Aurinia Pharmaceuticals Inc.

Aurinia Pharmaceuticals Inc. (TSX: AUP), is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations that are impacted by serious diseases with a high unmet medical need.

Key highlights 

• FDA approved LUPKYNIS (voclosporin): LUPKYNIS (voclosporin) was recently approved by the Food and Drug Administration (FDA) to treat adult patients with acute lupus nephritis in conjunction with a history immunosuppressive treatment regimen (LN). LUPKYNIS is the first FDA-approved oral treatment for LN, making it a watershed moment for the brand. LUPKYNIS is also available to patients in the United States on a commercial basis.

• Exclusive Agreement with Lonza: Via a joint partnership to create dedicated manufacturing capability within Lonza's current API facility in Switzerland, the organization extended its exclusive manufacturing partnership. This facility would improve cost and output quality while still ensuring a steady supply of APIs for potential industrial demand. 

• Healthy liquidity: As of December 31, 2020, the company had cash & cash equivalents of USD 398 million, increased by USD 92 million, compared to USD 306 million on December 31, 2019. The management believes that it has sufficient financial resources to fund its needs at least till 2023. 

Financial overview of Q4 2020 (amounts in thousands of U.S. dollars)

Source: Company

• In Q4 2020, the Company posted licensing revenue of USD 50.0 million, compared to USD 0.029 million in the previous corresponding period. The rise in revenue was primarily due to the upfront payment from Otsuka of USD 50.0 million recorded as licensing revenue.
• R&D expenses slightly declined to USD 13.17 million in Q4 2020, compared to USD 13.29 million in Q4 2019.
• The Company recorded an increased in its Corporate, administration and business development expenses to USD 38.8 million, compared to USD 7.3 million in Q4 2019. The increase reflects the investment incurred to support the launch of voclosporin as a treatment for LN planned for early 2021.
• The Company minimized its net loss to USD 8 million in Q4 2020, against a loss of USD 34.4 million in pcp, the losses minimized primarily due to higher revenues. 

Risks associated with investment

The Company's income depends upon the results of the clinical trial and the subsequent approval of trials. There is a chance of cancellation of the drug approval, which might result in the commencement of new clinical activities and require more funds and delay the launch's timeline.

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company has introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy dedicated to treating adult patients with active lupus nephritis (LN). FDA approval is a key milestone for the Company. Moreover, it made a license agreement with Otsuka Pharmaceutical Co., Ltd. to develop and commercialize oral voclosporin to treat (LN) and received an upfront cash payment of USD 50 million along tiered royalties ranging from 10% to 20% on net sales upon commercialization. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 15.44 as on April 16, 2021. We have considered G1 Therapeutics Inc, Sutro Biopharma Inc, Burning Rock Biotech Ltd, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 16, 2021). Source: Refinitiv (Thomson Reuters)

Andrew Peller Ltd

Andrew Peller Ltd (TSX: ADW.A) is one of Canada’s leading producers and marketers of quality wines and craft beverage alcohol products. The Company markets wines produced from grapes grown in Ontario’s Niagara Peninsula, British Columbia’s Okanagan and Similkameen Valleys, and from vineyards around the world.

Key highlights 

• Acquired Niagara's the Riverbend inn: The Riverbend Inn and Vineyard in Niagara-on-the-Lake, Ontario, was recently purchased by the group. The estate includes 17 acres of prime vineyards and a 21-room hotel and restaurant, located directly across the street from the Company's Peller Estates Winery. The purchase is a natural progression of the Company's success in offering a luxury wine tourism experience in the Niagara Region. 

• Reduced bank debts: In the reported quarter, the Company managed to bring down its debt level to CAD 154.3 million, against CAD 165.2 million as of March 31, 2020, based on higher cash flows from operations. On the back of regularly scheduled debt repayments, the Company’s debt to equity ratio improved to 0.57:1 compared to 0.67:1 as of March 31, 2020. 

• Increase in dividend distribution: Recently, the Company approved a 5% increase to the fourth quarter common share dividend to CAD 0.0564 per share, which was paid on April 9, 2021. The Company has consistently paid common share dividends since 1979, which reflects stable cashflow generating capabilities of the group.

Source: Refinitiv (Thomson Reuters) 

• Event Update: The Company will release its Q4 2021, and year ended March 31, 2021 on June 16, 2021. 

Financial overview of Q3 2021

Source: company 

• The Company posted revenue of CAD 111.0 million in Q3 2021, increased by 9.4% compared to CAD 101.5 million in the previous corresponding period. The revenue increased due to a rise in sales at local liquor stores and other retail channels, offset by a reduction in hospitality, licensee sales and lower duty-free export sales due to COVID-19 restrictions.
• Gross profit in Q3 2021 declined to CAD 38.8 million compared to CAD 39.5 million in pcp because of higher imported wine costs, an increase in consumption of lower-margin products and revenue decline in high margin trade channels.
• The reported quarter's gross margins declined to 37.4% of sales compared to 41.3% in the previous corresponding period.
• Net income posted by the Company stood at CAD 10.2 million, against CAD 8.0 million in Q3 2020. The rise in net income was primarily due to the gain on debt modification and financing fees coupled with lower income tax provision. 

Risks associated with investment

The Company’s sales of wine and craft alcoholic beverages products are affected by the general economic conditions and social trends such as changes in discretionary consumer spending and consumer confidence, future economic conditions, changes to inter-provincial trade laws, tax laws, the prices of its products and health trends. Moreover, it also faces competition from low-priced imported wines. 

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The Company believes that sales would grow in the long term due to strong positioning of key brands, the continued launch of new and innovative products in both its core wine business and in the new product categories, as well as overall growth in the Canadian beverage alcohol market. The management also believes in generating sufficient cash flow from operations to meet its debt servicing, principal payment, and working capital requirements over both the short and long-term through continued profitability and strong management of working capital and prioritization of capital expenditures. Therefore, based on the rationales discussed above and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 10.94 on April 16,2021.  We have considered Waterloo Brewing Ltd, Diamond Estates Wines & Spirit Inc, Cervus Equipment Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 16, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.