Voclosporin a Game Changer: Aurinia Pharmaceuticals Inc. (TSX: AUP) is a clinical-stage pharmaceutical company with a focus on developing and commercialization of the cure for patients suffering from serious diseases with a high unmet medical need. Currently, Aurinia Pharmaceuticals is developing voclosporin, which is an investigational drug for treating lupus nephritis (LN), Dry Eye Syndrome (DES), and focal segmental glomerulosclerosis (FSGS). Aurinia, during the fourth quarter, announced that it had achieved positive results for the Phase 3 AURORA clinical trial of its voclosporin drug.

Financial performance: For the year ended December 31, 2019, Aurinia posted revenues of US$ 0.32 million, as compared to US$ 0.46 million. Aurinia reported R&D expenses of US$ 52.9 million in 2019, as compared to US$ 41.4 million in 2018. The y-o-y increase in R&D expenses reflects costs to manufacture voclosporin for potential future commercial use. Besides, higher costs associated with AURORA 2 extension trial, Dry eye studies, and the DDI study further drove the expenses higher. However, the AURORA trial costs marked a decline. The group’s corporate, administration, and business development expense stood at US$ 22.2 million, up 62% y-o-y. The y-o-y growth was due to the increase in pre-commercial and launch readiness activities coupled with an increase in professional and recruiting fees, personnel compensation costs, and insurance costs. The company reported a net loss of US$ 123.8 million, which was higher than the US$ 64.6 million in 2018. However, net loss excluding the changes in derivative warrant liabilities and income taxes came in at US$ 82.6 million, compared to US$ 54.1 million in 2018. The widening of the net loss can be attributed to higher R&D expenses.

Aurinia ended 2019 with cash and cash equivalents of US$ 306 million. The amount reflects an increase of about US$ 180.1 million over 2018. Further, Aurinia received net proceeds of US$ 179.9 million in the public offering. The current liquidity position seems to be enough to fund its ongoing R&D programs and other current plans.

Financial Highlights (Source: Company Reports)

Stock recommendation: Aurinia's shares are down about 14% so far this year. The company is at a pivotal point with its lupus nephritis drug, voclosporin. The voclosporin is a high-value asset for Aurina with its scope further extended to FSGS and DES. The voclosporin drug could become the first FDA-approved treatment for LN, and the company is preparing for commercial launch. We believe the success of voclosporin could generate a strong amount of cash flows for the company in the coming years and drive its stock significantly higher. However, there is a significant amount of risk associated with it, including regulatory approval and patent protection which could wipe out the value for shareholders. Hence, we recommend a “Speculative Buy” at the closing market price of CAD 22.47 on 17 April 2020.

AUP Daily Price Chart (Source: Thomson Reuters)

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