Greetings, and welcome to the Aurinia Pharmaceuticals Fourth Quarter and Full Year 2021 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dana Lynch, Aurinia's Director of Corporate Communications and Corporate Affairs. Thank you. You may begin.

Thank you, Melissa, and thank you all for joining today's call to discuss Aurinia's 2021 fourth quarter and year-end financial results. Joining me this morning are Peter Greenleaf, President and CEO; and Joe Miller, Chief Financial Officer, who will be leading the call. Other members of the executive team, specifically, Max Colao, Chief Commercial Officer; and Dr. Neil Solomons, Chief Medical Officer, will be available at the conclusion of our presentation for the Q&A portion of the call. This morning, we issued a press release announcing our financial results and recent operational highlights and filed our Annual Report on Form 10-K. For more information, please refer to our filings with the U.S. Securities and Exchange Commission, which are also available on our website at www.auriniapharma.com. During this call, we may make forward-looking statements based on our current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosures in our press release and our Annual Report on Form 10-K, along with all of our recent filings with the U.S. Securities and Exchange Commission and Canadian Securities Authorities. Please note that all statements made during today's call are current as of today, February 28, 2022, unless otherwise noted and are based upon the information currently available to us at this time. Except as required by law, we assume no obligation to update any such statements. Let me now turn the call over to Aurinia's President and CEO, Peter Greenleaf. Peter?

Thanks, Dana, and thanks to everyone for joining us today. 2021 was a transformational year for Aurinia. Across every part of the company, we achieved major strategic and operational milestones. With these achievements, we evolved from being a small drug development company with limited capabilities to become a fully integrated revenue-producing biopharmaceutical company. To start the year, we received U.S. FDA approval for LUPKYNIS in lupus nephritis, a serious and life-threatening rare disease, by demonstrating superior clinical results over the current standard of care. We jumped immediately into launching our first commercial product. And with that, we shifted from strictly cash utilization to cash generation and the ability to now treat and serve patients and health care professionals in the community. In June, we hit another major milestone with the filing of a marketing authorization application for approval of voclosporin with the European Medicines Agency. This was a key step in globalizing our business alongside our partner, Otsuka, and in furthering our ability to serve patients beyond the U.S. To establish our leadership in lupus nephritis, we recognize that clinical evidence and the ongoing data generation is paramount to driving LUPKYNIS adoption, as well as establishing its duration of therapy. In June last year, the Lancet published the LUPKYNIS pivotal registrational study, and in December, we also unveiled the positive results of the AURORA 2 continuation study. LUPKYNIS is now the first and only FDA-approved medicine for lupus nephritis with three years of pivotal trial results, including long-term safety data. The AURORA 2 results will be submitted to the FDA in connection with our post-marketing commitments in the first half of this year, and will also be added to our package of information being submitted to the EMA, supplementing our already filed MAA. We filed this additional data, and we…

Thank you, Peter, and good morning, everyone. As Peter previously stated, as of December 31, 2021, Aurinia had cash and cash equivalents and investments of $466.1 million compared to $422.7 million at December 31, 2020. The increase was primarily due to the receipt of net proceeds from the company's ATM offering, cash receipts from the sale of LUPKYNIS and cash proceeds from the exercise of stock options and warrants, offset by the commercial infrastructure spend to support the launch of LUPKYNIS. It also includes payments for inventory and upfront payment made as part of our collaboration agreement with Lonza to build a dedicated manufacturing capability for our monoplant and an upfront license payment related to our recently acquired developmental programs, AUR200 and AUR300. As a reminder, in the prior year, the company was still in the FDA pre-approval phase of LUPKYNIS and was only in the beginning phase of building out its commercial and back-office infrastructure. Regarding the ATM mentioned early, we raised net proceeds of $196.7 million in the fourth quarter at an average price of $19.91. The company has terminated this ATM effective as of today. There will be no more sales under the ATM. We believe that we have sufficient financial resources to fund our current plans, which include funding commercial activities, including FDA-related post-approval commitments, manufacturing and packaging of commercial drug supply, funding our supporting commercial infrastructure, conducting planned research and development programs, investing in our pipeline, executing on our business development strategy and funding our operating activities for at least the next few years. Total net revenue was $23.4 million and $50 million for the quarters ended December 31, 2021, and December 31, 2020, respectively. Total net revenue was $45.6 million and $50.1 million for the years ended December 31, 2021, and 2020, respectively. The…

Thanks, Joe. As you heard throughout the call, made a profound impact in 2021, delivering a safe and effective treatment to a patient population with high underserved needs and growing our company to ensure continued commitment to our mission of serving patients for the years to come. I want to thank everyone again for joining us today. We'll now open up the microphone to your questions.

Our first question comes from the line of Alethia Young with Cantor Fitzgerald. Please proceed with your question.

Hey guys. Thanks for taking my question. Maybe just one and maybe 1.5. Just could you talk a little bit more maybe about the potential cadence of the COVID-19 impacts that you're seeing. Do you expect it to kind of be sustained over the year? Is that what you're factoring in? And then also, can you just characterize how these impacts are different than what you may have seen in the first 12 months of launch last year versus what's been going on with Omicron? Thank you.

Thanks, Alethia, and appreciate the question. So the way -- because we're not giving quarter-on-quarter guidance, but we try to be pretty clear in the call that most like any specialty pharma company out there in the space, we're seeing the typical start of year impact of things like patients having insurance plan changes, copay resets, etcetera. And then on top of that, of course, we had the Omicron variant impact, which impact the last couple of weeks of December and into January, which we do see starting to improve. So there's 2 ways, I guess, I would think about this with respect to giving annual guidance, but not quarterly guidance. We hope the Omicron variant impact will start to lessen. And then on a year-on-year basis, I think every January, early February time period in our business, this will be a continuing impact, just like it is for any company that's marketing and selling drugs in our space today. So if I were thinking about it from a gating standpoint, we anticipate the first quarter being impacted and then getting back to a healthy growth pattern into Q2 through Q4 of the year.

Okay. And just to clarify because I've gotten this question already. You guys feel confident about the trends that are underlying? The launch besides the things that you've highlighted like COVID and payer dynamics in the first quarter, but you feel like the trends and growth are still there for this product?

That's correct.

Awesome. Thank you guys.

Thanks Alethia.

Thank you. Our next question comes from the line of Maury Raycroft with Jefferies. Please proceed with your question.

Hi good morning and thanks for taking my question. I was just wondering if you could provide more specifics around reasons for discontinuation and adherence challenges, and how this compared to what you saw in clinical studies? And if you can talk more about your assumptions for 2022 and how you talked a little bit about managing some of these issues throughout the year. Can you talk more about how you're planning on doing that?

Sure. So on discontinuations and adherence, I would tell you that the reasons are across the Board. What I would underscore is, they're not payer related. It's not like we're getting PSFs that come in and then the payer is not paying for the drug. That's not been one of the ones we've seen. But to try to range in on a host -- from a host of different reasons as to why patients might be discontinuing their product, it's kind of across the board right now. Everything from tolerability to patients just not picking up prescriptions, which we are trying to flesh out more. Remember, we're dealing with primarily a patient population that's an African-American, Hispanic and Asian female population in the U.S., and we can look to other disease states as analogs to understand that adherence and longer-term compliance are a challenge with that population in general. So we're looking at this one closely. And when we have more data, especially on the adherence side, the long-term persistency, we'll provide some guidance and steer there. But as we said, since the majority of patients have gone on in the third and fourth quarter of this year to really report out on what three and six months persistency looks like, I don't think it would be really a good characterization or where we are and where we're potentially going. So it's across the board, Maury. And it pretty much maps to what we saw in our clinical trials.

Got it. Okay. And maybe just quick questions, in your 10-K, you note that Sun filed an IPR against your 036 patent. And I'm just wondering if you can comment on your latest thoughts on IP positioning and also this particular issue?

Sure. And let me actually take a minute to address this one. I want to thank you for the question. We did receive notice of an inter partes review, or IPR, petition being filed on February 24 with respect to our patent that has claims directed at LUPKYNIS dosing protocol for lupus nephritis used in our clinical trials. As you all recall, that patent has a term extending out to December of 2037. At this stage, it's really too preliminary to give a full assessment of this IPR as a position -- a petition that was filed from Sun Pharmaceuticals who you all may recall, if you've been reading our Ks, we are suing for patent infringement in a separate matter, which I'll talk about in a second, was really just received. So we're looking at it, but we're confident in our process to prosecute all our patents. This patent in particular, had significant review, as we've mentioned previously at the U.S. Patent and Trade Office before being approved as being actual valid patent by that office. We're putting together our reply. And as I've said before, we'll vigorously defend this patent and other challenges we get, again, from any party that bring any challenge to our patents. With respect to the separate litigation we have with Sun that I just mentioned, and as has been disclosed in our 10-K, in December of 2020, we actually commenced on an action in the U.S. District Court, New Jersey against Sun and certain of their affiliates, and in summary, the action is a claim for patent infringement under U.S. patent laws arising relating to Sun's CEQUA product, which is a C&I immunosuppressant ophthalmic solution prior to the expiration of our patents relating to voclosporin's ophthalmic solution. So basically, in our action, we requested relief in the form of an order confirming that Sun has infringed those patents and injunction preventing Sun for manufacturing, using or selling CEQUA and monetary relief, including costs. Obviously, Sun has responded by denying infringement and/or asserting that the patents here are valid. We and Sun actually have exchanged initial pleadings and patent disclosures, and we're in the process of what lawyers qualify as claim construction, and that's all ongoing. Trial action on this one is probably somewhere on or around March of 2023. So that gives the full backgrounder on the previously mentioned Sun litigation and the IPR side of the equation.

Got it. Okay. That’s helpful. Thanks for taking my questions.

Thanks, Maury.

Thank you. Our next question comes from the line of Joseph Schwartz with SVB Securities. Please proceed with your question.

Hi. Thanks very much. I was wondering if you could help us understand the main assumptions underlying your 2022 revenue guidance for LUPKYNIS in terms of things like patient start forms, conversion rates and times and discontinuations, either on an absolute basis or relative to what you've been seeing? And then I think, Peter, a couple of weeks ago at our healthcare conference, you had shared some plans to issue aggressive guidance. Are there particular aspects of this revenue guidance that are aggressive or more aggressive than others?

Yeah. Well, let me start there, and I underscored it in our call today. I think 150 to 200-plus percent growth year-on-year is aggressive in light of the challenges everyone is facing in the start of the year with the Omicron variant, its impact on offices, our individual companies and our reps, the patients themselves, et cetera. Most companies are, I think, guiding to challenges in that area. And I think that kind of growth doubling -- more than doubling up our business year-on-year is aggressive. And that was the context for my comments going into the conference, and it's my context for the comments given today. In terms of how to think about how the forecast gates for the year, obviously, we don't give quarter-on-quarter guidance, but what underlies us achieving these numbers is getting to -- after the first quarter, getting back to significant growth in PSF for prescription start forms and maintaining an adherence level at or around what we're seeing currently. So again, as we estimated, somewhere around that 25% to 30% that we've seen coming out of our clinical trials. In addition, I think we have to see good persistency over time. But as I said earlier, it's -- with respect to how long patients have already been on drug, it's sort of hard to qualify what we've seen and what we need to hold to. But all of those are factors, Joe.

Okay. Thanks for that color. And maybe just a quick housekeeping question, if I could, on the EU approval, hopefully, later this year. I think the range of milestones that you stand to gain is $15 million to $30 million. I was wondering -- and that depends on the label, as I understand it. Can you share with us any more color on what kind of factors would determine whether you come out at the higher or the low-end of that milestone range?

Yeah, I'll try to oversimplify it. If we come with a label that's very similar to what we see in the US, you can feel confident that we'll get a full $30 million. There are other areas such as length of therapy, et cetera, that if those were more constrained in Europe, we might get the lower end of that range. We feel really confident because of the AURORA 2 continuation study in a way that the 120-day comments came back that we should be on the upper end of that. But obviously, you never know until we actually get the approval, which is targeted for the back half of this year.

Excellent. Thanks very much for the help.

Thanks, Joe.

Thank you. Our next question comes from the line of Stacy Ku with Cowen and Company. Please proceed with your question.

Good morning. Thanks for taking our questions. So we have one around the net pricing per patient for LUPKYNIS. How should we be thinking about Q4? As we -- of the pricing to stay consistent with the Q4 metrics you provided around enrollment forms and conversion, it would apply that the pricing is much better than our initial $65,000 placeholder net pricing annually. So in our rough math, we're getting closer to $100,000. So any guidance would be appreciated. And also related to this question, given the potentially stronger pricing as we think about Q1 and given all your commentary, do we expect to see the conversion of enrollment forms to drop significantly down from Q4? Thank you.

So let me start with the first. On net pricing, we maintained the previous guidance of $65,000 net or higher. And the reason that we are not giving sort of quarterly adjustments to this is it almost aligns directly with my previous commentary on patient persistency. Until we really know what the average dose is going to look like on a monthly basis, but more importantly, how the average length of therapy is going to look per patient, it's hard to estimate and not give the Street over confidence in a number that could vary, right? What we can tell you is that we're confident that right now our $65,000 net estimate or above is where we're tracking. And it seems like that should stay consistent throughout. We've not commented on sort of breaking down net versus total number of patients on therapy, et cetera, because those numbers can swing around. Lastly, your question on patient start forms and how we should be thinking of that first quarter versus rest of the quarters of the year. As I said to previous questions, I think it's safe to say, while we're not giving quarterly guidance, that we see a softness in the first quarter in patient start forms, and we would estimate that we're going to need to see a pickup in patient start forms as we move into Q2 and Q3 and Q4, obviously, for the rest of the year. And we feel confident that those trends are starting to move in the right direction.

Thank you.

Thank you. Our next question comes from the line of Ed Arce with H.C. Wainwright. Please proceed with your question.

Hi, thanks for taking my questions and congrats on a strong end of the year. A couple of questions for me. First, could you discuss your -- what you believe to be the key headwinds to further sales growth in 2022, perhaps even beyond your strong guidance? Obviously, given, as you said, the COVID and Omicron variant issue as well as the 90% payer coverage at this point, some of the key headwinds going through the year as well as perhaps key drivers that may factor in as a key swing for the upside? And then I have a follow-up.

Yeah. I think, it's twofold, one is, obviously, this COVID environment, and listen, I'm sure investors have heard plenty of other companies characterize this, but from our perspective, it impacts the entire ecosphere, right? Like our direct representatives, it's their ability to get access to institutions, into offices. Inclusive of that, it's the way patients – or excuse me, physicians and physicians' office staff are operating today. And then lastly, and I think most importantly, which will bleed into my second comment, is the fact that patients and how they relate to the health care system, how aggressively they are at keeping their visits on the books, to picking up their medications, et cetera, have all been impacted. And we previously quoted growth or lack of growth in 2020 to 2021 in new diagnosis for lupus nephritis, at least from our ICD-9 code poll data it showed almost a 30% drop in new patient diagnosis. So that just as one example, so COVID is the only thing we can point to, to say why these numbers have declined. And obviously, thee have been other companies who can't come out and even said that, cancer therapies, cancer diagnosis, adherence to chemotherapeutic regimens have seen direct input as well. So I won't belabor that one anymore, because I think that, by and large, is the largest swing factor. And then – and as I said, I think we're seeing some really good signs of life that we're moving out of that. The second part for me is, if we can continue to, which we fully expect we will, identify new patients and patient start forms is how long we're keeping patients on therapy. And of those patients who actually do get the drug approved, how many are actually picking up the prescription and adhering to the profile. And as we've said right now, at least adherence and discontinuations as it pertains to cancellations and discontinuations were about 25% to 30% of our overall patient start forms. It will be interesting and a big swing factor in our forecast this year or a meaningful one to know how long those patients are actually staying on therapy over time, because it just compounds the effect of getting new patients on drug, if patients are staying on drug. So one that, we look forward to talking more about as we get more data.

Okay. All right. Thanks for that. And then related to what you just said, second question is around discontinuations. You – as you've said a couple of times already, 25% to 30% is where you're tracking now similar to your Phase 3. Question is, given – it seems like some mobility or at least effort to improve that over time, where do you think discontinuations could settle into further down the line as sort of a steady state? And then related to that, I'm wondering, if there's any expectations, or if you could help us understand the potential impact of any patients that may have dropped off and that may come back later on? Is that something that you think about in factoring as well? Thanks so much.

Yeah. Two things here, on discontinuations, barring having any new data, at least from a company mindset, we're carrying that number forward. And while we always hope to improve upon it with all of the things that I mentioned in terms of our tactical activity, probably the safest estimate is to look to our trials and what we've seen early on but know that we've got good effort against trying to improve upon it. At least that just gives you sort of our current view. We see improvement there, we'll be the first to report it to you. The second part of your question was centered around -- can you repeat it one more time?

Yes, no problem. Patients that may drop off for whatever reason, and you see them come back. Is that a meaningful proportion given some of these things have nothing to do with the drug at all like just not picking it up and maybe they went to the doctor again and decided to really start the program?

What we do know from just tracking sort of the surrogate drugs that these patients have been on historical, and polling data all the way back to, say, 2017 up until today, is if you look at the actual prescription activity, patients do miss doses here or there. They do seem to cycle on and off of drug. And I think as many know, that does not align with either the ULR, ACR or CADEGO guidelines that once proteinuria is in control, these guidelines are fairly silent on length therapy. They say keep patients in control. And I think the reason for that is, what we've talked about earlier, that patients can miss a prescription and end up coming back on to growth, at least that's what we've seen through the data. Now how to qualify that against our own data, our hope is that we're going to see more adherence over time. And then as I said, I think we need to see more than 3 months of therapy or 6 months of therapy before really give any steer on what we think the average adherence will look like. But I think that the net of your question is once a patient is on drug, are they forever lost to the system? At least the data would say no, that physicians seem to actively put patients back on drug if they missed picking up a prescription or have fallen out for some reason.

Thanks Peter. That’s all. Appreciate it.

Thank you. Our final question this morning comes from the line of David Martin with Bloom Burton. Please proceed with your question.

Yes. Most of my questions have been answered, but I have kind of a follow-on to the last question. So the discontinuation is 25% to 30%. You said it's not the payers, and it sounds like most physicians are encouraging patients to stay on. But I would go back on if they've dropped off. But are any physicians using us kind of as an induction therapy but not a maintenance therapy?

At least what that would be no, but I think it will -- we wouldn't really find that out, David, in sort of tracking through Aurinia Alliance, why patients might not be picking up their prescription. I think it will bear out more in what we see in terms of the persistency trends over time. I can tell you sort of qualitatively that when we talk to physicians, no one is telling us that they're looking to use this as an induction and then bridging them to some other therapy. That's not what the intent of the prescriber is or what we believe they're doing. And when I say there's a host of different reasons that patients either discontinue or cancel on a prescription, it is a host. There is no actual one trend of consistency there. It's everything from the office didn't follow through or the patient didn't follow through. The patient didn't pick up the prescription, decided not to stay on therapy, couldn't tolerate the therapy. It is a host of different reasons, including sort of a lost to follow-up. Patients change addresses, they change phone number. So making sure that we're able to continue to track them down and work very closely as well as we can through our efforts commercially in a compliant way is going to remain to be something that's top of our list of activities we need to try to drive.

Okay. Thanks. And my second question is, do you have any idea of how your lupus nephritis starts and discontinuations compared to Benlysta in lupus nephritis? And any idea what's driving the decision of physicians to treat with one or the other drug?

The first part of your answer, and I always hesitate to speak about other drugs, but I will tell you just from what we track, again, through coding and prescribing data is, they see the same sort of challenges. Difference being is they started at a little bit of a higher base. I think if you go back and look at Benlysta utilization, you tag it to ICD-9 codes, they've been getting pretty active treatment of lupus nephritis patients long before they had approval for the drug. And I think, again, this is a question for them, but my review of that is that's as much patients who've been on the drug for SLE that stay on it through a patient suffering a lupus nephritis bout and whether the patient -- the physician decides to just continue the drug or not is TBD. Their new patient growth and their adherence, at least from what we can see and discontinuation results are in line with what we're seeing right now. So I do think its population and not drug based from what I can see. How physicians are making a decision on Benlysta versus our drug is a little bit across the board. But what we do know is that physicians have a unique patient mind for our drug that's different than Benlysta. And we do know that our messaging around the results we've produced in AURORA 1 and in the AURORA 2 continuation study resonate with physicians. I mean, they directly align what the treatment goals are for therapy here. And right now, at least from what we can see, our data best aligns to the guidelines that are out there in terms of treatment outcomes. So we think we got a good position there, David.

Okay. Thanks.

Thank you. This concludes our question-and-answer session, and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.