Why We Dont Like Aurinia At $3B

Introduction:

In response to recent backlash over bearish remarks on popular companies, we have decided to frame our stance in concise articles, starting with Aurina Pharmaceuticals (AUPH). Here we lay out the evidence supporting our argument that Lupkynis (voclosporin) developed and commercialized by AUPH for the treatment of Lupus Nephritis (LN), a complication associated with the autoimmune disease systemic lupus erythematosus (“Lupus”), will continue to struggle to become the standard of care (SOC) in the U.S. 

History of Lupkynis

Looking back on Lupkynis’s ~30-year history, we can better understand its current headwinds over half a year into the launch. Voclosporin (Lupkynis) was discovered by Rober T. Foster and the team at Isotechnika in the mid-1990s. In 2002, ex CFO Dennis Bourgeault (who would later play a key role in merging Aurina and Isotechnika in 2013) helped ink a multi-million dollar worldwide licensing agreement with Roche for Voclosporin (Source: page 34). 

In its early days, Voclosporin was part cis and trans geometric isomers of amino acid-1 modified cyclosporin. Thanks to the deal with Roche, manufacturing was altered, yielding a predominantly trans-isomer which is credited with the immunosuppressive effect of the drug. Roche would hold onto this for transplant indications but ultimately walked away from the deal on July 21, 2008. Roche went on to develop its own product (Gazyva (obinutuzumab) for LN in partnership with Biogen (BIIB) which was awarded Breakthrough Therapy designation for LN in 201.

It’s hard to pinpoint why Roche would give up global rights to the asset after contributing to the beneficial effects of the drug. We speculate that the pharma juggernaut was not overly impressed with the compound’s potential and had a hard time seeing a clear market fit considering only ~14% of drugs in clinical make it to market and even less are successful in achieving blockbuster status.

Our Bear Case

In our view, data in the literature, recommendations in the KDIGO 2021 CLINICAL PRACTICE GUIDELINE FOR THE MANAGEMENT OF GLOMERULAR DISEASES, and availability of cheaper off-label alternatives, are impeding Lupkynis market penetration. Furthermore, we feel that the long-term safety and efficacy data does not reflect what we would expect for a standard of care therapy. 

With a wave of sophisticated second-generation complement inhibitors, we see the treatment paradigm of LN shifting towards a more personalized approach. In our view, therapies that can adequately address autoimmunity and treatment burden without the heightened risk of serious adverse events (i.e. cancer, organ failure, or serious infections) will have a highly competitive advantage. 

For instance, complement C3 inhibitor Empaveli (pegcetacoplan) developed by Apellis Pharmaceuticals (APLS) was approved earlier this year in PNH. As a subcutaneously administered therapy that can control intra and extravascular hemolysis, it is displacing the standard of care C5 inhibitor Solaris/Ultomiris developed by Alexion Pharmaceuticals (acquired by AstraZeneca for $39B in 2020).

 LN is another such disease where complement inhibitors are of interest to clinicians. Specifically, proximal complement inhibitors such as BioCryst Pharmaceuticals (BCRX) Factor D inhibitor (BCX9930) and pharma giant Novartis Pharmaceuticals (NVS) Factor B inhibitor (LNP023). Both compounds inhibit the alternative pathway of complement with incredible potency and precision.  Importantly, they do it without causing any drug-related serious adverse events nor do they act on the lectin or classical complement pathways.  

In our view, neither the pivotal studies for Lupkynis or the KDIGO 2021 guidelines suggest Lupkynis should be the standard of care therapy. FDA approval of Lupkynis on 1/22/21 was based on data from the P2b AURA-LV and P3 AURORA-1 studies.The primary endpoints were complete renal remission (CRR) (defined as UPCR≤0.5mg/mg and eGFR ≥60ml/min/1.73m2) at 24 and 48 weeks, respectively. These primary endpoints were achieved with the use of low-dose steroids. 

The delta between the Lupkynis and placebo-treated patients across the primary and secondary endpoints was lackluster, in our view. The safety data for AURA-LV and AURORA-1 displayed positive features compared to first/second generation calcineurin inhibitors (tacrolimus and cyclosporine). Because Lupkynis has a more stable pharmacokinetic and pharmacodynamic profile it does not require routine blood monitoring. 

At the same time, we noticed serious safety signals in both pivotal studies (Table 2 and 3). Furthermore, even though AUPH reported 48-week data for over 200 patients in 2017 the longest-term data we have seen to date is the 52-week data reported initially in 2019 (AURA-LV). Why is it that 4-years AUPH only has 2.5-year data? We acknowledge bulls say management has three-year safety data will be shared in 4Q21; we believe this is the data being presented at the American Conference of Rheumatology (November 5-9). 

AURA-LV (source: Rovin et al. 2018)

In Table 2 from the AURA-LV study, we see that there were 34% and 46% more treatment-related adverse events (AEs) for patients in the Lupkynis low-dose (23.7 mg BID) and high-dose (39.5 mg) groups, respectively, compared to the placebo group. There were also 4X more serious treatment-related adverse events (4.5 vs 1.1% in the placebo group). 

In fact, there were greater incidences across all AE categories in the Lupkynsis treated subjects compared to the placebo. This included 11X more AEs resulting in death in the low-dose Lupkynis group and 2X in the high-dose group. 

Looking at Table 3 from the same publication we see similar trends.

A number of serious AEs were reported by over 2% of subjects in any treatment with the top three being infections/infestations, renal (kidney)/urinary, respiratory/spinal, and nervous system disorders. In the low-dose Lupkynis group, these were reported between 4-6% more frequently than in the placebo group. While these risk factors are true for all immunosuppressants, and the delta was not extreme, it is consistently higher here and in Table 2 which we view as unfavorable. 

On the efficacy front, there was clearly a treatment effect with about twice the number of Lupkynis treated patients achieving complete renal remission at weeks 24 and 48 compared to the placebo. Yet, this primary endpoint was still achieved in ~18 and 24% of patients in the placebo  patients, respectively. So it begs the question of how many (if any) of the Lupkynis patients had a complete renal response attributable to a placebo effect. We also note that the treatment effect seen in AURA-LV was statistically significant (although, marginally in the low-dose group which is the approved dose) and the FDA approved the Lupkynis with this data being a major element in the NDA. It’s odd to us that the response rate was higher in the low-dose group compared to the high-dose. 

AURORA-1 (source: Rovin et al. 2021)

After seeing the positive results in the P2b AURA-LV study the company launched the P3 AURORA-1 which reported positive top-line data in December 2019 (three months after Roche’s Gazyva was granted BTD for LN). The themes in the data we detected were similar to those in AURA-LV. Table 2 from the latter P3 study depicts these observations well. One key difference was s the primary endpoint was the complete renal response at week 52 (not week 24 and 48 like in AURA-LV)

We see that like in AURA-LV the number of patients in the Lupkynis group achieving a complete renal response at week 52 was ~2X that of the placebo group. However, like in AURA-LV, there was still a marked placebo effect where 23% of the patients achieved complete renal responses (compared to 41% in the Lupkynis group). So again, how many of those patients were truly responders and not having a placebo effect?

Ultimately, the FDA agreed that the evidence supported approval for the treatment of LN. We do not disagree with the merits of approval, data was the data and we have full confidence in the FDA’s ability to evaluate it. We point out, though, that approval in LN is not the same as being deemed or approved as the new standard of care. In fact, the label really does not impress us much nor does the latest recommendations in the KDIGO 2021 CLINICAL PRACTICE GUIDELINE. 

On the label, we see that there is a boxed warning that immunosuppressants, including Lupkynis, can cause cancer and serious infections; a well-known serious risk of calcineurin inhibitor. The point being that Lupkynis is not that different from its 1st and 2nd generation counterparts, in our view. Its more stable pharmacokinetic and pharmacodynamic profile allows its use without regular blood monitoring. 

Yet, it comes with the same risks as other generic drugs of its class commonly used to treat/manage active LN. For this reason, we feel Lupkynis will struggle to become the SOC without more long-term safety and efficacy data. Like we pointed out, even though the company had 48-week data in 2017 here we are 4-years later and the longest-term data we will have seen is 2.5-year data being presented at ACR 2021 in November (click here for the abstract). At a glance, the data reads similar to what we have already discussed. Importantly for patients, efficacy remained intact at 2.5-years and there were no new safety signals.

Moving to the KDIGO guidelines we see that generic compounds mycophenolate or cyclophosphamide are recommended when initiating therapy. If that does not work a calcineurin inhibitor is recommended as an alternative. However, the authors clearly make no distinction surrounding using Lupkynis or the long-standing drug tacrolimus.

Thinking back to the label and the fact that it says “The safety and efficacy of LUPKYNIS have not been established beyond 1 year” this recommendation makes sense to us. Why would Lupkynis be recommended over a well-understood compound like tacrolimus that has been around in clinical practice for over a decade? Moreover, this study published in 2019 found that low-dose cyclosporine was successfully deployed to control LN. Interestingly, Lupkynis is simply an analog of this drug. In our view, drugs that are a spin-off of other compounds such as in this case are rarely successful in the marketplace.

A final point we want to make is that it’s clear the evolving therapeutic landscape is shifting for autoimmune diseases like LN. Based on commentary from KOLs like Brad H. Rovin who was the lead author on the KDIGO 2021 guideline updates, and also a KOL speaker at BCRX’s R&D day in April 2021, and understanding of the developmental landscape, we view this shift as unfavorable to AUPH and Lupkynis. We further argue that an implication of this is that AUPH is overvalued with a market cap near $3B, annual operating expenses in excess of $100M, and only making an expected $40M for FY21. 

If you listen to this video of Dr. Rovin speaking about Lupkynis and GSK’s BENLYSTA (belimumab) which was approved for the treatment of adult patients with active LN in December 2020. He praises both drugs as meaningful advancements for in therapeutics available for patients with LN, rightly so. But, he goes on to express even greater excitement for what he characterizes as precise next-generation modulators of inflammatory pathways. Without actually saying it, he essentially describes BCRX’s oral Factor D inhibitor BCX9930 and NVS’s Factor B inhibitor LNP023. This makes sense given our discussion earlier in the article about precise inhibition of the proximal end of the alternative pathway of complement. 

Furthermore, Dr. Tovin said this explicitly over 6-months ago at the aforementioned R&D conference hosted by BCRX and even went as far as to say he wanted to see BCX9930 tested in LN. It’s clear from commentary by BCRX management and their corporate deck that it’s only a matter of time before we start a program for 9930 in LN. With an infinitely better safety profile to date and potential for even greater efficacy, we think that the days are ultimately numbered for 1st-3rd generation calcineurin inhibitors. It follows then with an unimpressive launch to date and more sophisticated compounds entering late-stage development in LN, that it is difficult to justify a $3B valuation for AUPH with only one real asset. It’s even harder to see a potential suitor with a price tag of this amount or greater. Thus we are bearish on AUPH. 

Early Evidence of Headwinds

As the data continued to build and Lupkynis came closer to launch, management was quick to find licensing opportunities in markets outside of the U.S. Having lost the capacity of Roche in 2008, the company inked a deal with Otsuka Pharmaceuticals. In this deal, Otsuka received the rights to Lupkynis for LN in; Europe, Japan, United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Lichtenstein and the Ukraine. With 1.5 million people estimated to have LN in the U.S., this deal left 5 million worldwide, many of which Otsuka will be responsible for reaching. In exchange for the rights to Lupkynis in all these key markets, Otsuka is set to pay Aurina $50 million upfront, $50 million upon regulatory and milestone completion, and royalties up to a maximum of 20% on net sales. Shares responded harshly, dropping from the $15s to $12s as investors digested the magnitude and semantics of the deal. Critics of this deal were quick to point out the low value when considering the number of markets handed over to Otsuka. While not a perfect indicator of success, high confidence in a compound’s ability to win over physicians and patients is traditionally preceded by a large effort to maintain control over key markets and utilizes a more favorable milestone and royalty mix. This deal’s value to date has roughly translated to a quarters worth of SG&A expenses ($43.87M in Q2, 2021). 

IP Questions:

 The retail community has recently raised questions regarding Aurina’s patent US7332472 and clinical trial protocol for NCT02141672. Some investors became alarmed by a belief that the extension may be invalid due to the trial protocol disclosing a discrepancy in dosing. We have contacted management twice to clarify these questions and have not received an answer at the time of this writing. As Cathy Kelly writes in her piece Aurinia’s Doing Patent For Lupkjynis A ‘Slippery Slope’ To Extending US Market Exclusivity “the Institute of Clinical and Economic Review (ICER) is worried that this type of patent could add “significant costs to the US healthcare system.” The president of ICER (Steve Pearson) believes this 10 year extension may have helped the company please Wall Street, but cautioned that it comes at the expense of patients with the potential for trends like this to impact affordability over the long haul. With drug pricing discussions coming under increasing scrutiny in both the public and political eye, we see this as yet another risk to Lupyknis ability to become SOC and achieve meaningful revenue.

The Story Continues

Early in 2020, Adam Feuerstein was quick to call glaring differences in Lupkynis launch versus other drugs approved around the same time. In an article published on STAT (Two drug makers, two commercial launches – with divergent results), Feuerstein highlights the success of Oradelyo’s commercial debut and contrasts it with Lupkynis results for the first Quarter. Many investors were surprised to find Lupkynis come short of $1 million in its first quarter, given the retail argument that the drug has no comparable alternatives. While management was quick to highlight “250 patient start forms,” engaging with 6,000 rheumatologists and nephrologists, as well as converting 40% of start forms in the first quarter,” some investors were left questioning the burn and early success. In the second quarter, a slight improvement was observed, leading management to anticipate $40-50M range for the full year 2021. While Q2 represented over 600% increase from Q1, the start forms and conversions came in at 415 and 50%. Taking a look at script numbers and the $43M SG&A expense per quarter, Lupkynis path to outweigh its cost to sell and develop remains unclear in our opinion. As CEO Peter cited on a recent webcast with Cantor, physicians are hesitant without longer term safety data and at times are inclined towards alternative therapies due to lower cost, proven track record of controlling LN and a further proven safety profile. With an ICER estimated cost for Lupkynis at $92,000 annually, we believe sales will continue to lag and Lupkynis will struggle in becoming a SOC. 

I am we/are short AUP