AUPH - Aurinia Pharmaceuticals: Reassessing As It Gains Traction

2023-09-27 11:02:40 ET

Summary

• Aurinia Pharmaceuticals is a biopharmaceutical company focused on developing and commercializing therapies for diseases with high unmet medical need.
• The company has been the subject of frequent takeover rumors and continues to gain impressive sales traction with its primary drug compound.
• The shares have been a roller coaster ride in recent years. Where does the stock go from here? An updated analysis follows in the paragraphs from here.

Resolve to be tender with the young, compassionate with the aged, sympathetic with the striving, and tolerant of the weak and the wrong. Sometime in life you will have been all of these . ? George Washington Carver

It has been quite some time since we last took a look at Aurinia Pharmaceuticals Inc. (AUPH) . This small biopharma has been somewhat of a roller coaster ride for its shareholders in recent years. Given this, it is time to circle back to Aurinia Pharmaceuticals and reassess its investment thesis. An analysis follows below.

Company Overview:

Aurinia Pharmaceuticals, Inc. is a commercial-stage biopharmaceutical company located in Victoria, British Columbia. The company is focused on developing and commercializing therapies to treat diseases with high unmet medical needs. The stock trades just north of eight bucks a share and sports an approximate market capitalization of $1.15 billion.

Aurinia's primary asset is a compound called LUPKYNIS, which is the first FDA-approved oral therapy for lupus nephritis . LUPKYNIS was approved early in 2021. The company is partnered with Otsuka for overseas distribution and marketing of LUPKYNIS. The compound is approved in Germany, Austria, Sweden, Finland, Norway, and Switzerland and has received formal reimbursement approval in both the U.K. and Italy. Once LUPKYNIS becomes fully approved in three of the five major economies in Europe, Aurinia is entitled to $10 million milestone payment. The same for Japan, as well as royalties on sales.

Aurinia has some other drug candidates targeting other autoimmune diseases. However, these assets are too early stage to be considered within this valuation.

Second Quarter Results:

Aurinia Pharmaceuticals posted its second quarter numbers on August 3rd. The company posted a GAAP loss of 8 cents a share, more than a dime a share better than expectations. Revenues rose 47% on a year-over-year basis to $41.5 million, $4 million above the consensus. Of note, sales were up 20% sequentially from 1Q2023. Sales of LUPKYNIS in the first half of 2023, have risen 52% from the same period a year ago.

Persistency (the percent of patients that stay on the drug) rose to 54% from 51% in 2Q2022. At the end of the second quarter, Aurinia had just over 1,900 patients on LUPKYNIS. Each patient represents just over $65,000 in annual revenue. Management also moved up FY2023 revenue guidance from $135 million to $155 million given at the end of the first quarter to a new range of $150 million to $160 million.

Analyst Commentary And Balance Sheet:

Since the second quarter results were posted, RBC Capital ($13 price target), H.C. Wainwright ($15 price target) and Bloom Burton ($13 price target) have all reiterated Buy ratings on the stock. Oppenheimer has maintained its Hold rating on AUPH.

Approximately one out of every ten shares of outstanding shares are currently held short. Several insiders have sold nearly $1 million worth of shares collectively so far this year. There have been no insider purchases in this stock so far in 2023. Aurinia Pharmaceuticals ended the first half of 2023 with approximately $350 million in cash and marketable securities on its balance sheet, after posting a net loss of $11.5 million in the second quarter.

Verdict:

The company lost 76 cents a share on $134 million of revenues in FY2022. The current analyst firm consensus has the firm cutting losses to 57 cents a share in FY2023 as sales increase to just over $160 million. They see losses of 33 cents a share in FY2024 as revenues move up to just north of $210 million.

Just over a year ago in our last article on Aurinia Pharmaceuticals, it was recommended as a solid covered call candidate. That has worked out well, as the shares trade almost exactly where they did in August 2022 when that piece came out. I have ' rolled ' my options within these covered call holdings a few times, making it a lucrative trade.

That continues to be the trading strategy I will employ around the stock. The company is making good progress, gaining sales traction with LUPKYNIS and establishing the drug as the standard of care to treat LN. At the end of the second quarter, LUPKYNIS was leading other LN therapies on intent-to-prescribe over the next 30 days and over the next three months. Aurinia also enjoys a solid balance sheet. That said, the company is many years away from profitability, so I prefer the downside risk mitigation a simple covered call strategy provides.

Now, it should be noted that Aurinia Pharmaceuticals has been the subject of frequent acquisition rumors in recent years. The company also recently appointed a new board member as the result of prodding from MKT Capital Ltd., an activist fund that holds just over four percent of the outstanding shares in AUPH. If a buyout actually happens, I will be leaving some money on the table. However, I am comfortable continuing to employ a strategy that has worked well around AUPH up to this point.

Think for yourself and let others enjoy the privilege of doing so too . - Voltaire

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