Aurinia Pharmaceuticals Phase 2B trial for its lead drug Voclosporin has met both Primary and All Secondary Endpoints.
While Aurinia's share price was initially unfairly punished following initial Phase 2B successful trial results, corporate presentation and webcast on September 30th has convinced investors.
Aurinia's share price is recovering in light of very promising Phase 2B results and better communications.
Aurinia Pharmaceuticals Inc. ("Aurinia") (NASDAQ: AUPH; TSX: AUP) is a Canadian clinical stage biopharmaceutical company based in Victoria, British Columbia focused on the development of its lead drug voclosporin for the treatment of Lupus Nephritis ("LN"). The company quotes the Lupus Foundation of America's estimate that approximately 500,000 to 1,500,000 people in the United States, and up to 5 million people worldwide, suffer from System Lupus Erythematosus ("Lupus" or "SLE"). 40% to 60% of patients with SLE develop LN. Approximately 90% of patients suffering from SLE are women of child bearing age. LN is an inflammation of the kidney caused by SLE which, if left untreated or inadequately treated, can lead to end stage renal disease, dialysis, renal transplant and death making LN a serious and potentially life-threatening condition. There are no FDA or EMA approved LN therapies.
In my August 31 article about Aurinia Pharmaceuticals (NASDAQ: AUPH), I wrote that AUPH's share price was being unfairly punished by the market after AUPH announced on August 15 that it had met its primary endpoints (at 24 weeks) in its Phase 2B trial for its lead drug voclosporin for the treatment of Lupus Nephritis ("LN"). For those new to AUPH and want more background I suggest reading my May 23 article.
I also thought that AUPH's management may have done a poor job communicating the "successful Phase 2B results" in its conference call on August 15. As readers may recall, after announcing on August 15th that its Phase 2B study (after 24 weeks of dosing) had met its primary endpoints and holding the conference call an hour later, the share price plummeted when it was disclosed that there were 13 deaths in the 265 patient 80 site global study. Notwithstanding that management advised that it had been independently determined that none of the 13 deaths were related to the drug "voclosporin" the market clearly did not believe that to be true. I have written a few articles since August 15 explaining why, in my view, the 13 deaths were unrelated to the drug. See also this article.
Clearly management learned its lesson that it would need to do much better in the future communicating its very successful Phase 2B trial results (at 24 weeks). Voclosporin has already received fast track approval from the FDA and is the only drug in either the USA or Europe to have reached its primary endpoints in treating Lupus Nephritis. Many other drugs have been in clinical trials for the treatment of LN and all have failed.
After doing such a poor job communicating on August 15, during the last few days of September AUPH's management did one of the best communications jobs I have seen in a very long time. Apart from the usual conferences explaining its Phase 2B 24 week trial results, following the close of trading on Thursday September 29, 2016, a "halt trade pending material news" was announced which focused all AUPH investors on AUPH's press release. AUPH's Phase 2B trial (at 24 weeks) had met not only its primary endpoints but also met ALL of its pre-specified secondary endpoints. The September 29th announcement resulted in heavy after hours trading in AUPH shares and AUPH's share price increased more than 14%.
The next morning on Friday September 30, AUPH hosted a breakfast meeting for analysts in New York which was webcast live beginning at 8 a.m. EST and ending close to 9.50 a.m. (1.75 hours long). That's a long webcast. I listened to the entire thing. Apart from the follow up questions from analysts (which were a little boring) it was a pretty great presentation. If you have time I highly recommend that you listen to the webcast with accompanying slides by logging in here.
The accompanying slide presentation from the AUPH breakfast webcast can be found here.
After introductions, the first speaker was a very articulate relatively young woman (33 years old) named Monique C Gore-Massy who suffers from Lupus Nephritis. She told her "patient journey" story of how her life was dramatically affected by LN, and the terrible effects that the current treatments (including very high levels of steroids such as Pregnizone) were having on her body and her life. From severe facial rashes, losing her hair, popping 30 pills per day (some with terrible side effects), bouts of lengthy hospitalization, constant infections, sometimes losing the ability to take care of herself, and desperately wanting to have a normal life as a newly wed and having children (despite being warned against it because of her disease).
LN's largest patient group by far is younger women of child bearing age. It's a pretty terrible disease and hearing Monique's experience first hand set the stage for the clinical and medical information which was to follow.
Clearly the market liked the news and the breakfast webcast because AUPH's share price rocketed on Friday September 30 and trading volume hit a record of more than 31 million shares traded. The share price actually peaked at about $3.60 in the morning. After hours trading on Friday saw the share price close at $3.10.
AUPH Chart
AUPH data by YCharts
Following Monique's moving "patient journey" presentation, the Friday breakfast meeting included presentations by:
a. Dr. William Pendergraft, III, MD, PHD, Asst. Professor of Medicine in the Division of Nephrology and Hypertension, and a Principal Investigator for the AURA study at the University of North Carolina ("UNC"). Dr. Pendergraft provided an overview of Lupus Nephritis (LN) and the current standard of care;
b. Dr. Neil Solomons, MD, Chief Medical Officer at Aurinia, who discussed Voclosoporin's clinical program and AURA-LV Efficacy Data with sub-analysis;
c. Dr. David Jayne, MD, FRCP, FRCPE, Director of the Vasculitis and Lupus Clinic, University of Cambridge, who talked about "Mortality in Lupus- Historical Perspective";
d. Robert Huizinga, RN, MSc, CNeph(C), VP, Clinical Operations, who discussed AURA-LV safety data; and
e. Charlie Rowland, CEO of Aurinia, who provided a corporate update and discussed AUPH's upcoming milestones.
The medical experts discussed in detail the efficacy and safety of voclosporin and set out the details of how voclosporin is the first drug to ever meet its primary endpoints in the treatment of LN (despite many other drugs being tried out and all failing their clinical trials). Furthermore, voclosporin has now also met all of its pre-determined secondary endpoints which is quite impressive.
In earlier articles I wrote about the large Lupus Nephritis ALMS trial and how the mortality and safety profile for voclosporin was not materially different than the large ALMS trial. During the breakfast presentation, AUPH presented data from two other major LN trials (4 sets of LN trials including the AURA trial).
Not only did Aurinia's AURA trial have the sickest patients of all 4 sets of LN trials (and the only one to meet its primary and all of its secondary endpoints) but the mortality rate and SAEs (Significant Adverse Events) were pretty similar in all 4 trials. In fact, the SAEs for voclosporin were on the low side.
Voclosporin: AURA Trial (at 24 weeks) Primary Endpoints Met
In the 265 patient AURA trial, the primary outcome at 24 weeks after treatment with voclosporin (with rapid tapering of the use of steroids to a physiologic level by 12 weeks) measured 32.6% of patients in the low-dose arm taking voclosporin acheived complete remission (CR) (p=0.045), compared to 27.3% (p=0.204) in the high-dose arm, and 19.3% in the control arm.
As well, the control arm was not a placebo but rather the control arm was given the standard of care medical treatment for LN (MMF + steroids).
Complete Remission was pre-defined as a composite endpoint which includes efficacy, safety and low dose steroids. Proteinurea levels (UPCR) had to be objective confirmed to get below 0.5 mg/mg (confirmed). The study was powered to show a difference in either arm of the study versus the control (standard of care), not between doses.
Voclosporin achieved its endpoints in all of its secondary outcome measures including partial remission, time to complete and partial remission, reduction of UPCR (proteinurea levels) and extra-renal activity (SLEDAI) at 24 weeks.
AURA Mortality Review
The presentation dealing with the 13 deaths in the AURA study was quite detailed and I suggest that you listen to the September 30th webcast for further details as well as review the slide presentation referred to earlier. In summary, all four (4) LN clinical trials have experienced a similar percentage of deaths (for basically the same types of causes which are associated with LN). However, the 265 patients in the AURA Phase 2B clinical trial took place in 80 sites around the world contained the sickest group of LN patient of the 4 studies.
As well, the 13 deaths in the AUPH AURA study (voclosporin) were almost entirely (11 out of 13) in locations with compromised access to medical standard of care.
Specifically 7 of the 13 deaths occurred in Bangladesh, 2 deaths in Russia, 2 deaths in the Philippines and 2 deaths in Sri Lanka. These LN patients were particularly sick, often had to walk many hours to reach the treatment centre, and frequently had very poor access to treatment of their medical issues and compromised standards of care.
All deaths were independently assessed by the investigator, sponsor and DSMB as unrelated to the voclosporin study treatment.
The causes of death were commonly seen in very sick LN patients such as infection related pneumonia (x2, Bangladesh), sepsis (Bangladesh) and pericarditis tuberculosis (Philippines). Other causes of death were acute respiratory distress syndrome (x2, Russia and Philippines), cardiac tamponade (Sri Lanka), cerebrovascular accident (Russia), multi-organ failure (Sir Lanka), pulmonary alveolar hemorrhage (Bangladesh) and pulmonary embolism (x3, Bangladesh).
Sub-set Analysis
38% CR and 36% CR in Low Dose and High Dose Voclosporin Arms if exclude Sites with Compromised Standards of Care
Given the number of deaths that only seemed to occur at sites with compromised standards of care, AUPH has been asked whether it would make sense to exclude those sites when it does its Phase 3 trial. In doing a post-hoc sub-analysis of the data excluding areas with compromised access to standard of care, not surprisingly the trial results look better. 18% attain CR in the control group (MMF + steroids), 38% attaining CR in the low dose arm, and 36% attain CR in the high dose arm. In this scenario both the low dose voclosporin arm and high dose arm meet the primary endpoints!
Difference In Efficacy Between Men and Women
In the sub-set analysis presented by Dr. Solomon, there was an interesting sex difference. Albeit there were a very small number of men in the entire study (35 males out of 265 patients), women achieved a 36% CR rate in the low dose arm compared to 26% in the high dose arm. However, men achieved a 15% CR rate in the low dose arm versus a 43% CR rate in the high dose arm.
Defining CR Using a UPCR (proteinurea level) 0.7 mg/mg instead of 0.5 mg/mg
Dr. Solomon discussed the fact that while 0.5 mg/mg proteinurea levels (UPCR) was the most important primary endpoint measure used to define a complete response, there is 10 year data to suggest that 0.7 mg/mg or 0.8 mg/mg may also be appropriate targets, and that 0.5 mg/mg is a round number that has been commonly used to determine a complete response.
AUPH then presented a couple of sub-analysis to show what the CR percentages would like in the AURA study, if UPCR levels of 0.7 mg/mg was used as a target rather than 0.5 mg/mg.
The sub-set analysis using UPCR less than 0.7 mg/mg showed a CR of 27% for the Control group (using the standard of care of MMF + steroids), compared to a 46% CR rate in the low dose group and a 42% CR rate in the high dose group. In this case both the voclosporin low dose and high dose arms would have met the primary endpoints by an even higher margin.
What if the UPCR (proteinurea level) used is 0.7 mg/mg endpoint is used and AUPH removes the sites with a compromised standard of care?
AUPH provided a sub-analysis of the CR data if the sites with a compromised standard of care are excluded and the primary endpoint for UPCR (proteinurea level) is 0.7 mg/mg.
In this circumstance, the CR results are very impressive. 26% of the control group (MMF + steroids) attain CR, 53% of the low dose group and 49% of the high dose group attain CR!!
AUPH was careful to advise that no decision has yet been made to convince the FDA to change the primary endpoint target from 0.5% to 0.7% mg/mg but if the data suggests 0.7% mg/mg is the right number, I would suggest it may be the appropriate target for the Phase 3 trial (subject to FDA approval).
My take away was that AUPH's management and medical team have indeed learned a lot from the Phase 2B 24 week data. The data to support the efficacy and safety of voclosporin in the treatment of LN is very compelling and if the design of the Phase 3 trial is tweaked in minor ways such as excluding sites where there is a compromised standard of care (and perhaps lowering the UPCR to below 0.7 mg/mg), the trial results are just going to be that much more impressive.
AUPH's Corporate Update
AUPH's CEO Charlie Rowland provided a corporate update for the company and its voclosporin program.
He reminded everyone of:
a. voclosporin's extensive safety profile;
b. the positive Phase 2B 24 week trial results (with 48 week results to be released in Q1 2017);
c. the initiation of the Phase 3 trial program following meeting with the FDA in November;
d. the potential of voclosporin to achieve in excess of $1.5 billion in sales per year globally; and
e. voclosporin's efficacy in multi-dimension in a very severely sick patient population.
Upcoming Milestones
Q4 2016 - FDA End of Phase 2 Meeting (November)
Q4 2016 - ACR and ASN Scientific Meeting Abstracts
Q4 2016/ Q1 2017 Regulatory / Clinical Strategy Update. This should include possible Breakthrough Therapy Designation in or about November, 2016. Fast Track approval has already been granted by the FDA earlier this year.
My description of the September 30th breakfast and webcast has not adequately reflected what a great presentation AUPH managed to provide.
Following the 1.75 hour presentation (including questions) I sent an email to AUPH's COO Mike Martin in which my message simply was "Bravo!"
To the management of AUPH: You had me at "hello".
Estimated Value of AUPH if Voclosporin Approved for Commercial Sales
Based upon Aurinia's estimated annual global peak sales in the $1.5 billion range, and if and when voclosporin is approved by the FDA, EMA and other applicable regulatory bodies (likely in late 2018 with a commercial launch in 2019 if all goes reasonably well), AUPH could be valued at close to $3 billion, based upon 2 times estimated voclosporin annual peak sales.
At the current time, given the successful Phase 2B results (and the even more impressive potential Phase 3 results if the compromised medical sites are excluded, and potentially if the proteinurea levels of 0.7 mg/mg is used as a primary endpoint), I currently estimate a 70% chance of AUPH succeeding in its Phase 3 trials.
I used a higher 70% probability of succeeding at a Phase 3 trial because AUPH's Phase 2B trial (in comparison to a Phase 2A or Phase 2 trial) is a well controlled trial to evaluate both efficacy and safety in patients with the disease or condition to be treated, diagnosed, or prevented. Phase 2B trials usually represent a rigorous demonstration of a medicine's efficacy and are sometimes referred to as pivotal trials.
Charlie Rowland, CEO, indicated in an earlier AUPH corporate presentation on August 4th that assuming a successful Phase 2b trial, the FDA will require one or two confirmatory phase 3 trials which would push out the time frame for approval to late 2018 with a commercial launch in 2019. Charlie Rowland indicated that the company estimated that the most likely Phase 3 trial requirements would involve 300 patients and would cost somewhere in the range of $50,000,000 to $125,000,000.
Capital Structure
Aurinia currently has 35.3 million common shares outstanding (after closing the recent $7,000,000 private placement announced June 22, 2016), approximately 6.9 million warrants (of which 1,368,000 are exercisable at $1.92 Cdn and the remaining 4,548,000 are exercisable at $3.22 US, and approximately 1,000,000 purchase warrants at US $2.77). In addition there are 3,033,000 options outstanding with an average strike price of $3.99 Cdn. Fully diluted there are approximately 45,000,000 common shares outstanding including all outstanding warrants and options.
I'm writing this article on Sunday October 2, 2016. The closing share price of AUPH (NASDAQ) was US $3.01 on Friday September 30 giving it a market cap of approximately US $105,000,000.
Even assuming that the company has to issue another 10 to 20 million shares to fund its Phase 3 trials, file for regulatory approvals, and get to a point where the voclosporin can be sold commercially in the US and other countries in 2019, the total shares outstanding would be approximately 55 million to 65 million by the time voclosporin is approved for commercial sales in the USA.
Assuming successful approval of voclosporin by the FDA and other regulatory bodies of voclosporin, if the potential value of the company is then $3 Billion (based upon 2 x estimated $1.5 billion annual peak sales), AUPH's share price in late 2018 or 2019 could be in the $45 range. I set out that figure to provide some guidance as to the potential value of AUPH.
Given the successful results in the Phase 2B trial, AUPH has become a likely buy out target in the near future.
Charlie Rowland, CEO, has indicated that he expects the Phase 3 trial to begin in H1 2017 meaning that 8 week or 24 week trial data could be available by the end of 2017 or early 2018. If the 24 week and 48 Phase 3 trial results are as positive as expected that will certainly materially increase the share price (even with substantial dilution).
Share Current Valuation: With only 35.3 million shares currently outstanding (45 million fully diluted), assuming a 70% probability of succeeding in its Phase 3 trial, and discounting a further 50% for the 2.5 to 3 year estimated time to first commercial sales (15% to 17% discount for 3 years), I estimate the NPV (current value) of AUPH to be in the $500 million range ($10 to $12 per share). At its current share price of $3.01 it certainly appears substantially undervalued.
If breakthrough therapy designation is obtained and a Phase 3 trial begins in the 1st half of 2017, I'm estimated AUPH's share price will be in the $12 to $15 range by the end of 2017 (after accounting for some dilution after raising funds for the Phase 3 trial).
Risks: While I am very bullish on Aurinia and its prospects, it remains a high risk, high reward investment. There is no guarantee as to what additional evidence (or trials) the FDA may require if it does become concerned about the number of deaths in the Phase 2B study. As well, there is no guarantee that any Phase 3 study or studies will be successful.
The other looming challenge facing the company is raising additional funds for the next stages of development towards approval and commercialization of voclosporin. The amount of dilution they face if they raise substantial funds at the current low share price is a concern. Hopefully the share price will recover before AUPH needs to raise those funds. In the interim the company may raise a smaller amount of funding to increase its financial runway.
I won't be surprised to see the company amenable to working with a partner to fund the next stage of development for voclosporin, or even being approached in a takeover scenario given the low share price.
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