Aurinia Pharmaceuticals (NASDAQ: AUPH) has seen its share price dive by more than 28% after the company’s third quarter earnings fell short of expectations. The primary issue for investors appears to be a cut in full year guidance for sales of Aurinia’s lead product, which have been slashed from $115-135m to $100-105m.
Even so, the company’s revenues have increased significantly over the last 12 months and there appears to be further room for growth. So, is AUPH stock a good investment?
What is Aurinia Pharmaceuticals?
Aurinia Pharmaceuticals is a biopharmaceutical company focused on delivering therapies to treat targeted patient populations that are impacted by serious diseases with a high unmet medical need.
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).
The company’s head office is in Victoria, British Columbia, its US commercial hub is in Rockville, Maryland, and the company focuses its development efforts globally.
How Does Aurinia Pharmaceuticals Make Money?
In its newly released earnings the company recorded $25.5m in product sales and $30.3m in license and collaboration revenue. While sales revenue is majorly outweighed by license and collaboration revenue here, it is worth noting that this is primarily due to regulatory and reimbursement milestone payments from Otsuka Pharmaceutical.
The two companies signed a collaboration and license agreement for the development and commercialization of oral voclosporin for the treatment of LN in the European Union, Japan, the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine.
In addition to milestone payments, the agreement included royalties of up to 20 percent on net sales payable to Aurinia.
AUPH Stock Financials
Revenue for the third quarter stood at $55.8m, up from just $14.7m in the same period 12 months prior. The main driver behind this growth was the aforementioned license and collaboration revenue, which grew from $29,000 to $30.3m.
Despite significant revenue growth, its impact was still overshadowed by operating expenses of $65.3m, up from $65.0m in the same period last year.
Consequently, the company scored a net loss of $9.0m in its third quarter. This represents an 82% reduction compared to last year’s Q3 loss of $50.2m.
At the end of the quarter, the company had cash, cash equivalents and restricted cash of $86.1m.
Aurinia has a price to sales ratio of 11.80 and a price to book value of 2.55. These compare with respective industry averages of 7.62 and 5.31 for the pharmaceutical and biopharma sector, painting a mixed picture of the company’s value.
The year to date has seen AUPH stock fall in price by more than 75%, while it has dropped by 82% across the last 12 months. The business does not distribute a dividend to shareholders.
AUPH Growth Potential
When looking at the company’s growth potential, it’s perhaps first important to acknowledge that it was speculated that Aurinia was on the road to a buyout. However, a spate of hirings earlier this year have largely put this rumour on ice as it now looks like the business intends to go it alone for the time being.
LUPKYNIS is the current key to the business’ future success. The approval of the treatment and subsequent sales efforts have seen Aurinia’s revenues rocket. With more than 200,000 people suffering from Systemic lupus erythematosus in the US and LN affecting one third of adult patients at diagnosis, there appears to be a significant addressable market.
It’s worth noting that the company has barely dipped its toes in this market so far, with just 1,354 patients on LUPKYNIS therapy at September 30. Additionally, roughly 50% of patients remain on treatment after a 12-month period. This appears to indicate a significant opportunity still to be tapped in the US, let alone internationally where the company has begun expanding through its agreement with Otsuka.
In addition to LUPKYNIS, Aurinia has several other treatment candidates under development, though each is still in early pre-clinical stages.
These include AUR200, which disrupts some B-cell activity and could stop some development of autoimmune or nephrology conditions, as well as AUR300, which the company says could have significant clinical applications for autoimmune and fibrotic diseases.
Aurinia expects to submit Investigational New Drug applications for both of these treatment candidates to the US Food and Drug Administration in 2023.
AUPH Investment Risks
The primary risk to the company at present is whether it can quickly reach profitability. Cash levels could be healthier, and though its net loss of just over $8m in the latest quarter doesn’t look too disastrous it should be considered that revenues during the period were boosted by a milestone payment.
As such, the company’s cash on hand of $86.1m could be eaten away pretty quickly if sales do not accelerate or costs remain at their current level.
A further risk comes in the form of a recent patent challenge against the company’s flagship LUPKYNIS treatment. A patent relating to the LUPKYNIS dosing protocol for LN is being reviewed by the US Patent Office Patent Trial and Appeal Board after a filing by Sun Pharmaceuticals.
The patent under pressure extends patent protection for LUPKYNIS to 2037. Additionally, Aurinia has also filed a standard form patent term extension for its existing composition of matter patent, which, if granted, would extend the term of that patent by 5 years to October 2027.
Aurinia President and CEO Peter Greenleaf commented:
“This patent already had significant review at the USPTO before being approved as being a valid patent by that office and we are fully prepared to continue legal proceedings to protect our intellectual property.”
Due to the importance of LUPKYNIS to the company’s future fortunes, loss of patent protection would be a major blow to the business.
Is AUPH Stock a Good Investment?
AUPH stock ultimately looks like a mixed bag. The business could find great success if its treatment gains more widespread adoption among LN patients in the US and the company appears to have strong foundations for international sales.
The business’ share price has suffered significantly this year, but some of that can be attributed to the broader downturn in stock prices and the disappointment of investors who may have been hoping that the business would be snapped up by a larger company.
On the other hand, some investors will be concerned by Aurinia’s dwindling cash reserves and concerns that the company may encounter patent issues for its flagship product. Additionally, further reductions in sales forecasts will significantly hurt the stock, as seen today.
The eight analysts covered by the Wall Street Journal who offer a rating for AUPH stock give a consensus Buy rating, with an average price target of $21.31, compared with the stock’s current price of $5.46 at the time of writing.