Aurinia Reports Fourth Quarter and Full Year 2018 Financial Results and Operational Highlights

March 19, 2019 Off By BusinessWire

VICTORIA, British Columbia–(BUSINESS WIRE)–Aurinia Pharmaceuticals Inc. (NASDAQ: AUPH / TSX: AUP) (“Aurinia” or the
“Company”) today reported its financial results for the fourth quarter
and year ended December 31, 2018. Amounts, unless specified otherwise,
are expressed in U.S. dollars.

2018 and Recent Highlights

Notice of Allowance from the United States Patent and Trademark
Office (“USPTO”) for claims which have the potential to cover
voclosporin’s method of use and dosing protocol for lupus nephritis
(“LN’) until December 2037.
Phase 2a Dry Eye Study results released in January 2019
demonstrating statistically superior efficacy of voclosporin
ophthalmic solution (“VOS”) versus Restasis^®.
AURORA Phase 3 trial in LN completed patient enrollment, ahead of
schedule, in September 2018 – on track for top-line data in late 2019.
Phase 2 FSGS study with voclosporin initiated in June 2018 with
patient recruitment ongoing.
Cash, cash equivalents, and short-term investments of $125.9
million as of December 31, 2018.
Balance sheet strengthened with additional $30 million raised
through ATM facility during Q1 2019.

“The team at Aurinia has made extraordinary progress throughout 2018 by
achieving a number of significant clinical milestones with voclosporin,
and we are excited for what lies ahead in 2019. In addition to
completing enrollment in the AURORA Phase 3 trial ahead of schedule last
September, we also released Phase 2a dry eye study results with VOS that
we believe further demonstrate the potential of voclosporin”, commented
Richard M. Glickman, Chief Executive Officer and Chairman of the Board
of Aurinia Pharmaceuticals.”

Dr. Glickman further commented, “With the recent Notice of Allowance we
received from the USPTO for claims covering voclosporin’s method of use
and dosing protocol for the treatment of proteinuric kidney diseases
including LN, we are very pleased with the additional exclusivity that
could extend to December 2037 which I believe provides additional value
creating opportunities for our shareholders.

Highlights

USPTO Notice of Allowance

On February 25, 2019, Aurinia announced that it received a Notice of
Allowance from the USPTO for claims directed at its novel voclosporin
dosing protocol for LN (U.S. patent application 15/835,219, entitled
“PROTOCOL FOR TREATMENT OF LUPUS NEPHRITIS”).

The allowed claims broadly cover the novel voclosporin individualized
flat-dosed pharmacodynamic treatment protocol adhered to and
required in both the previously reported Phase 2 AURA-LV trial and the
Company’s ongoing Phase 3 confirmatory AURORA trial. Notably, the
allowed claims cover a method of modifying the dose of voclosporin in
patients with LN based on patient specific pharmacodynamic parameters.

This Notice of Allowance concludes a substantive examination of the
patent application at the USPTO, and after administrative processes are
completed and fees are paid, is expected to result in the issuance of a
U.S. patent with a term extending to December 2037. If the FDA approves
the use of voclosporin for LN and the label for such use follows the
dosing protocol under the Notice of Allowance, the issuance of this
patent will expand the scope of intellectual property protection for
voclosporin, which already includes robust manufacturing, formulation,
synthesis and composition of matter patents.

AURORA LN Clinical Trials

Aurinia’s Phase 3 clinical trial (“AURORA”) is evaluating voclosporin
for the treatment of LN, which was initiated in May of 2017, completed
enrollment in September 2018. The target enrolment of 324 patients was
surpassed due to high patient and investigator demand with 358 LN
patients randomized in sites across 27 countries. Top-line data is
expected to be available in Q4 2019.

A significant percentage of patients who have completed the AURORA trial
are rolling over into the AURORA blinded extension trial (“AURORA 2”).
The purpose of AURORA 2 is to assess the long-term benefit/risk of
voclosporin in patients with LN; this trial is not a requirement for
potential regulatory approval of voclosporin.

Dry Eye Syndrome (“DES”)

In July 2018, Aurinia initiated a Phase 2a head-to-head study of
voclosporin ophthalmic solution (“VOS”) versus Restasis^®
(cyclosporine ophthalmic emulsion) 0.05% for the treatment of moderate
to severe DES. This four-week study enrolled a total of 100 patients.

In January 2019 the Company announced results from this study. The study
evaluated efficacy, safety and tolerability head to head with Restasis^®.

VOS showed statistical superiority to Restasis® on FDA-accepted
objective signs of DES
42.9% of VOS subjects vs 18.4% of Restasis® subjects (p=0.0055)
demonstrated ≥ 10mm improvement in Schirmer Tear Test (“STT”) at Week 4
VOS showed statistical superiority to Restasis in Fluorescein
Corneal Staining (“FCS”) (p=0.0003)
The primary endpoint of drop discomfort at 1-minute on the first
day of therapy showed no statistical difference between the treatment
groups, as both groups exhibited low drop discomfort scores

With respect to the primary endpoint of drop discomfort, VOS did not
meet the primary endpoint as both drugs were well tolerated and
demonstrated less than anticipated drop discomfort. However, secondary
outcome measures on efficacy, namely the STT and FCS, demonstrated
statistically superior results over Restasis^®.

Focal Segmental Glomerulosclerosis (“FSGS”)

Aurinia initiated a Phase 2 proof-of-concept study for FSGS in June 2018
and is currently in the process of enrolling patients with this disease.
This proof-of-concept Phase 2 open-label study aims to enroll
approximately 20 treatment-naïve patients diagnosed with primary FSGS.

Financial Liquidity at December 31, 2018

At December 31, 2018, Aurinia had cash, cash equivalents and short-term
investments of $125.9 million compared to $173.5 million of cash and
short-term investments at December 31, 2017. Net cash used in operating
activities was $51.6 million for the year ended December 31, 2018,
compared to $41.2 million for the year ended December 31, 2017.

At-The-Market (“ATM”) Facility

On November 30, 2018, Aurinia entered into an open market sale agreement
with Jefferies LLC pursuant to which the Company could from time to time
sell, through ATM offerings, common shares that would have an aggregate
offering amount of up to $30 million. Subsequent to year-end, the ATM
was fully utilized. Aurinia received gross proceeds of $30 million and
issued 4.6 million common shares. The Company incurred share issue costs
of $1.2 million including a 3% commission and professional and filing
fees related to the ATM offering.

February 14, 2014 Warrant Exercises

The derivative warrants outstanding related to the February 14, 2014
private placement offering were exercised subsequent to December 31,
2018. Certain holders of these warrants elected the cashless exercise
option and the Company issued 687,000 common shares on the cashless
exercise of 1.3 million warrants. Three holders of 464,000 warrants
exercised these warrants for cash, at a price of $3.2204. We received
cash proceeds of $1.5 million and issued 464,000 common shares.

The Company believes, based on its current plans that Aurinia has
sufficient financial resources to fund the existing LN program,
including the AURORA trial and the AURORA 2 extension trial, complete
the NDA submission to the FDA, conduct the ongoing Phase 2 study for
FSGS, commence additional DES studies and fund operations into mid-2020.

Financial Results for the Fourth Quarter Ended December 31, 2018

The Company reported a consolidated net loss of $14.6 million or $0.17
per common share for the fourth quarter ended December 31, 2018, as
compared to a consolidated net loss of $3.3 million or $0.04 per common
share for the fourth quarter ended December 31, 2017.

The loss for the fourth quarter ended December 31, 2018 reflected an
increase of $593,000 in the estimated fair value of derivative warrant
liabilities compared to a reduction of $9.0 million in the estimated
fair value of derivative warrant liabilities for the fourth quarter
ended December 31, 2017.

The net loss before this non-cash change in estimated fair value of
derivative warrant liabilities was $13.9 million for the fourth quarter
ended December 31, 2018 compared to $12.3 million for the same period in
2017.

Research and development (“R&D”) expenses increased to $10.8 million in
the fourth quarter of 2018, compared to $8.7 million in the fourth
quarter of 2017. The increase in these expenses primarily reflected
costs incurred for the AURORA 2 extension trial, the DDI study and the
FSGS and DES Phase 2 studies which were newly enrolled studies in 2018.

Corporate, administration and business development expenses increased to
$3.5 million for the fourth quarter of 2018, compared to $3.1 million
for the fourth quarter of 2017, reflecting higher professional fees
incurred during the fourth quarter of 2018.

Financial Results for the Year Ended December 31, 2018

For the year ended December 31, 2018, Aurinia recorded a consolidated
net loss of $64.1 million or $0.76 per common share, which included a
non-cash increase of $10.0 million related to the estimated fair value
annual adjustment of derivative warrant liabilities at December 31,
2018. After adjusting for this non-cash impact, the net loss before this
change in estimated fair value of derivative warrant liabilities was
$54.1 million.

This compared to a consolidated net loss of $70.8 million or $0.92 per
common share in 2017, which included a non-cash increase of $23.9
million in the estimated fair value of derivative warrant liabilities
for the year ended December 31, 2017. After adjusting for this non-cash
impact for 2017, the net loss before this change in estimated fair value
of derivative warrant liabilities was $46.9 million.

The change in the revaluation of the derivative warrant liabilities is
primarily driven by the change in our share price. Our share price of
$6.82 was significantly higher at December 31, 2018, compared to our
share price of $4.53 at December 31, 2017. This increase in our share
price resulted in large increases in the estimated fair value of
derivative warrant liabilities for each of 2018 and 2017. The derivative
warrant liabilities will ultimately be eliminated on the exercise or
forfeiture of the warrants and will not result in any cash outlay by
Aurinia.

We incurred R&D expenses of $41.4 million for the year ended December
31, 2018, as compared to $33.9 million for the year ended December 31,
2017. The increase in R&D expenses in 2018 primarily reflected costs
related to the AURORA 2 extension trial, the DDI study and the FSGS and
DES Phase 2 studies.

We incurred corporate, administration and business development expenses
of $13.7 million for the year ended December 31, 2018, as compared with
$12.1 million for the same period in fiscal 2017. The increase in these
expenses reflected higher corporate activity levels overall, and higher
personnel compensation costs which included a non-cash stock
compensation expense of $4.2 million for the year ended December 31,
2018, compared to $3.2 million for the year ended December 31, 2017.

The audited financial statements and the Management’s Discussion and
Analysis for the year ended December 31, 2018, are accessible on
Aurinia’s website at www.auriniapharma.com,
on SEDAR at www.sedar.com
or on EDGAR at www.sec.gov/edgar.

Aurinia will host a conference call and webcast to discuss the fourth
quarter and year ended December 31, 2018 financial results today,
Tuesday, March 19, 2019 at 4:30 p.m. ET. This event can be accessed on
the investor section of the Aurinia website at www.auriniapharma.com.

^{About Aurinia}

^{Aurinia Pharmaceuticals is a late clinical-stage biopharmaceutical

company focused on developing and commercializing therapies to treat

targeted patient populations that are impacted by serious diseases with

a high unmet medical need. The Company is currently developing

voclosporin, an investigational drug, for the potential treatment of LN,

FSGS, and DES. The Company is headquartered in Victoria, British

Columbia and focuses its development efforts globally. For further

information, see our website at}^{www.auriniapharma.com}^.

^{About Voclosporin}

^{Voclosporin, an investigational drug, is a novel and potentially

best-in-class Calcineurin inhibitors (“CNIs”) with clinical data in over

2,400 patients across indications. Voclosporin is an immunosuppressant,

with a synergistic and dual mechanism of action. By inhibiting

calcineurin, voclosporin blocks IL-2 expression and T-cell mediated

immune responses and stabilizes the podocyte in the kidney. It has been

shown to have a more predictable pharmacokinetic and pharmacodynamic

relationship (potentially requires no therapeutic drug monitoring), an

increase in potency (vs cyclosporin), and an improved metabolic profile

compared to legacy CNIs. Aurinia anticipates that upon regulatory

approval, patent protection for voclosporin will be extended in the

United States and certain other major markets, including Europe and

Japan, until at least October 2027 under the Hatch-Waxman Act and

comparable laws in other countries and until April 2028 with anticipated

pediatric extension. Further, the new Notice of Allowance is

expected to result in the issuance of a U.S. patent with a term

extending to December 2037. If the FDA approves the use of voclosporin

for LN and the label for such use follows the dosing protocol under the

Notice of Allowance, the issuance of this patent will expand the scope

of intellectual property protection for voclosporin to December 2037.}

^{About VOS}

^{Voclosporin ophthalmic solution (“VOS”) is an aqueous, preservative

free nanomicellar solution intended for use in the treatment of DES.

Studies have been completed in rabbit and dog models, and a single Phase

1 has also been completed in healthy volunteers and patients with DES.

VOS has IP protection until 2031.}

^{About LN}

^{Lupus Nephritis (“LN”) in an inflammation of the kidney caused by

Systemic Lupus Erythematosus (“SLE”) and represents a serious

progression of SLE. SLE is a chronic, complex and often disabling

disorder. The disease is highly heterogeneous, affecting a wide range of

organs and tissue systems. Unlike SLE, LN has straightforward disease

outcomes (measuring proteinuria) where an early response correlates with

long-term outcomes. In patients with LN, renal damage results in

proteinuria and/or hematuria and a decrease in renal function as

evidenced by reduced estimated glomerular filtration rate (“eGFR”), and

increased serum creatinine levels. LN is debilitating and costly and if

poorly controlled, LN can lead to permanent and irreversible tissue

damage within the kidney, resulting in end-stage renal disease (“ESRD”),

thus making LN a serious and potentially life-threatening condition.}

^{About FSGS}

^{Focal segmental glomerulosclerosis (“FSGS”) is a rare disease that

attacks the kidney’s filtering units (glomeruli) causing serious

scarring which leads to permanent kidney damage and even renal failure.

FSGS is one of the leading causes of Nephrotic Syndrome (“NS”) and is

identified by biopsy and proteinuria. NS is a collection of signs and

symptoms that indicate kidney damage, including: large amounts of

protein in the urine; low levels of albumin and higher than normal fat

and cholesterol levels in the blood, and edema. Similar to LN, early

clinical response (measured by reduction of proteinuria) is thought to

be critical to long-term kidney health in patients with FSGS. Currently,

there are no approved therapies for FSGS in the United States and the

European Union.}

^{About DES}

^{Dry eye syndrome (“DES”) is characterized by irritation and

inflammation that occurs when the eye’s tear film is compromised by

reduced tear production, imbalanced tear composition, or excessive tear

evaporation. The impact of DES ranges from subtle, yet constant eye

irritation to significant inflammation and scarring of the eye’s

surface. Discomfort and pain resulting from DES can reduce quality of

life and cause difficulty reading, driving, using computers and

performing daily activities. DES is a chronic disease. There are

currently two FDA approved therapies for the treatment of dry eye;

however, there is opportunity for potential improvement in the

effectiveness by enhancing tolerability and onset of action and

alleviating the need for repetitive dosing.}

^{Forward-Looking Statements}

^{Certain statements made in this press release may constitute

forward-looking information within the meaning of applicable Canadian

securities law and forward-looking statements within the meaning of

applicable United States securities law. These forward-looking

statements or information include but are not limited to statements or

information with respect to: AURORA having data around the end of this

year, completing NDA submissions in a successful and timely manner,

voclosporin being potentially a best-in-class CNI with robust

intellectual property exclusivity; and that Aurinia has sufficient

financial resources to fund the existing LN program, including the

AURORA trial, and the NDA submission to the FDA, conduct the current

Phase 2a study for FSGS, commence additional studies for DES and fund

operations into mid-2020 and that the efficacy endpoint clearly signals

that VOS has the potential to have a more rapid onset than Restasis® as

measured by signs of the disease. It is possible that such results or

conclusions may change based on further analyses of these data. Words

such as “anticipate”, “will”, “believe”, “estimate”, “expect”, “intend”,

“target”, “plan”, “goals”, “objectives”, “may” and other similar words

and expressions, identify forward-looking statements. We have made

numerous assumptions about the forward-looking statements and

information contained herein, including among other things, assumptions

about: the market value for the LN program; that another company will

not create a substantial competitive product for Aurinia’s LN business

without violating Aurinia’s intellectual property rights; the burn rate

of Aurinia’s cash for operations; the costs and expenses associated with

Aurinia’s clinical trials; the planned studies achieving positive

results; Aurinia being able to extend its patents on terms acceptable to

Aurinia; and the size of the LN market. Even though the management of

Aurinia believes that the assumptions made, and the expectations

represented by such statements or information are reasonable, there can

be no assurance that the forward-looking information will prove to be

accurate.}

^{Forward-looking information by their nature are based on

assumptions and involve known and unknown risks, uncertainties and other

factors which may cause the actual results, performance or achievements

of Aurinia to be materially different from any future results,

performance or achievements expressed or implied by such forward-looking

information. Should one or more of these risks and uncertainties

materialize, or should underlying assumptions prove incorrect, actual

results may vary materially from those described in forward-looking

statements or information. Such risks, uncertainties and other factors

include, among others, the following: difficulties, delays, or failures

we may experience in the conduct of our AURORA clinical trial;

difficulties we may experience in completing the development and

commercialization of voclosporin; the market for the LN business may not

be as estimated; Aurinia may have to pay unanticipated expenses;

estimated costs for clinical trials may be underestimated, resulting in

Aurinia having to make additional expenditures to achieve its current

goals; Aurinia not being able to extend its patent portfolio for

voclosporin; and competitors may arise with similar products. Although

we have attempted to identify factors that would cause actual actions,

events or results to differ materially from those described in

forward-looking statements and information, there may be other factors

that cause actual results, performances, achievements or events to not

be as anticipated, estimated or intended. Also, many of the factors are

beyond our control. There can be no assurance that forward-looking

statements or information will prove to be accurate, as actual results

and future events could differ materially from those anticipated in such

statements. Accordingly, you should not place undue reliance on

forward-looking statements or information.}

^{Except as required by law, Aurinia will not update forward-looking

information. All forward-looking information contained in this press

release is qualified by this cautionary statement. Additional

information related to Aurinia, including a detailed list of the risks

and uncertainties affecting Aurinia and its business can be found in

Aurinia’s most recent Annual Information Form available by accessing the

Canadian Securities Administrators’ System for Electronic Document

Analysis and Retrieval (SEDAR) website at}^{www.sedar.com}^{or the U.S. Securities and Exchange Commission’s Electronic Document

Gathering and Retrieval System (EDGAR) website at}^{www.sec.gov/edgar}^.

We seek Safe Harbor.

Aurinia Pharmaceuticals Inc.

Condensed Consolidated Statements of Financial Position

(unaudited – amounts in thousands of U.S. dollars)

	December 31, 2018 $	December 31, 2017 $
Assets
Cash and cash equivalents	117,967	165,629
Short term investments	7,889	7,833
Accounts receivable and accrued interest receivable	217	109
Prepaid expenses, deposits and other	6,775	1,681
Total current assets	132,848	175,252

Acquired intellectual property and other intangible assets	12,616	14,116
Other non-current assets	399	479
Total assets	145,863	189,847

Liabilities and Shareholders’ Equity
Accounts payable and accrued liabilities	7,071	7,959
Other current liabilities	190	191
Total current liabilities	7,261	8,150

Derivative warrant liabilities	21,747	11,793
Other non-current liabilities	4,280	4,161
Total liabilities	33,288	24,104

Shareholders’ equity	112,575	165,743
Total liabilities and shareholders’ equity	145,863	189,847

Aurinia Pharmaceuticals Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited – amounts in thousands of U.S. dollars, except per share
data)

	Three Months Ended December 31		Year Ended December 31
	2018	2017	2018	2017
	$	$	$	$
Revenue
Licensing revenue	29	30	118	418
Contract revenue	–	–	345	–

	29	30	463	418

Expenses
Research and development	10,839	8,691	41,382	33,930
Corporate, administration and business development	3,498	3,118	13,674	12,096
Amortization of acquired intellectual property and other intangible assets	349	356	1,545	1,434
Amortization of property and equipment	6	5	20	22
Other expense (income)	(736)	196	(2,065)	(196)

	13,956	12,366	54,556	47,286

Net loss before change in estimated fair value of
derivative warrant liabilities	(13,927)	(12,336)	(54,093)	(46,868)

Change in estimated fair value of derivative warrant liabilities	(593)	9,004	(9,954)	(23,924)

Loss before income taxes	(14,520)	(3,332)	(64,047)	(70,792)

Income tax expense	73	–	73	–

Net loss for the period	(14,593)	(3,332)	(64,120)	(70,792)

Other comprehensive loss
Item that may be reclassified subsequently to loss
Net change in fair value of short term investments	–	11	–	(78)

Net comprehensive loss for the period	(14,593)	(3,321)	(64,120)	(70,870)

Net loss per common share (in $ per share)
Basic and diluted loss per common share	(0.17)	(0.04)	(0.76)	(0.92)

Weighted average number of common shares outstanding	85,384	84,038	84,782	76,918