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What changed in Aurinia Pharmaceuticals Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Aurinia Pharmaceuticals Inc.'s 2023 and 2024 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 2024 report.

+343 added−803 removedSource: 10-K (2025-02-27) vs 10-K (2024-02-15)

Top changes in Aurinia Pharmaceuticals Inc.'s 2024 10-K

343 paragraphs added · 803 removed · 124 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changePackaging 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.
Biggest changePricing for these services is determined by a supply agreement between us and our supplier. We expect no issues in obtaining contract manufacturing services with respect to the packaging of LUPKYNIS commercial cartons for the U.S. market. 10 GOVERNMENT REGULATION Pharmaceutical products, including LUPKYNIS, are subject to extensive government regulation. In the U.S., the FDA regulates pharmaceutical products.
Certain documents are also filed with securities regulators in Canada and are available under our profile at the website www.sedarplus.ca.
Certain documents are also filed with securities regulators in Canada and are available under our profile at the website www.sedarplus.ca. 14
The information posted on, or that can be accessed through, our website and investor relations website is not incorporated into this Annual Report and the contents of these websites are not intended to be incorporated by reference into any report or document we file with, or furnish to, the SEC.
The information posted on, or that can be accessed through, our website is not incorporated into this Annual Report and the contents of these websites are not intended to be incorporated by reference into any report or document we file with, or furnish to, the SEC.
Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market products, this could restrict or regulate post-approval activities and affect the ability of pharmaceutical companies to commercialize their products. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
Coupled with ever-increasing E.U. and national regulatory burdens on those wishing to develop and market products, this could restrict or regulate post-approval activities and affect the ability of pharmaceutical companies to commercialize their products. In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies.
Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Individual states in the U.S. have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
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.
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 government, which took effect in 2023.
Similar political, economic and regulatory developments are occurring in the EU and may affect the ability of pharmaceutical companies to profitably commercialize their products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU or member state level may result in significant additional requirements or obstacles.
Similar political, economic and regulatory developments are occurring in the E.U. and may affect the ability of pharmaceutical companies to profitably commercialize their products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the E.U. or member state level may result in significant additional requirements or obstacles.
National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers.
National governments and health service providers have different priorities and approaches to the delivery of health care and the pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most E.U. member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service providers.
The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy.
The delivery of healthcare in the E.U., including the establishment and operation of health services and the pricing and reimbursement of medicines, is almost exclusively a matter for national, rather than E.U., law and policy.
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.
A drug is an NCE 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.
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.
Item 1. Business OVERVIEW Background Aurinia is a biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, the Company introduced LUPKYNIS ® (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active lupus nephritis (“LN”).
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 first 4 years of the exclusivity period, the FDA may not accept for review an Abbreviated New Drug Application (“ANDA”) or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all of the data required for approval.
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.
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, 2025.
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.
Coverage and Reimbursement In the U.S. 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.
However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement.
However, an application may be submitted 4 years after the NDA approval of the NCE if it contains a certification of patent invalidity or non-infringement.
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).
Patent No. 7,332,472: Patent protection for patents related to the composition of matter of voclosporin are expected to be extended in the U.S. and certain other major markets, including many European markets, until October 2027 under the Hatch-Waxman Act in the U.S., the Supplementary Protection Certificate program in the E.U. and comparable patent extension laws in other countries.
Our ability to successfully commercialize products depends in part on the extent to which reimbursement for the costs of our products and related treatments will be available in the United States and worldwide from government health administration authorities, private health insurers and other organizations.
Our ability to successfully commercialize products depends in part on the extent to which reimbursement for the costs of our products and related treatments will be available in the U.S. and worldwide from government health administration authorities, private health insurers and other organizations. HUMAN CAPITAL As of February 26, 2025, we had 130 employees.
If the patent term extension is not granted prior to the expiration of the interim patent term extension that was granted, we intend to file future interim patent term extensions until the USPTO completes its review of the patent term extension application.
If the patent term extension is not granted prior to the expiration of the interim patent term extension that was granted, we intend to file future interim patent term extensions to the extent permitted until the USPTO completes its review of the patent term extension application. • U.S. Patent No. 10,286,036: In May 2019, we were granted U.S.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are filed with the SEC and are available at the SEC's website at www.sec.gov.
We file or furnish electronically with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports, pursuant to Sections 13(a) and 15(d) of the Exchange Act.
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.
Encapsulation Catalent Pharma Solutions (“Catalent”) is currently the sole supplier for the preparation of our voclosporin capsules. Pricing for these services is determined by a supply agreement between Catalent and us.
Foreign Regulation In addition to regulations in the United States, we may become subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of LUPKYNIS or other potential future products.
Regulation in Non-U.S. Jurisdictions In addition to regulations in the U.S., we, or our partners, may be subject to a variety of foreign regulations governing clinical studies and commercial sales and distribution of LUPKYNIS or future products.
There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our future business.
There have been, and we expect there will continue to be, legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our future business. For example, ACA enacted in March 2010, substantially changed the way healthcare is financed by both governmental and private insurers.
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.
The Monoplant is equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacturing of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand. Aurinia pays a quarterly fixed facility fee of 3.6 million Swiss Francs (approximately $4.0 million) for the exclusive right to use the Monoplant through March 31, 2030.
These organizations routinely implement cost-cutting and reimbursement initiatives that have the ability, or potential, to impact a patient’s overall access to our product. Examples of these initiatives include, but are not limited to, establishing formularies that govern the drugs and biologics that are eligible for reimbursement and the out-of-pocket obligations of member patients for such products.
These organizations routinely implement cost-cutting and reimbursement initiatives that have the ability, or potential, to impact a patient’s overall access to our product.
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.
Pricing for supply is determined through supply agreements between us and Lonza and is based on the volume produced and the cost of the raw materials used in the drug substance manufacturing process. As of the date of this Annual Report, we have not experienced any difficulty in obtaining the raw materials required with respect to the manufacturing of voclosporin.
Patent No. 10,286,036 (the '036 patent) with a term extending to December 2037, with claims directed at our LUPKYNIS dosing protocol for LN used in our clinical trials. This dosing protocol is reflected on the prescribing information approved by the FDA for LUPKYNIS.
Patent No. 10,286,036 with a term extending to December 2037. The patent claims are directed at the LUPKYNIS dosing protocol for LN used in our clinical trials. We have also filed for protection of this subject matter under the Patent Cooperation Treaty (“PCT”) and are applying for similar protection in certain member countries thereof.
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.
Importantly, the patent claims reflect the unique and proprietary dosing regimen of LUPKYNIS that is consistent with the FDA-approved product label. This patent specifies the method of treating patients with LN by administering LUPKYNIS in combination with MMF and corticosteroids and using eGFR to pharmacodynamically dose the product.
Such reports and other information are also available free of charge on our investor relations website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We make available on our website, free of charge, copies of these reports as soon as reasonably practicable after filing or furnishing these reports with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
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.
We expect that Catalent will continue to provide contract manufacturing services with respect to encapsulating voclosporin in order to manufacture voclosporin capsules that are required for our future commercial and clinical supply needs. Packaging We use a sole supplier for the blistering and packaging of LUPKYNIS commercial cartons for sale in the U.S. and for the blistering of semi-finished products.
The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
We may also be subject to foreign regulatory requirements governing clinical studies and drug products if products are tested or marketed abroad. The approval process outside of the U.S. varies from jurisdiction to jurisdiction and the time required may be longer or shorter than that required for FDA approval. Regulation in the U.S.
The FDCA provides a five year period of non-patent data exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity.
Specifically, the FDCA provides a 5-year period of marketing exclusivity within the U.S. to the applicant that gains approval of a new drug application (“NDA”) for an NCE.
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.
Additionally, physicians continue to treat LN with an off-label combination of MMF and corticosteroids alone or in combination with first generation calcineurin inhibitors such as tacrolimus. As a potential treatment for autoimmune disease, AUR200 is subject to competition from both FDA-approved and investigational products.
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.
REGULATORY EXCLUSIVITY We have received New Chemical Entity (“NCE”) exclusivity for LUPKYNIS in the U.S., which provides for exclusivity until January 22, 2026. In the U.S., NCEs approved by the FDA are eligible for market exclusivity under the U.S.
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.
Our principal executive office is located at #140, 14315 - 118 Avenue, Edmonton, Alberta, Canada T5L 4S6 and our phone number is +1 (250) 744-2487. Our website address is www.auriniapharma.com.
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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).
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Aurinia is also developing AUR200, a dual inhibitor of B cell activating factor (“BAFF”) and a proliferation inducing ligand (“APRIL”) for the potential treatment of autoimmune diseases. Net Product Sales Aurinia sells LUPKYNIS to two specialty pharmacies and a specialty distributor in the U.S., and Aurinia sells LUPKYNIS inventory to its collaboration partner, Otsuka Pharmaceutical Co., Ltd.
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LUPKYNIS is an orally administered CNI immunosuppressant that has been demonstrated to improve near and long-term outcomes in LN when used in combination with mycophenolate mofetil (MMF) (although MMF is not currently approved as such) and steroids. By inhibiting calcineurin, LUPKYNIS reduces cytokine activation and blocks interleukin IL-2 expression and T-cell mediated immune responses.
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(“Otsuka”), for the European and Japanese market. For the year ended December 31, 2024, net product sales were $216.2 million, up 36% from $158.5 million in 2023.
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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.
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LUPKYNIS Net Product Sales Cash Flow Provided by (Used in) Operating Activities For the year ended December 31, 2024, cash flow provided by (used in) operating activities was $44.4 million, compared to $(33.5) million in 2023.
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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.
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Cash Position As of December 31, 2024, Aurinia had cash, cash equivalents, restricted cash and investments of $358.5 million, compared to $350.7 million at December 31, 2023. For the year ended December 31, 2024, the Company repurchased 6.1 million of its common shares for $41.0 million.
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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.
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Otsuka Collaboration In December 2020, Aurinia entered into a collaboration and licensing agreement with Otsuka to develop and commercialize oral voclosporin in Japan, the European Union (the “E.U.”), the U.K., Switzerland, Russia, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the “Otsuka Territories”) in exchange for: (i) a $50 million upfront cash payment; (ii) regulatory and commercial milestone payments; and (iii) royalties ranging from 10% to 20% on net sales in the Otsuka Territories. 1 In August 2022, Aurinia entered into a commercial supply agreement with Otsuka to: (i) supply LUPKYNIS inventory to Otsuka at cost, plus a margin; and (ii) provide manufacturing and other services, including sharing the capacity of a dedicated manufacturing facility at Lonza 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.
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(“Lonza”), Aurinia’s contract manufacturing partner for voclosporin. Otsuka has obtained regulatory approval of LUPKYNIS in Japan, the E.U., the U.K. and Switzerland. PRODUCT PORTFOLIO LUPKYNIS (voclosporin) In January 2021, the Company introduced LUPKYNIS, the first FDA-approved oral therapy for the treatment of adult patients with active lupus nephritis (“LN”).
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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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The Company markets LUPKYNIS in the U.S. directly through its own commercial organization. In Japan, the European Union (the “E.U.”), the United Kingdom (the “U.K.”) and Switzerland, LUPKYNIS is marketed by Aurinia’s collaboration partner, Otsuka Pharmaceutical Co., Ltd. (“Otsuka”). About Lupus Nephritis (LN) LN is among the most severe and dangerous complications of systemic lupus erythematosus (“SLE”).
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STRATEGY Our business strategy is to optimize the clinical and commercial value of LUPKYNIS and evolve as a commercial biopharmaceutical company with a global product portfolio focused on autoimmune, kidney and rare diseases with high unmet medical needs. We have developed a strategic plan to execute on our commercialization of LUPKYNIS as a treatment of adult patients with active LN.
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SLE, commonly known as lupus, is a chronic autoimmune disease where the body's immune system mistakenly attacks its own healthy tissues and organs. Over 200,000 people in the United States are estimated to have SLE (U.S. Centers for Disease Control and Prevention 2024), of which 20% to 60% develop LN (KDIGO Lupus Nephritis Work Group, Kidney Int 2024;105(1S):S1-S69). a U.S.
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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.
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Centers for Disease Control and Prevention 2024 b Tamirou et al., Ann Rheum Dis 2016;75:526-531 2 Kidney damage from LN can be progressive and is associated with long-term adverse outcomes. Proteinuria is a significant risk factor for kidney damage. Even low levels of proteinuria may be associated with significant kidney damage.
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Effective immediately, we are discontinuing our future development of AUR200 and AUR300 research and development programs and prioritizing resource allocation.
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Nearly 90% of SLE patients with proteinuria Kidney Int Rep ., 2020;5(7):1066–1068).
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This will result in a one-time charge in the first quarter of 2024 of approximately $11 - $15 million and expected operational cost savings of approximately $50 - $55 million annually, with approximately 75% of the savings being recognized in 2024 excluding the one-time restructuring charge in the first quarter of 2024.
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LN Class by Proteinuria Level in Patients with SLE a a De Rosa et al., Kidney Int Reports 2020;5(7):1066-1068 Even a single flare of LN can cause irreversible nephron loss, which can potentially shorten the lifespan of the kidneys by decades (Anders et al., Nat Rev Dis Primers 2020;6(1):7).
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The Board also approved a share repurchase program of up to $150 million worth of our common shares, affirming its confidence in the Company's growth prospects. The maximum value of the share repurchase program is subject to receipt of regulatory approval in Canada.
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Every subsequent flare contributes to the accrual of kidney damage, further shortening kidney lifespan and increasing the risk of adverse long-term outcomes such as end-stage kidney disease (“ESKD”) (Anders et al., Nat Rev Dis Primers 2020;6(1):7).
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The Board initiated a robust strategic review at the end of June 2023 to review all strategic options for Aurinia. Together with management, JP Morgan, our financial advisor in the strategic review process, engaged with more than 60 parties, receiving only one non-binding expression of interest, which included a due diligence process, but did not result in a formal offer.
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Nephron loss and podocyte damage often lead to loss of kidney function as measured by glomerular filtration rate (“GFR”) and proteinuria (Anders et al., Nat Rev Dis Primers 2020;6(1):7 and Maria et al., Nat Rev Rheumatol 2020;16(5):255-267). Proteinuria as a marker of kidney damage routinely precedes GFR decline (Cravedi et al., Br J Clin Pharmacol 2013;76(4):516-523).
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Aurinia also explored potentially acquiring or licensing other entities or assets during this time. After assessing a range of alternatives over the last seven months, the Board elected to conclude Aurinia’s strategic review process.
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Even a Single Flare of LN Can Reduce the Lifespan of the Kidney a a Adapted with permission from Anders et al., Nat Rev Dis Primers 2020;6(1):7; "CKD" means chronic kidney disease. 3 Proteinuria reduction is associated with long-term renal protection.
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The Board ultimately determined that none of the explored opportunities that were available to it to pursue were in the best near-term interests of the Company to execute on and that the best path forward is for management to streamline its operations and focus on our commercial execution.
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The larger the initial reduction in proteinuria in the first several months of management, the lower the risk of ESKD (Chen et al., Clin J Am Soc Nephro 2008;3(1):46-53).
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Additionally, in 2018, the Company under previous management and at the Board’s discretion, engaged a leading investment bank to conduct a confidential strategic review process. During the 2018 process, we received only one non-binding expression of interest to acquire the Company, which included a due diligence process, but did not result in a formal offer.
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Kidney Survival Based on Proteinuria Response Status a, b a Adapted with permission from Chen et al., Clin J Am Soc Nephro 2008;3(1):46-53 b Retrospective analysis of patients (N=86) enrolled in the prospective, controlled study of plasmapheresis in severe LN to determine long-term prognosis of achieving partial response.
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Outside of these two expressions of interest, we have never received an offer of any kind to acquire the Company. The Board and management remain open to exploring opportunities that are in the best interests of the Company and are open to considering any bona fide offers that we may receive.
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Complete response was defined as SCr ≤1.4 mg/dL and proteinuria ≤0.33 g/day within 5 years of study entry, and partial response was defined as ≤25% increase in baseline SCr and ≥50% reduction in baseline proteinuria to ≤1.5 g/day (but >0.33 g/day) within 5 years of entering the study.
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We are reaffirming our commitment to enhancing value by driving LUPKYNIS growth, while maintaining a sharp focus on operating efficiencies and maximizing cash flows. As a result, we are ceasing future development efforts on AUR200 and AUR300. Correspondingly, we expect to take a restructuring charge of approximately $11 - $15 million in the first quarter of 2024.
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Kidney survival was determined by kidney failure (≥6 mg/dL SCr or the initiation of kidney replacement therapy). Mycophenolate mofetil (“MMF”) and corticosteroids alone frequently fail to substantially reduce proteinuria, with only 20% to 30% of patients achieving a complete response at 1 to 2 years. Thus, the need remains for additional treatment options (Fanouriakis et al., Ann Rheum Dis 2024;83:15-29).
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The Company anticipates reducing employee headcount by at least 25% by the end of the first quarter of 2024. There is no planned reduction in headcount in commercial or commercial supporting roles. The charge will primarily be made up of severance costs, contract termination costs and other costs associated with terminating the programs.
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How LUPKYNIS Works LUPKYNIS is a calcineurin-inhibitor immunosuppressant indicated in combination with a background immunosuppressive therapy regimen for the treatment of adult patients with active LN. LUPKYNIS targets LN with a dual mechanism of action: 1. Promotes podocyte stability, reducing proteinuria 2.
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We expect to recognize annual cost savings of approximately $50 - $55 million,with approximately 75% of the savings being recognized in 2024 excluding the one-time restructuring charge in the first quarter of 2024, with no imp act on commercial investment.
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Acts as an immunosuppressant through inhibition of T-cell activation and cytokine production Clinical Study Overview of LUPKYNIS FDA approval of LUPKYNIS was based on our pivotal Phase 3 AURORA 1 study (“AURORA 1”), which demonstrated the ability of LUPKYNIS treatment to significantly improve outcomes for patients when added to the then-typical standard of care, MMF and corticosteroids.
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In addition, the Board has approved a share repurchase program of up to $150 million of Common Shares, reflecting confidence in Aurinia’s growth prospects and a continued commitment to creating long-term value to shareholders and other stakeholders.
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AURORA 1 was a randomized, double‑blind, placebo-controlled, Phase 3 study in 357 adults with class III, IV, or V (alone or in combination with class III or IV) LN.
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We have submitted an exemptive relief application to applicable Canadian securities regulators which, if granted, would permit us to purchase up to 15% of the issued and outstanding Common Shares of the Company in any 12 month period for 36 months (the Exemptive Relief).
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In this study, patients receiving LUPKYNIS with MMF plus corticosteroids compared to patients receiving MMF plus corticosteroids alone experienced a significantly higher rate of complete renal response (“CRR”) at both Week 52 (primary endpoint) and Week 24 (secondary endpoint). 4 Significantly More Patients on LUPKYNIS Achieved a Complete Renal Response in AURORA 1 a a Rovin et al., Lancet 2021;397:2070-2080 b Stringent criteria of complete renal response as: Urine Protein-to-Creatinine Ratio (“UPCR”) of ≤0.5 mg/mg, maintained stable eGFR, sustained corticosteroids, and no administration of rescue medications LUPKYNIS in combination with MMF and corticosteroids reduced proteinuria twice as fast as MMF and corticosteroids alone.
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There is no assurance the Exemptive Relief will be granted on the terms applied for or at all.
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LUPKYNIS Rapidly Reduced Proteinuria in Fewer Days in AURORA 1 a a Rovin et al., Lancet 2021;397:2070-2080 b Secondary endpoint In the pivotal Phase 3 study (AURORA 1) and Phase 2 study (AURA-LV), adverse reactions occurring in ≥3% of patients treated with LUPKYNIS and ≥2% higher than placebo are shown below. 5 Adverse Reactions Occurring in ≥3% of Patients Treated with LUPKYNIS 23.7 mg Twice a Day and ≥2% Higher than Placebo in AURORA 1 and AURA-LV a a LUPKYNIS Prescribing Information In AURORA 2, a double‑blind, placebo-controlled extension study of adults with active LN who completed AURORA 1, LUPKYNIS demonstrated safety comparable to that seen in AURORA 1 with no unexpected safety signals observed through 3 years (LUPKYNIS Prescribing Information and Saxena et al., Arthritis Rheumatol 2024;76(1):59-67 ).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe restructuring program may yield unintended consequences, such as the loss of institutional knowledge and expertise, employee attrition beyond our intended reduction in force, a reduction in morale among our remaining employees, greater than anticipated costs incurred in connection with implementing the restructuring program, and the risks that we may not achieve the anticipated benefits from the restructuring program to the extent or as quickly as we anticipate, if at all, all of which may materially adversely affect our results of operations or financial condition.
Biggest changeThe restructuring efforts may not adequately reduce our operating costs and could yield unintended consequences, such as loss of institutional knowledge and expertise, employee attrition and a reduction in employee morale, as well as substantial demands on our employees, all of which may materially adversely affect our revenues, results of operations or financial condition, and our business may suffer. 18 Our ability to use our net operating loss carryforwards and tax credit carryforwards to offset future taxable income may be subject to certain limitations.
Additionally, the recently enacted IRA includes an excise tax on share repurchases, which will increase the cost of share repurchases. A reduction in repurchases under, or the completion of, our share repurchase programs could have a negative effect on the market price of our common shares.
A reduction in repurchases under, or the completion of, our share repurchase programs could have a negative effect on the market price of our common shares. Additionally, the recently enacted IRA includes an excise tax on share repurchases, which will increase the cost of share repurchases.
There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon U.S. federal securities laws and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws.
There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon U.S. federal securities laws and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of U.S. laws.
In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commissions, customer incentive programs and other business arrangements.
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.
Additionally, should an event occur that causes or is deemed to cause a change in the residency of Aurinia from Canada to the U.S., for example, we may be subject to certain tax rules that could cause a deemed disposition of our assets for tax purposes.
We participate in the Medicaid Drug Rebate Program, as administered by Centers for Medicare and Medicaid Services, and other federal and state government pricing programs in the United States, and we may participate in additional government pricing programs in the future.
We participate in the Medicaid Drug Rebate Program, administered by Centers for Medicare and Medicaid Services, and other federal and state government pricing programs in the U.S., and we may in the future participate in additional government pricing programs.
If Centers for Medicare and Medicaid Services were to terminate our rebate agreement, no federal payments would be available under Medicaid or Medicare for our covered outpatient products, which would harm our business. We report on various metrics relating to LUPKYNIS activity, and no single metric is indicative of, or directly correlated to, our current or future financial performance.
If Centers for Medicare and Medicaid Services were to terminate our rebate agreement, no federal payments would be available under Medicaid or Medicare for LUPKYNIS, which could harm our business. We have reported on various commercial metrics relating to LUPKYNIS, and no single metric is indicative of, or directly correlated to, our current or future financial performance.
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.
Use of hazardous materials might expose us to risk in the form of damages. 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.
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.
Furthermore, it may not be possible for investors to enforce judgments obtained in U.S. courts based upon the civil liability provisions U.S. laws against any of those persons.
The most common adverse reactions to LUPKYNIS demonstrated in our Phase 3 AURORA study were glomerular filtration rate decrease, hypertension, diarrhea, headache, anemia, cough, urinary tract infection, abdominal pain upper, dyspepsia, alopecia, renal impairment, abdominal pain, mouth ulceration, fatigue, tremor, acute kidney injury, and decreased appetite.
The most commonly reported adverse reactions in our AURORA 1 and AURORA 2 clinical studies (≥3%) were: glomerular filtration rate decreased, hypertension, diarrhea, headache, anemia, cough, urinary tract infection, abdominal pain upper, dyspepsia, alopecia, renal impairment, abdominal pain, mouth ulceration, fatigue, tremor, acute kidney injury, and decreased appetite.
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.
Unauthorized disclosures of such information could subject us to complaints or lawsuits for damages, in the U.S., Canada or other jurisdictions, or could otherwise have a negative impact on our business, financial condition, results of operations, reputation and credibility, and our business may suffer. RISKS RELATED TO FINANCIAL POSITION Our overall financial performance may not meet our expectations.
There may be an unauthorized disclosure of the significant amount of confidential information under our control. We maintain and manage confidential information relating to our technology, research and development, production, marketing, and business operations and those of our collaborators, in various forms.
We may not be able to protect the confidentiality of our trade secrets. There may be an unauthorized disclosure of confidential information under our control, such as information relating to our technology, research and development, production, marketing, and business operations and those of our collaborators, in various forms.
Some of our directors and officers reside principally in Canada or outside of the United States. Because all or a substantial portion of our assets and the assets of these persons are located outside of the United States, it may not be possible for investors to effect service of process within the United States upon us or those persons.
We are an Alberta, Canada corporation, and some of our directors and officers reside outside of the U.S. Because all or a substantial portion of the assets of these persons are located outside of the U.S., it may not be possible to effect service of process upon those persons.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the United States, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, results of operations and financial condition.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the U.S., we could be subject to additional reimbursement requirements, penalties, sanctions and fines.
These post-marketing obligations include the reporting of adverse events to the agency within specified timeframes, the submission of product-specific annual reports that include changes in the distribution, manufacturing, and labeling information, and notification when a drug product is found to have significant deviations from its approved manufacturing specifications (among others).
Post-marketing obligations include, but are not limited to, the reporting of adverse events to the regulator within specified timeframes, the submission of product-specific annual reports and notification when a drug product is found to have significant deviations from its approved manufacturing specifications. Such deviations may include unforeseen side effects.
We refer to patients who have converted from a PSF into a patient on therapy, but who subsequently cease treatment (for any reason), as discontinuations. A patient on therapy who discontinues treatment generally results in zero future revenue, and discontinuations can occur at any time once a patient commences therapy.
A patient on therapy who discontinues treatment generally results in zero future revenue, and discontinuations can occur at any time once a patient commences therapy.
Should that occur, we may be subject to a material amount of tax owing, without corresponding revenue from any actual disposition of our assets. Our common shares could fall or may not increase.
Should that occur, we may be subject to a material amount of tax owing, without corresponding revenue from any actual disposition of our assets, which would have a material adverse effect on our business and financial condition.
Under the provisions of the applicable tax legislation, our net operating loss and tax credit carryforwards are subject to review and possible adjustment by applicable tax regulatory authorities. In addition, proposed or actual changes to applicable tax legislation may significantly impact our ability to utilize our net operating losses and tax credit carryforwards to offset taxable income in the future.
In addition, proposed or actual changes to applicable tax legislation may significantly impact our ability to utilize our net operating losses and tax credit carryforwards to offset taxable income in the future. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.
Restrictions under applicable federal and state healthcare laws and regulations include, but are not limited to, the following: • the U.S. federal Anti-Kickback Statute which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid.
The laws and regulations that may affect our ability to operate include: • The AKS, which prohibits, among other things, persons from soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs.
This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of a company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
The amount of the annual limitation is determined based on the value of a company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. We may not be able to use some or all of our net operating loss and tax credit carryforwards.
In addition, there is increased focus by the Office of Inspector General on the methodologies used by manufacturers to calculate Average Manufacturer Price (AMP), and best price (BP), to assess our compliance with reporting requirements under the Medicaid Drug Rebate Program. We are liable for errors associated with our submission of pricing data and for any overcharging of government payors.
The Office of Inspector General assesses our compliance with reporting requirements under the Medicaid Drug Rebate Program. We are liable for errors associated with our submission of pricing data and for any overcharging of government payors, which could result in a civil monetary penalty.
Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with regulatory requirements, including GCP requirements, and the applicable protocol.
Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities.
These programs generally require us to pay rebates or otherwise provide discounts to government payors in connection with products, including LUPKYNIS, that are dispensed to beneficiaries of these programs.
These programs generally require us to pay rebates or otherwise provide discounts to government payors in connection with LUPKYNIS, which is dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations, which are complex.
Our restructuring program and associated organizational changes may not adequately reduce our operating costs or improve operating margins, may lead to additional workforce attrition, and may cause operational disruptions, and there can be no assurance that we will realize the anticipated benefits of the restructuring program. On February 15, 2024, we announced that we were implementing a restructuring program.
Our restructuring efforts and associated organizational changes may not adequately reduce our operating costs, may lead to additional workforce attrition and may cause operational disruptions. On February 15, 2024, we announced a strategic restructuring that reduced headcount by approximately 25% and discontinued Aurinia’s AUR300 development program.
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.
If we are found to be in violation of any of the laws or regulations described above or any other laws or regulations that apply to us (including any changes made to such laws or regulations, or new laws or regulations implemented, by applicable government entities), we may be subject to substantial penalties, including civil and criminal penalties, damages, fines and possible exclusion from participation in Medicare, Medicaid and other federal health care programs.
Government authorities and other third-party payors such as private health insurers and health maintenance organizations, decide which medication they will pay for and establish reimbursement levels, which for the product, is beyond our control. A primary trend in the U.S. healthcare industry and elsewhere is cost containment.
Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medication they will pay for and establish reimbursement levels. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products.
If we, or any of our CROs or third party contractors, fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials.
If we, the investigators or the clinical sites fail to comply with applicable cGCPs, the clinical data generated in our clinical studies may be deemed unreliable and the regulatory authorities may require us to perform additional clinical studies before approving our marketing applications, which would delay or compromise the regulatory approval process.
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.
It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in protecting us from governmental actions or lawsuits.
Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular products. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for products.
Increasingly, third-party payors are requiring that drug manufacturers provide them with predetermined discounts from list prices and are challenging the prices charged for products. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could harm our ability to operate our business and our results of operations.
If any such actions are instituted against us, and we are not successful in defending ourselves, those actions, including the imposition of significant fines or other sanctions, could have a material adverse effect on our business and results of operations.
There can be no assurance that we will continue to repurchase Common Shares or that we will repurchase Common Shares at favorable prices. Our Board has the authority to authorized share repurchase programs. On February 15, 2024, we announced that we would commence our first share repurchase program.
If we need to raise additional capital and are unable to do so, we may be forced to curtail or cease our operations. There can be no assurance that we will continue to repurchase Common Shares or that we will repurchase Common Shares at favorable prices. Our Board has the authority to authorize share repurchase programs.
In the event of such an accident, we could be held liable for any damages that result and such liability could exceed our resources. Health and safety risks associated with producing a product for human ingestion cannot be eliminated and might expose us to substantial risk.
In the event of such an accident, we could be held liable for any damages that result and such liability could exceed our resources. Item 1B. Unresolved Staff Comments None.
The implementation and interpretation of new patent laws could make it more difficult to obtain patent protection for our inventions and increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business, results of operations and financial condition. The U.S.
In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of operations and financial condition, and our business may suffer.
Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors. Private third-party payors often rely on Medicare coverage policy and payment limitations in setting their own reimbursement policies.
Private third-party payors often rely on Medicare coverage policy and payment limitations in setting their own reimbursement policies. If LUPKYNIS is subject to unfavorable pricing regulations and/or third-party coverage and reimbursement policies, the commercial prospects for LUPKYNIS may be limited, and our business may suffer.
Even when a patient becomes a patient on therapy, there is no guarantee that they will be a patient for which we receive revenue (as certain patients are eligible for our free drug program), or that they will remain on drug for any period of time (whether due to a reduction in LN activity, an actual (or perceived) drug-related adverse event, or from a lack of taking medication, or otherwise).
Even when a patient becomes a patient on LUPKYNIS therapy, there is no guarantee that they will be a patient for which we recognize revenue, or that they will remain on therapy for any period of time.
None of these metrics, in and of themselves, is indicative of current or future financial performance. There is no guarantee that a patient for whom we receive a PSF will become a patient on therapy, or that the number of patients estimated from hospital fills are accurate.
We have reported on various commercial metrics relating to LUPKYNIS activity, including the number of prescriptions/PSFs, persistency rates, the number of patients on therapy, patient restarts and patients resulting from hospital fills. None of these metrics, in and of themselves, is indicative of current or future financial performance.
For example, failure to submit monthly/quarterly AMP and BP data on a timely basis could result in a civil monetary penalty per day for each day the submission is late beyond the due date. Failure to make necessary disclosures and/or to identify overpayments could result in allegations against us under the Federal False Claims Act and other laws and regulations.
Failure to make necessary disclosures and/or to identify overpayments could result in allegations against us under the U.S. False Claims Act (“FCA”) and other laws and regulations.
Our ability to use our net operating loss carryforwards and tax credit carryforwards to offset future taxable income may be subject to certain limitations. We may also be subject to other potential tax consequences.
We may also be subject to other potential tax consequences. Under the provisions of the applicable tax legislation, our net operating loss and tax credit carryforwards are subject to review and possible adjustment by applicable tax regulatory authorities.
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.
Our ongoing compliance with such mandatory reporting requirements could result in additional requests for information that could result in a product recall, strengthened warnings, revisions to other label information, conducting additional clinical studies or the imposition of other risk-management measures. Regulators may also require the withdrawal of the product from the market.
After a regulatory body, such as the FDA, approves a drug or biologic for marketing, the product’s sponsor must comply with several post-marketing obligations that continue until the product is discontinued.
Compliance with ongoing post-marketing obligations for LUPKYNIS may uncover new safety information that could give rise to a product recall, updated warnings or other regulatory actions. After a regulator, such as the FDA, approves a product for marketing, the product’s sponsor must comply with post-marketing obligations.
Our ability to commercialize LUPKYNIS successfully will also depend in part on the extent to which coverage and reimbursement for LUPKYNIS will be available from government authorities, private health insurers and other organizations. In the United States and markets in other countries, patients generally rely on third-party reimbursement for all or part of the costs associated with their treatment.
In the U.S. and markets in other countries, patients generally rely on third-party reimbursement for all or part of the costs associated with their treatment. Adequate coverage and reimbursement from governmental healthcare programs, such as Medicaid and Medicare, and commercial payors is critical to market acceptance of our products.
If these third parties do not successfully carry out their contractual duties in compliance with regulations or meet expected deadlines, we might be subject to regulatory penalties or fines due to non-compliance with our post-marketing approval requirements.
If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the work they perform is compromised due to the failure to adhere to regulatory requirements or for other reasons, we may face delays in the studies, regulatory submissions, regulatory approval or commercialization of AUR200.
If any of the following events occur or risks materialize, it could harm our business, operating results and financial condition and cause the trading price of our common shares to decline. Risks Related to Commercialization Our success depends on our ability to commercialize LUPKYNIS .
In any such case, the trading price of our common shares of stock could decline, and you could lose all or part of your investment. RISKS RELATED TO COMMERCIALIZATION We are substantially dependent on the commercial success of LUPKYNIS. The success of our business is substantially dependent on our ability to successfully commercialize LUPKYNIS, our sole approved product.
You may be unable to enforce actions against us, or certain of our directors and officers under U.S. federal securities laws. As a corporation organized under the provincial laws of Alberta, Canada, it may be difficult to bring actions under U.S. federal securities law against us.
For example, if one of these events were to adversely affect one of our contract manufacturers, our supply of LUPKYNIS could be interrupted. 23 You may be unable to enforce actions against us, or certain of our directors and officers under U.S. laws.
Securities litigation or other litigation could result in substantial damages and may divert management’s time and attention from our business. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities.
Any of these factors may result in volatile changes in the volume and trading price of our common shares. In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation against that company.
We can provide no assurance that we will repurchase common shares at favorable prices, if at all.
We can provide no assurance that we will repurchase common shares at favorable prices, if at all. GENERAL RISK FACTORS Our ability to hire and retain key employees is uncertain. The market for effective professionals in the pharmaceutical industry is competitive and hiring and retaining these professionals is expensive and challenging.
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.
Any of these post-marketing regulatory actions could materially affect our sales and increase our costs, and our business may suffer. Failure to obtain regulatory approval in international jurisdictions would prevent our products, our product candidates or any other products we or our current or future out-licensees may develop from being marketed abroad.
Risks Related to Financial Position and Need for Additional Capital We may continue to have negative cash flow and we may never achieve or maintain profitability. We had negative operating cash flow for multiple years, including the year ended December 31, 2023.
LUPKYNIS is our only approved product and our only source of net product sales. Prior to the year ended December 31, 2024, we had negative operating cash flow for multiple years.
We may become involved in lawsuits to protect or enforce our patents and other intellectual property rights, which could be expensive, time-consuming, and unsuccessful. Competitors or commercial supply companies or others may infringe our patents and other intellectual property rights.
We depend globally on patents and other granted rights to prevent others from improperly benefiting from our commercial product, LUPKYNIS, and products or inventions that we develop or acquire. Protecting our patents and other intellectual property may require us to file infringement actions, which may be expensive and time-consuming.
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 can provide no assurance that additional financing will be available to us on favorable terms, or at all. If we issue additional equity securities or securities convertible into equity securities, you may suffer dilution to your investment, and such issuance may adversely affect the trading price of our common shares.
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Item 1A. Risk Factors Our business is subject to numerous risks. You should carefully consider the following risks and all other information contained in or incorporated by reference in this Annual Report, as well as general economic and business risks, together with any other documents we file with the SEC.
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Item 1A. Risk Factors An investment in our common shares involves a high degree of risk. You should carefully consider the material risks and uncertainties described below before deciding whether to purchase our common shares. Certain risks may be applicable to multiple categories but are only included once below.
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The risks set out below are not the only risks we face; risks and uncertainties not currently known to use or that we currently deem to be immaterial may also harm our business, operating results and financial condition.
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In assessing these risks, you should also refer to the other information contained in this Annual Report, including our audited financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our business, financial condition, results of operations, cash flow, reputation and prospects could be materially and adversely affected by any of these risks and uncertainties, as well as other risks and uncertainties not currently known to us or that we currently do not believe to be material.
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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.
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The Company markets LUPKYNIS in the U.S. directly through its own commercial organization. The market for effective pharmaceutical sales and marketing professionals is competitive, and maintaining these capabilities is expensive and challenging. If we are unable to maintain an effective sales and marketing organization, LUPKYNIS sales could be adversely affected, and our business may suffer.
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We have invested a significant portion of our efforts and financial resources in the development and commercialization of LUPKYNIS, and we expect LUPKYNIS to constitute our only product revenue for the foreseeable future. Our success depends on our ability to commercialize LUPKYNIS successfully. Successful commercialization of LUPKYNIS is subject to many risks.
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LUPKYNIS’s competition as a treatment in LN patients includes BENLYSTA and physicians continuing to treat LN with an off-label combination of MMF and corticosteroids alone or in combination with first generation calcineurin inhibitors such as tacrolimus. If we are unable to further change treatment practices, further growth of LUPKYNIS net product sales will be limited, and our business may suffer.
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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.
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We may be subject to additional competition from future products. In an effort to remain competitive in the marketplace, we may determine to change our pricing, dosage forms and strengths and other marketing strategies for LUPKYNIS, including altering the amount or availability of discounts or rebates.
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In order to market LUPKYNIS successfully, we must continue to build our sales, marketing, managerial, compliance, and related capabilities or make arrangements with third parties to perform these services.
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Any such changes could have short-term or long-term negative impacts on net product sales, which could cause our business and results of operations to suffer.
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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.
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Price increases or changes to our marketing strategies may also negatively affect our reputation and our ability to secure and maintain reimbursement coverage for LUPKYNIS, which could result in decreased demand and cause our business and results of operations to suffer.
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These efforts have been and will continue to be expensive and time-consuming, and we cannot be certain that we will be able to successfully develop and maintain this capability. LUPKYNIS has only been a marketed product since January 2021. In addition, prior to December 2020, there were no FDA approved treatments for LN.
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If we are unable to successfully price or market LUPKYNIS, the commercial prospects for LUPKYNIS will be limited, and our business may suffer. Our estimates of the potential market size for LUPKYNIS are based on prescription and sales data for relevant in-market products, the results of clinical studies, medical literature and other information.
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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.
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If the potential market size for LUPKYNIS is smaller than we estimate, the commercial prospects for LUPKYNIS may be limited, and our business may suffer. Product liability or other lawsuits against us could cause us to incur substantial liabilities and reduce LUPKYNIS sales. Patients suffering from LN may become gravely ill.
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Our ability to generate revenues and meet expectations is contingent on the successful commercialization of LUPKYNIS.
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Some patients who are treated with LUPKYNIS may die due to their underlying illness or suffer adverse events (which may or may not be drug related). As such, we may face product liability lawsuits. Although we carry product liability insurance, product liability lawsuits against us could cause us to incur substantial liabilities and reduce LUPKYNIS sales.
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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.
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Furthermore, any such lawsuits could impair our business reputation and result in the initiation of investigations by regulators.
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Many of these factors are beyond our control and if we are not successful in commercializing LUPKYNIS, or are significantly delayed in doing so, our business will be harmed, and we may need to curtail or cease operations.
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Additionally, we may not have and may not be able to obtain insurance on acceptable terms or with adequate coverage against potential liabilities or other losses if any claim or lawsuit is brought against us, regardless of the success or failure of the claim or lawsuit.
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We depend on a limited number of customers and an estimated number of patients for a significant amount of our product revenue, and if we lose any of our significant customers, or if our estimates as to the number of potential patients is wrong, our business could be harmed.
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Even where claims are submitted to insurance carriers for defense and indemnity, there can be no assurance that the claims will be fully covered by insurance or that the indemnitors or insurers will remain financially viable to cover the cost of such claims. Any such claims or lawsuits could materially impact our financial condition, and our business may suffer.
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The bulk of our product revenue is generated in the United States from a limited number of direct customers and most of our product revenue comes from two specialty pharmacies. Revenues from our two main customers in the U.S. accounted for approximately 51% and 40%, respectively, of our total revenues for the year ended December 31, 2023.
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The commercial success of LUPKYNIS in certain ex-U.S. territories is dependent on the fulfillment of contractual obligations under our out-license agreement and commercial supply agreement.
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Our third main customer is our collaboration partner, Otsuka. When combined, revenues from our two specialty pharmacy customers and Otsuka account for approximately 99% of our total revenues for the year ended December 31, 2023. The loss by us of any of these customers, or a material reduction in their purchases, could harm our business and prospects.
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In December 2020, we entered into a collaboration and licensing agreement with Otsuka to develop and commercialize oral voclosporin in Japan, the E.U., the U.K., Switzerland, Russia, Norway, Belarus, Iceland, Liechtenstein and Ukraine 15 (collectively, the “Otsuka Territories”) in exchange for: (i) a $50 million upfront cash payment; (ii) regulatory and commercial milestone payments; and (iii) royalties ranging from 10% to 20% on net sales in the Otsuka Territories.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeOur CIO has over 20 years of experience in information security and holds an MBA from The George B. Delaplaine School of Business and Economics. Our CIO regularly receives reports from our Head of IT Operations on cybersecurity threats and incidents, as applicable. 49
Biggest changeIn addition, our Chief Information Officer ("CIO") is responsible for leading the assessment and management of cybersecurity risks. Our CIO, who has held this position since 2021, has over 20 years of experience in information security and holds an MBA from The George B. Delaplaine School of Business and Economics.
This policy promotes the management and execution of our information security framework for preserving the confidentiality, integrity, availability and privacy of our information assets, including by helping enable us to better oversee, monitor and identify certain risks related to the processing of information by authorized third-party service providers.
This policy promotes the management and execution of our information security framework for preserving the confidentiality, integrity, availability and 24 privacy of our information assets, including by helping enable us to better oversee, monitor and identify certain risks related to the processing of information by authorized third-party service providers.
During 2023, we refreshed our business continuity program to assess the resilience of our processes and systems against potential threats, including cyber-attacks. Our refreshed crisis management and business continuity program establishes crisis management instructions with a detailed plan for each business department outlining critical processes, internal and external dependencies and recovery strategies.
During 2024, we refreshed our business continuity program to assess the resilience of our processes and systems against potential threats, including cyber-attacks. Our refreshed crisis management and business continuity program establishes crisis management instructions with a detailed plan for each business department outlining critical processes, internal and external dependencies and recovery strategies.
Item 1C. Cybersecurity Risk Management and Strategy We maintain a cybersecurity risk management program and related policies and processes to identify, assess and manage material risks from cybersecurity threats. Our Information Security Policy is designed to align with certain best practices, including the EU General Data Protection Regulation (GDPR).
Item 1C. Cybersecurity Risk Management and Strategy We maintain a cybersecurity risk management program as part of the Company's overall risk management framework and related policies and processes to identify, assess and manage material risks from cybersecurity threats. Our Information Security Policy is designed to align with certain best practices, including GDPR.
We do not believe that cybersecurity threats resulting from any previous cybersecurity incidents of which we are aware are reasonably likely to materially affect our Company. 48 Governance One of the key functions of our Board is informed oversight of our risk management process.
We do not believe that cybersecurity threats resulting from any previous cybersecurity incidents of which we are aware are reasonably likely to materially affect our Company.
Our Audit Committee charter sets forth the responsibilities of the Audit Committee consistent with the rules and regulations of the applicable SEC and the Nasdaq rules, including reviewing the Company's approach to risk mitigation with respect to IT and cybersecurity.
Our Audit Committee charter sets forth the responsibilities of the Audit Committee consistent with applicable SEC and Nasdaq rules, including reviewing our approach to risk mitigation with respect to IT and cybersecurity. An information security update is provided quarterly, or as needed, to the Audit Committee, with a detailed review provided at least annually, or as needed.
Our Board does not have a standing risk management committee, but rather administers this oversight function directly through the Board, as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight.
Our Board administers the risk oversight function directly through the Board, as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight. The Board at least annually reviews management's annual enterprise risk assessment, business continuity process and cybersecurity posture.
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The Board as a whole regularly (and no less than annually) reviews management's annual enterprise risk assessment, business continuity process and cybersecurity posture.
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We implement a layered strategy for overseeing and identifying material risks from cybersecurity threats associated with our use of third party service providers, including: (i) the use of a suite of Microsoft tools (including Microsoft Defender); (ii) a cloud IT strategy that eliminates any central platform; (iii) engaging a cybersecurity firm that monitors our systems 24/7 and provides daily alerts and updates; (iv) regular cybersecurity training for all employees and contractors; and (v) policies and procedures that govern employee activities along with technical controls in place to enforce those policies and procedures.
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An information security update is provided quarterly, or as needed, to the Audit Committee, with a detailed review provided at least annually, or as needed. In addition, our Chief Information Officer (CIO) is responsible for leading the assessment and management of cybersecurity risks.
Added
See “We rely significantly on information technology and any failure, inadequacy, or security lapse of that technology, including any cybersecurity incidents, could harm us” in the “Risk Factors” section of this Annual Report for further information. Governance One of the key functions of our Board is informed oversight of our risk management process.
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He was previously CIO at Autolus Therapeutics from 2018 to 2021, and CIO at Sucampo Pharmaceuticals from 2015 to 2018. Prior to that, he was a Director, IT at AstraZeneca from 2008 to 2015. Our CIO regularly receives reports from our Head of Enterprise Technology along with our cybersecurity partners on cybersecurity threats and incidents, as applicable.

Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeItem 2. Properties update We lease 4,375 square feet of office space in Edmonton, Alberta, which serves as our principal executive office. We lease 30,531 square feet of office space in Rockville, Maryland, which serves as our commercial office. We believe these facilities are adequate to meet our current and future needs. Item 3.
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We believe that our existing facilities are adequate to meet our current needs, and that suitable additional or alternative spaces will be available in the future on commercially reasonable terms.
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Legal Proceedings We are not currently a party to any material legal proceedings. Item 4. Mine Safety Disclosures Not applicable. 25 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe actual number of shareholders is greater than this number of registered holders of record, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Biggest changeCertain of our common shares are held in “street” name, and, accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number. The number of holders of record also does not include shareholders whose shares may be held in trust by other entities.
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.
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 20, 2025, we had 112 registered holders.
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.
AUPH $ 100.00 $ 68.26 $ 112.88 $ 21.32 $ 44.37 $ 44.32 NASDAQ Biotechnology Index ^NBI $ 100.00 $ 125.69 $ 124.89 $ 111.27 $ 115.42 $ 113.84 NASDAQ Composite Index ^IXIC $ 100.00 $ 143.64 $ 174.36 $ 116.65 $ 167.30 $ 215.22 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.
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.
Any future determination to pay dividends will be at the discretion of our Board and will depend on then-existing conditions, including our financial condition, results of operations, projections, liquidity, contractual restrictions, legal requirements and other factors that our Board deems relevant.
Cumulative 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.
The historical share price performance of our common shares shown in the performance graph is not necessarily indicative of future share price performance. Cumulative Total Return Date Ended Ticker December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 December 31, 2024 Aurinia Pharmaceuticals Inc.
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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.
Added
Dividends We have never paid dividends on our common shares, and we do not have any plans to pay dividends.
Removed
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.
Added
Purchases of Equity Securities by the Issuer or Affiliated Purchasers In February 2024, the Board approved a share repurchase program of up to $150 million of shares of our common shares (“Share Repurchase Plan”). Purchases under the share repurchase program commenced on February 21, 2024.
Removed
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.
Added
For the year ended December 31, 2024, the Company repurchased 6.1 million of its common shares for $41.0 million. The timing and amount of future repurchase transactions will be determined by management based on its evaluation of market conditions, share price, legal requirements, including applicable blackout period restrictions, and other factors.
Removed
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.
Added
Under Alberta law, the repurchased common shares are cancelled and not reissued. The following table summarizes the common share activity of our repurchased shares under the Share Repurchase Plan.
Added
Period Total number of shares purchased Average price paid per share in $ Total number of shares purchased as part of publicly announced program Maximum approximate dollar value of shares that may yet be purchased under program (in thousands) (1) 2/21/2024-2/29/2024 1,732,787 $5.77 1,732,787 $140,000 3/1/2024-3/31/2024 640,587 $4.98 640,587 $136,809 4/1/2024-4/30/2024 1,049,556 $4.93 1,049,556 $131,638 5/1/2024-5/31/2024 891 $4.99 891 $131,633 11/1/2024-11/30/2024 2,371,612 $8.43 2,371,612 $111,633 12/1/2024-12/31/2024 257,206 $8.98 257,206 $109,325 Total 6,052,639 6,052,639 (1) Does not include broker commissions.
Added
The Company has entered into a Rule 10b5-1 stock repurchase plan for the purpose of establishing a trading plan to purchase the Company’s common shares in a manner intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and in accordance with applicable Canadian securities laws. 26 Performance Graph The following line graph compares the cumulative total shareholder return through December 31, 2024, by an investor who invested $100 on December 31, 2019 in each of: (i) our common shares; (ii) the Nasdaq Biotechnology Index; and (iii) the Nasdaq Composite Index.

Item 7. Management's Discussion & Analysis

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

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Biggest changeImpact 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.
Biggest changeResults of Operations Comparison of the Years Ended December 31, 2024 and 2023 The following table sets forth our results of operations for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Change Revenue Net product sales $ 216,186 $ 158,533 $ 57,653 License, collaboration and royalty revenue 18,947 16,980 1,967 Total revenue 235,133 175,513 59,620 Operating expenses Cost of revenue 28,248 14,148 14,100 Selling, general and administrative 172,028 195,036 (23,008) Research and development 20,785 49,641 (28,856) Restructuring 23,106 — 23,106 Other (income) expense, net (4,347) 8,379 (12,726) Total operating expenses 239,820 267,204 (27,384) Loss from operations (4,687) (91,691) 87,004 Interest income 16,970 16,997 (27) Interest expense (4,835) (2,775) (2,060) Net income (loss) before income taxes 7,448 (77,469) 84,917 Income tax expense 1,696 551 1,145 Net income (loss) $ 5,752 $ (78,020) $ 83,772 28 Net Product Sales Aurinia sells LUPKYNIS to two specialty pharmacies and a specialty distributor in the U.S., and Aurinia sells LUPKYNIS inventory to its collaboration partner, Otsuka Pharmaceutical Co., Ltd.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following management’s discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the notes thereto included in this Annual Report .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the notes thereto and other financial information included in this Annual Report.
Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP.
Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
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.
Discussion of 2022 and year-to-year comparisons between 2023 and 2022 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, 2023, filed with the SEC on February 15, 2024.
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.
Overview Aurinia is a biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, the Company introduced LUPKYNIS ® (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active lupus nephritis (“LN”).
We use a data aggregator and historical claims to estimate variable consideration for inventory sold to our customers, including specialty pharmacies and specialty distributors, that has not yet been dispensed. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment.
We use a data aggregator and historical claims to estimate variable consideration for inventory sold to our customers that has not yet been dispensed. Actual amounts of consideration ultimately received may differ from our estimates.
While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Annual Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements in Item 15 of this Annual Report, we believe that the following critical accounting policy and underlying estimates are most critical to understanding our reported financial results.
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.
The increase is primarily due to an increase in the number of LUPKYNIS cartons sold to specialty pharmacies, driven by further LN market penetration.
Amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Significant judgment is required in estimating variable consideration. In making these estimates, we consider historical data, including patient mix and inventory sold to our customers that has not yet been dispensed.
Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Significant judgment is required in estimating variable consideration. In making these estimates, we consider historical data, including patient mix and inventory sold to our customers that has not yet been dispensed.
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.
The increase is primarily due to an increase in: (i) amortization of the finance lease right-of-use asset recognized in connection with the Monoplant, which was placed into service in late June 2023; (ii) Aurinia’s net sales of LUPKYNIS inventory to Otsuka; and (iii) Aurinia’s net sales of LUPKYNIS in the U.S.
GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience.
We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S.
The preparation of these audited consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis.
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.
Other (Income) Expense, Net For the year ended December 31, 2024, other (income) expense, net was $(4.3) million, compared to $8.4 million in 2023.
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.
The decrease in R&D non-personnel expense was primarily a result of discontinuing our AUR300 development program in February 2024, and the timing of development activities for our AUR200 program. 30 We expect our R&D expenses to increase for the foreseeable future as we advance AUR200 through clinical development and continue to meet our post-approval obligations with the FDA related to LUPKYNIS.
Reserves for discounts and allowances: Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.
Net Product Sales Revenue from product sales is recognized when the customer obtains control of our product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of prompt-pay discounts, customer fees, government rebates, co-payment assistance, payor rebates and administration fees for which 31 reserves are established.
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.
For the year ended December 31, 2024, license, collaboration and royalty revenue was $18.9 million, up 11% from $17.0 million in 2023. The increase is primarily due to an increase in manufacturing services provided to Otsuka for sharing the capacity of the Monoplant, which commenced in late 2023.
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.
If actual results vary materially from our estimates, we adjust these estimates, which will affect net product sales and earnings in the period such estimates are adjusted. As of December 31, 2024, we did not have any material adjustments to variable consideration estimates based on actual results.
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.
The change is primarily due to: (i) changes in the foreign exchange remeasurement of the finance lease liability recognized in connection with the Monoplant, which commenced in late June 2023 and is denominated in Swiss Francs; (ii) changes in the fair value assumptions related to our deferred compensation liability; and (iii) a one-time expense in 2023 related to shareholder matters.
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.
The following table summarizes our R&D expense for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Change Personnel expense: Salaries, incentive pay and benefits $ 6,461 $ 14,546 $ (8,085) Share-based compensation (1,329) 7,533 (8,862) Total personnel expense 5,132 22,079 (16,947) Non-personnel expense: Contract research organizations and developmental expenses 12,526 17,858 (5,332) Clinical supply and distribution 2,530 9,104 (6,574) Other 597 600 (3) Total non-personnel expense 15,653 27,562 (11,909) Total R&D expense $ 20,785 $ 49,641 $ (28,856) The decrease in R&D personnel-expense was primarily a result of a reduction of headcount from our strategic restructuring efforts in 2024, including the reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards.
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.
Aurinia recognized revenue for a $10.0 million milestone in 2024 for the approval of LUPKYNIS for the treatment of LN in Japan by the Japanese Ministry of Health, Labour and Welfare and a $10.0 million milestone in 2023 for pricing and reimbursement approval in certain European jurisdictions.
In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Annual Report. Our actual results may differ materially from those contained in any forward-looking statements.
You should review the “Risk Factors” set forth in this Annual Report for a discussion of important factors that could cause our actual results may differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis. The following generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles.
Critical accounting estimates are those estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations.
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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.
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Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.
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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.
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Aurinia is also developing AUR200, a dual inhibitor of B cell activating factor (BAFF) and a proliferation inducing ligand (APRIL) for the potential treatment of autoimmune diseases.
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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.
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(“Otsuka”), for the European and Japanese market. The two specialty pharmacies, specialty distributor and Otsuka are considered our customers for accounting purposes. For the year ended December 31, 2024, net product sales were $216.2 million, up 36% from $158.5 million in 2023.
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LUPKYNIS is an orally administered CNI immunosuppressant that has been demonstrated to improve near and long-term outcomes in LN when used in combination with MMF (although MMF is not currently approved as such) and steroids. By inhibiting calcineurin, LUPKYNIS reduces cytokine activation and blocks interleukin IL-2 expression and T-cell mediated immune responses.
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License, Collaboration and Royalty Revenue License, collaboration and royalty revenue consists of revenue from a collaboration and licensing agreement with Otsuka to develop and commercialize oral voclosporin in Japan, the European Union (the “E.U.”), the United Kingdom (the “U.K.”), Switzerland, Russia, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the “Otsuka Territories”) in exchange for: (i) a $50 million upfront cash payment; (ii) regulatory and commercial milestone payments; and (iii) royalties ranging from 10% to 20% on net sales in the Otsuka Territories.
Removed
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.
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License, collaboration and royalty revenue also consists of revenue from a commercial supply agreement with Otsuka to provide manufacturing and other services, including sharing the capacity of a dedicated manufacturing facility at Lonza Ltd. (“Lonza”), Aurinia’s contract manufacturing partner for voclosporin.
Removed
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.
Added
Cost of Revenue Cost of revenue consists primarily of expense associated with: (ii) amortization of the finance lease right-of-use asset recognized in connection with the Monoplant; (ii) manufacturing; and (iii) shipping, storage and distribution. In December 2020, Aurinia entered into a manufacturing services agreement with Lonza for the construction of a dedicated manufacturing facility for voclosporin (the “Monoplant”).
Removed
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.
Added
The construction of the Monoplant began in January 2021 and manufacturing of voclosporin began in late June 2023. The Monoplant is equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacturing of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand.
Removed
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.
Added
Aurinia pays a quarterly fixed facility fee of 3.6 million Swiss Francs (approximately $4.0 million) for the exclusive right to use the Monoplant through March 31, 2030. For the year ended December 31, 2024, cost of revenue was $28.2 million, compared to $14.1 million in 2023.
Removed
The effects of material revisions in estimates, if any, are reflected in our financial statements prospectively from the date of the change in estimate.
Added
For the year ended December 31, 2024, gross margin was 88%, compared to 92% in 2023. Selling, General and Administrative Expense Selling, general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to support growing sales of LUPKYNIS. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions.
Removed
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.
Added
Non-personnel-related expense includes: (i) selling, patient 29 services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows; and (ii) other general and administrative costs, including consulting, legal, patent, insurance, accounting, information technology and facilities.
Removed
Our estimates established for variable consideration are calculated based upon utilizing the expected value method.
Added
The following table summarizes our SG&A expense for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Change Personnel-expense: Salaries, incentive pay and benefits $ 73,231 $ 82,768 $ (9,537) Share-based compensation 31,641 36,511 (4,870) Total personnel expense 104,872 119,279 (14,407) Non-personnel expense: Professional fees and services 33,809 32,874 935 Marketing and advertising 14,094 18,287 (4,193) Travel, sponsorships and trade shows 8,605 11,281 (2,676) Other 10,648 13,315 (2,667) Total non-personnel expense 67,156 75,757 (8,601) Total SG&A expense $ 172,028 $ 195,036 $ (23,008) The decrease in SG&A personnel-expense and non-personnel expense were primarily a result of lower employee-related general and administrative costs, including share-based compensation, and overhead costs resulting from our strategic restructuring efforts in 2024.
Removed
The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period.
Added
We expect our SG&A expense to decrease in 2025 as we realize the full benefits of our strategic restructuring efforts. Research and Development Expense Research and development (“R&D”) expense consists of personnel and non-personnel expenses. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in research and development functions.
Removed
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.
Added
Non-personnel-related expense includes subcontractors and materials used for R&D activities, including development, clinical trials, clinical supply and distribution, and other professional services.
Removed
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.
Added
Restructuring Expense Restructuring expense consists primarily of one-time termination benefits to affected employees, including severance and health care benefits, contract terminations and other costs related to our strategic restructuring efforts in 2024. On February 15, 2024, we announced a strategic restructuring that reduced headcount by approximately 25% and discontinued Aurinia’s AUR300 development program.
Removed
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.
Added
On November 7, 2024, we announced another strategic restructuring that further reduced headcount by approximately 45% to sharpen the Company's focus on continued LUPKYNIS growth and the rapid development of AUR200. For the year ended December 31, 2024, restructuring expense was $23.1 million, compared to nil in 2023.
Removed
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.
Added
Liquidity and Capital Resources As of December 31, 2024, Aurinia had cash, cash equivalents, restricted cash and investments of $358.5 million, compared to $350.7 million at December 31, 2023 . For the year ended December 31, 2024, the Company repurchased 6.1 million of its common shares for $41.0 million.
Removed
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.
Added
For the year ended December 31, 2024, cash flow provided by (used in) operating activities was $44.4 million, compared to $(33.5) million in 2023. Based on our current operating plans and projections, the Company expects to fund future operations with existing cash or cash generated from operations.
Removed
The deferred compensation is based on an income approach for the estimated future net revenues of voclosporin using an internal risk-adjusted net present value of the future payments to be made to the individuals.
Added
The amount and timing of additional future funding needs, if any, will depend on many factors, including the success of our commercialization efforts for LUPKYNIS and our ability to control expenses. If necessary, we intend to raise additional capital through equity or debt financings.
Removed
Initially, these obligations are measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting periods. Subsequent re-measurements as a result of performance obligations we meet or changes in assumptions are recognized in the consolidated statement of operations.
Added
We can provide no assurance that additional financing will be available to us on favorable terms, or at all. Refer to the Notes to Consolidated Financial Statements, including Note 5, of Item 15 of this Annual Report for Aurinia’s material cash requirements from known contractual and other obligations as of December 31, 2024.
Removed
There have been no material historical adjustments to amounts recorded in the consolidated statement of operations in prior periods.
Added
Impact of Recently Issued Accounting Pronouncements We describe the impact of recently issued accounting pronouncements that apply to us in Note 2 of Item 15 of this Annual Report.
Removed
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
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.
Removed
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
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
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
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
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
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
Taking 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.
Removed
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.
Removed
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.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+6 added−12 removed0 unchanged
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.
Biggest changeAs of December 31, 2024, we recognized a $72.5 million finance lease liability on our consolidated balance sheet related to the Monoplant. A hypothetical 10% increase or decrease in the Swiss Franc compared to the U.S. dollar would have a $7.5 million fluctuation in the valuation of the lease liability.
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. Foreign Currency Risk We are exposed to financial risk related to the fluctuation of foreign currency exchange rates.
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.
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.
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. The Company has had no historical write-offs related to our customers or receivables. 32
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.
As of December 31, 2024, there were no other foreign currency fluctuations that would have had a material impact on our financial condition or results of operations. Credit Risk Financial instruments that potentially expose the Company to credit risk consist of cash, cash equivalents, investments and accounts receivable.
Our investment policy limits investments to certain types of debt and money market instruments issued by institutions primarily with investment grade credit ratings and places restriction on maturities and concentrations by asset class and issuer.
Our investment policy limits the investment of excess cash to certain types of instruments such as certificates of deposit, money market instruments, U.S. treasury securities, U.S. government agency securities and highly rated corporate debt securities, and places restrictions on maturities and concentrations by asset class and issuer.
Removed
Item 7A. Quantitative and Qualitative Disclosures about Market Risks Our activities can expose us to market risks which include interest rate risk, foreign currency risk, inflation risk and credit risk. Risk management is carried out by management under policies approved by our Board of Directors. Our overall risk management program seeks to minimize adverse effects on our financial performance.
Added
Item 7A. Quantitative and Qualitative Disclosures about Market Risks Interest Rate Risk Financial instruments that potentially expose the Company to interest rate risk consist of cash, cash equivalents, restricted cash and investments. These instruments consist of certificates of deposits, money market instruments and investments in U.S. treasury securities, U.S. government agency securities and highly rated corporate debt securities.
Removed
Interest Rate Risk Financial assets and financial liabilities with variable interest rates expose us to cash flow interest rate risk. We manage our interest rate risk by maximizing the interest income earned on excess funds while maintaining the liquidity necessary to conduct operations on a day-to-day basis.
Added
As of December 31, 2024, these instruments had a weighted average remaining maturity of 7 months. As of December 31, 2024, a hypothetical 1% increase or decrease in interest rates would have resulted in a $2.8 million fluctuation of annual interest income in our investment portfolio.
Removed
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.
Added
Foreign Currency Exchange Rate Risk The Company’s potential exposure to foreign currency exchange rate risk consists primarily of fixed facility payments due under our manufacturing services agreement with Lonza Ltd. for the use of the Monoplant. The Monoplant agreement is denominated in Swiss Francs.
Removed
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.
Added
The Company maintains cash balances with a limited number of highly reputable financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation and Canada Deposit Insurance Corporation.
Removed
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.
Added
To date, the Company has not experienced any losses associated with credit risk and continues to believe that this exposure is not significant. The Company’s major customers, which include two specialty pharmacies and our collaboration and license partner, Otsuka, accounted for the majority of our accounts receivable as of December 31, 2024.
Removed
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.
Added
Net product sales from the two specialty pharmacies represent 88% of total revenues for the year ended December 31, 2024, compared to 91% for the same period in 2023. We monitor economic conditions and the creditworthiness of our customers. We regularly communicate with our customers regarding the status of receivable balances and have not experienced any issues with collectability.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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

Other AUPH 10-K year-over-year comparisons