolio. Accounts receivable, accounts payable and accrued liabilities bear no interest.
As of December 31, 2023, a hypothetical annual change of 100 basis points on the interest rates of our $301.8 million investments would result in approximately a $3.0 million fluctuation of interest income in our portfolio. Accounts receivable, accounts payable and accrued liabilities bear no interest.
As of December 31, 2022 our investment portfolio includes cash. cash equivalents and restricted cash and investments of $389.4 million that earn interest at market rates. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.
As of December 31, 2023 our investment portfolio includes cash, cash equivalents and restricted cash and investments of $350.7 million that earn interest at market rates. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer.
In 2022, we did not recognize any allowance for doubtful accounts receivable related to credit risk for our customers or write any amounts off. 53
In 2023, we did not recognize any allowance for doubtful accounts receivable related to credit risk for our customers or write any amounts off. 61
Our investments held during the year were comprised of highly rated instruments such as certificates of deposits, money market instruments, obligations issued by the U.S. government and U.S government agencies as well as corporate debt securities. As of December 31, 2022, these instruments have a maturity of less than a year.
Our investments held during the year were comprised of highly rated instruments such as certificates of deposits, money market instruments, obligations issued by the U.S. government and U.S government agencies as well as corporate debt securities. As of December 31, 2023, these instruments have a weighted average remaining maturity of 7 months.
We are subject to credit risk in connection with our accounts receivable due from our two customers which accounted for all of our accounts receivable, net balances as of December 31, 2022. We monitor economic conditions and the creditworthiness of our customers.
We are subject to credit risk in connection with our accounts receivable due from our two main U.S. commercial customers and collaboration partnership with Otsuka which accounted for the majority of our accounts receivable, net balances as of December 31, 2023. We monitor economic conditions and the creditworthiness of our customers.
Inflation generally affects us by increasing our cost of labor, commercial support, manufacturing and clinical trial expenditures. In addition, our investment portfolio may experience the risk of realized losses on our investments if we were to sell before maturity due to the market volatility caused by increasing interest rates.
In addition, our investment portfolio may experience the risk of realized losses on our investments if we were to sell before maturity due to the market volatility caused by increasing interest rates. Credit Risk Our exposure to credit risk generally consists of cash and cash equivalents, investments and accounts receivable.
Foreign currency risk for the Company is the risk variations in exchange rates between the U.S. dollar and foreign currencies, primarily with the Canadian dollar, Swiss Franc and Great British Pound, which could affect our operating and financial results.
Foreign currency risk for the Company is the risk variations in exchange rates between the U.S. dollar and foreign currencies, primarily with the Swiss Franc, Canadian dollar and Great British Pound, which could affect our operating and financial results. As of December 31, 2023, we had a $90.1 million finance lease liability on our balance sheet related to the monoplant.
There were no other foreign currency fluctuations that would have had a material impact on our financial condition or results of operations as of December 31, 2022. Inflation Risk Inflation has continued to increase during 2022 and is expected to continue to increase for the near future.
An assumed 10% fluctuation in the exchange rates would have an approximate $0.2 million fluctuation in the amounts due. There were no other foreign currency fluctuations that would have had a material impact on our financial condition or results of operations as of December 31, 2023.
Credit Risk Our exposure to credit risk generally consists of cash and cash equivalents, short-term investments and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions and invest the excess cash in highly rated investments.
We place our cash and cash equivalents with highly rated financial institutions and invest the excess cash in highly rated investments. It is the Company's intent for these investments to have an overall rating of A-1, or higher, by Standard & Poor’s, or an equivalent rating by Moody’s or Fitch.
Added
Inflation Risk Inflation has continued to increase during 2023 and is expected to continue to be a risk. Inflation generally affects us by increasing our cost of labor, commercial support, manufacturing and clinical trial expenditures.

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