Greetings. Welcome to Aurinia Pharmaceuticals' Full Year 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Andrea Christopher, Head of Corporate Communications and Investor Relations for Aurinia Pharmaceuticals. Thank you. You may begin.

Thank you, operator and thank you to everyone for joining today’s call and webcast. Joining me on the call this morning are Peter Greenleaf, Aurinia's Chief Executive Officer; and Joe Miller, our Chief Financial Officer. Today we will review and discuss Aurinia's 2023 fourth quarter and year-end financial and operational results as well as an update on our strategic review as communicated in the company's press release issued this morning. The company also filed its annual financial statements on Form 10-K this morning. For more information, please refer to Aurinia's filings with the US Securities and Exchange Commission and applicable Canadian Securities authorities, which are also available on Aurinia's website at auriniapharma.com. During today's call, Aurinia may make forward-looking statements based on current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties and actual results may differ materially. For a discussion of factors that could affect Aurinia's future financial results and business, please refer to the disclosures in Aurinia's press release and its annual report on Form 10-K and all of its recent filings with the US Securities and Exchange Commission and Canadian Securities authorities. Please note that all statements made today during today's call are current as of today, Thursday, February 15th, 2024, unless otherwise noted and are based upon information currently available to us. Except as required by law, Aurinia assumes no obligation to update any such statements. Now, let me turn the call over to Aurinia’s President and CEO, Peter Greenleaf. Peter?

Thanks Andrea, and good morning everyone. I want to thank everybody for joining us on today's call. As you may have noted, we issued preliminary unaudited fourth quarter and year-end numbers in early January. On today's call, we will provide you with the final audited results for the fourth quarter and the year-end 2023. We'll also provide an update on our commercial activities, including key commercial metrics and significant highlights for up LUPKYNIS. We will then provide an update with the company's previously announced strategic review and our business strategy moving forward. This includes our near-term plan to restructure the company and the initiation of a share repurchase program. We believe this plan allows for immediate enhancement of shareholder value and has the ability to strengthen the company's long-term financial picture. After walking you through these details, I will then turn the call over to Joe Miller, our CFO, to provide additional details on our financial results. So, now let me dive into the overall business performance. For the full year 2023, Aurinia achieved $175.5 million in total net revenue, which represented an increase of approximately 31% over the prior year. We achieved $158.5 million in net product revenue, representing an increase of 53% over 2022. For the fourth quarter of 2023, we achieved a total revenue of $45.1 million and a total net rev product revenue of $42.3 million, which represented an increase of 59% and 49% over the same period in 2022. Moving to more detail behind our financial results. During the fourth quarter, Aurinia added 438 patient start forms or PSF, compared to 406 PSFs in the fourth quarter of 2022, and 436 in the third quarter of 2023. In addition to the 438 PSFs added in the fourth quarter, the company also added approximately 101 new…

Thank you, Peter, and good morning, everyone. As Peter previewed, the Board has approved the share repurchase program of up to $150 million in common shares of the company, of which the maximum amount is subject to receipt of exemptive relief in Canada. If granted, it would permit Aurinia to purchase up to 15% of the issued and outstanding common shares of the company in any 12-month period over 36 months. There is no assurance that exemptive relief will be granted. If the exemptive relief is not granted, the maximum the company may purchase under the share repurchase program is 5% of our current issued and outstanding common shares, being 7,230,888 common shares. We plan to begin opportunistic discretionary purchases of shares on the open market beginning on or around February 21, 2024. The company expects to fund the share repurchases from cash flows from operations and cash currently on hand. Further details can be found in our recently issued press release in Form 10-K. I want to emphasize that this repurchase program truly reflects our confidence in Aurinia's growth prospects. Now, let's take a few moments and go into detail regarding our financial results for the fourth quarter and 12 months ended December 31, 2023. As of December 31, 2023, Aurinia had cash, cash equivalents, and restricted cash in investments of $350.7 million compared to $389.4 million at December 31, 2022. The decrease is primarily related to the continued investment in commercialization activities and post-approval commitments of our approved drug LUPKYNIS, inventory purchases, advancement of our pipeline, and mono plant payments, partially offset by an increase in cash receipts from sales of LUPKYNIS. Total net revenue increased 59% to $45.1 million for the fourth quarter compared to the prior year period of $28.4 million. Total net revenue for the…

Thanks, Joe. I want to close by saying that we've built a strong foundation for Aurinia's growth. This near-term shift will make us financially stronger. In the years to come, it will allow us more financial flexibility to continue to explore a range of strategic initiatives. We have a deeply experienced management team that's dedicated and committed to driving commercial success of LUPKYNIS and improving the lives of people suffering from lupus nephritis. We're looking forward to a continued strong performance carried through in 2024, and I want to thank you all for joining us and giving us your time today. I'll now open the lines for any questions. Operator?

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question comes from the line of Maury Raycroft with Jefferies. Please proceed with your questions.

Hi, good morning. This is Farzin on for Maury. Thank you for taking our questions. So for Peter, can you talk more about the assumptions and key drivers behind your revenue guidance of $200 million to $225 million then how you had like 231 patient starts and restarts factor in, whereas, in the same time period last year, you had like 274. So just wondering on the assumptions?

Yeah. Well, first, the assumptions to get to the range that we put out there in terms -- and thank you for the question of guidance factoring, as we said, all the elements of our business, right? But obviously, we've got a keen eye on the metric that you pull out, which is what's your new starts going into the first quarter and how does that potentially impact the full year view? If you look at our PSFs year-over-year and then you add back in the new starts that we've had in the hospital channel. And then you project that on a daily basis towards the end of the quarter, I think what you'll see is that we have -- we're experiencing growth, albeit how significant depends on what the continued rate is from now until the end of the quarter, but should project out growth to the end of the first quarter versus what we did last year. So the PSF add new start number when you include all three of those, looks quite strong through the first several weeks of the year. Recall also that our March is usually at least historically has been one of our best months. So we're not even factoring that in the numbers. But if you do factor that in the numbers could significantly contribute to the overall performance. But Farzin, just to give you the -- overall, we have to continue to see the type of persistency we've seen. We have to see growth in restarts in the hospital channel, PSFs for sure, time to get in patients on drug. And, of course, the new patient starts that you point out, but it's across all elements. And so far, the first quarter read on those has been strong.

Makes sense. And then if possible, for you to share more insights into the strategic review process, was the apprehension to buy primarily due to the valuation disconnect or something else? And do you think interested parties could come back to negotiate certain like, say, milestones related to the commercial sales or IPR met?

Well, listen to the latter part of your question, as we said on the call, we remain open to any and all bonafide opportunities that are brought forward to the company. I can't speak for other parties, nor can I predict the future. But I can tell you that you have a Board and a management team that will always remain open to alternative strategies. We don't need to necessarily run a strategic review process. We've always been open to other opportunities. As for feedback to this specific process, listen, we had a variety of interactions with the parties involved in the strategic review process. And given the nature and the variety and the depth of these interactions, as well as the confidential nature of the strategic review process, we can't divulge additional details at this point. We also can't speak on any other party's behalf as the information would be material to their business.

Thank you for taking the questions.

Thanks Farzin.

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

Hi, all. This is Will [ph] on for Joe. Thanks for taking our questions today. Two from us. So, just to start, zero-in on the 101 patients that were restarts for the hospital channel. Can you provide a breakdown between the two? And do you see this as an area as a potential growth driver for 2024? And are there any, kind of, appreciable patterns between those patients who are restarting therapy? Thank you.

Thanks, Will. Yeah, the 101 is referring back to the fourth quarter result when we reported the numerical significance increasing in two channels that we hadn't really historically seen, and that's the patient restarts happening, which we think is a positive signal and then the opening of the hospital channel. And as we've said, the split there -- and listen, we've got one quarter of a trend here, so this could vary. But the split, at least in the fourth quarter, was more driven -- approximately 75% to 80% of those patients came on a restart basis and about 20% of those patients came out of the hospital. As we look at the first several weeks of this quarter, so far, we've seen about 40 in the combination and unfortunately, at least today, I don't have how that break percentage comes across. But I would assume it's similar to what we saw in the fourth quarter. We look forward to detailing this as we move forward. And I guess what I'd like to underscore here is that while we'll always continue to report how patient start forms come into the company, these other channels are going to become more important. And I think on a go-forward basis, it's going to be very important to look at net new patients, and that will be inclusive of these restarts that we've kicked out of our overall tracking under PSFs in channels like hospitals and other networks that haven't historically been purchasing. And we'll, as we always have, continue to give transparency in all areas.

Okay, great. Thank you for that. And then just quickly, thinking about the 9% growth in PSF year-over-year, but seeing 35% growth in the patients on therapy, if I'm quoting your numbers right. Can you just talk a little bit about the dynamic between the two and how PSF might be a bit of a leading indicator and kind of the time lag that's associated with that? thank you.

Well, I think there's a couple of things you got to factor in, right? We've never said nor will we say that new patient starts aren't important to look at. But in the first couple of years of the launch is always a question of how long will patients stay on drug over time, what will the persistency look like? And when patients do eventually come off a drug, do they come back to drug? And we're now starting to understand those dynamics better. So, when you look at overall patient growth and when you look at that relative to new patients coming in, I think for us, it's somewhat of -- it's a forecasting dynamic, right? Like it's the persistency that we've seen and as reported in this quarter, we've seen improvements in 12-month persistency, now above 55% or 56%. And interestingly, when you get to 18 and then 24 months, we've seen at least up to this point, sort of a flattening out of the curve. And I guess I would point to a couple of things. new EULAR and KDIGO guidelines emphasize very clearly that patients should be on medications. And this is irregardless of what medication for three to five years. That hasn't been historically how physicians have treated this disease. So, although guidelines have been pushing it, it's been treating episodic sort of flares of proteinuria. And I think those guidelines are helpful. Second, in the last 12 to 18 months, we've launched different elements of data that have crossed a couple of different key areas. One, three-year data looking at both safety and efficacy of the product. So, we were first to have data out that far, in particular, looking at EGFR that's an important safety component of tracking impact to the kidney. And then 18-month biopsy data. So, remember, in first year, obviously, we only had the one-year AURORA study. So. I think all that's impacting, and I think you got to look at persistency alongside of new patient starts, and we have to be hitting on both.

Great. Thanks, again.

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

Hi. Thanks for taking our question. So we had a few. So I understand that you can't divulge to too many details, but if we could just strictly follow-up on an earlier question on strategic review. If you could at least self-critique, what do you think could be the best explanation following the strategic review? Do you think it could be related to something like IP, competitors coming, not getting enough traction with patient adds. Just some commentary from yourself would be really helpful. Thank you so much.

So I'm going to repeat myself, but because of the confidential nature of the strategic review process, there's a limit to the details that we can provide, particularly when it comes to other parties business decisions and how they saw things. So we can't speak to the other party's behalf as the information could be material to their business.

Okay. Understood. And then as you talk about kind of these patient restarts, as you think about kind of long-term, do you think this could really help improvements in retention. And then a quick follow-up on kind of your – kind of conversion rates for this year and next year. Do you expect to stick around that 85% to 90% level? Or do you think that could continue to improve? Thank you.

Starting with the last question first. I think the 85% has been fairly consistent. While we've seen quarter-to-quarter a percentage point or two, directionally up or down. It's been on average, pretty consistent. So I would hold that fairly consistent. In terms of conversions, I still think we have opportunity to continue to increase speed and time to conversion to getting patients on drug. So I do think that's -- that's one that we can continue to work on, even though we're at a fairly high level, getting 60% of patients on to north of 60% of patients on the drug within 20 days. And then the persistency thing, if you look at the market research data we have and the claims data that we have internally, they show a pretty wide disconnect between what actually happens with patients in the market and where the guidelines are pushing things to go to in terms of two elements – three actually. One is diagnosis. We know that SLE patients, a low percentage actually get a 24-hour urine screen when they come into a doc's office. We need to continue to improve on that. That will grow the market. Second, treating to target is second. So we know from our data that there's a proportion of physicians actually who only treat to high proteinuria. Above what the current guidelines recommend in terms of proteinuria level that would qualify a patient as having active lupus nephritis. So getting active treatment and treatment to target are key opportunities and goals for us. And then lastly, there's this element of physicians treating episodic proteinuria versus sticking to guidelines and treating for and keeping those patients in control for at least three to five years, which we think obviously bodes well for continuing to see at least stabilization, if not improvement in our persistency rates out past 12 months and 24 months. So all of those elements, I think, when you look at the data we have aligned with the guidelines and the market opportunity bodes well for our growth in the future. Thank you.

Thanks, Stacy.

Thank you. Our next question comes from the line of Ed Arce with HC Wainwright & Company. Please proceed with your question.

Hi. Thanks for taking my questions. I have three. First, I wanted to ask about the share repurchase. If you could, you tell us what expectations you have for the timeline on the decision for exemptive relief, and is that something, if that decision comes in, is that something that you would announce publicly?

Well, why don't I start, and if I miss anything, Joe can jump in here. The exemptive relief, I don't know that we have an exact timeline for when we'll get a read back from the Canadian authorities on that. But without the exemptive relief, we have up to 5% of our market cap that we have the ability to initiate without that exemptive relief. So as mentioned on the call, at or around the 21st of February is when we would have the ability to be in market, if we so chose. And at that point, we would not need the exemptive relief to at least do up to 5% of our market cap. After that would be how we expand above if we get that exemptive relief. Joe, did I miss anything?

To answer your second question around that, Ed, we would also announce that exemptive relief was granted if and when it was granted.

Okay. Great. Secondly, just in terms of the growth drivers, you've been consistent over a number of quarters on how educating physicians and activating the patient is really critical here and I'm wondering as you work through the dynamic of this market in getting both patients and physicians even more importantly changing the paradigm of the way they treat. Maybe talk about some of the more recent wins that you see and changes in attitudes and perspectives and what is currently working right now?

Well, as we mentioned on the call, although we didn't give the exact numbers, I can tell you we've seen significant improvement in both depth of prescriptions and breadth of prescriptions. So we're going deeper and we're going wider. So I think our ability to impact our 8 to 10 deciles, our sales force's ability has been there. And even in addition, the broader message of more aggressive treatment, novel therapies like LUPKYNIS is getting out to the broader base of physicians. I would also point to, Ed, the progress that we've seen on persistency, both with improvements at 12 months and sort of a stabilization out to 18 months and 24 months. I think those are both directly correlated to the data that's been out, that we put into the marketplace, that we produce through the extension study and through the biopsy extension as well or the biopsy sub-study and our commercial execution. We look forward to continuing to sharpen the edges of those results with more specifics, but I can tell you there's been progress on every front.

Okay. Great. And then last question, if I may. You know, given the streamlined focus here on commercial execution of LUPKYNIS, I'm wondering, you know, post the reduction in cost structure and headcount, as you look towards the second half of the year, could you perhaps share any commentary on achieving near-term profitability and any growth profit growth and profitability over time? Thanks.

Yes, you want to jump on that, Joe?

Sure. Yes. Thanks, Ed. We -- as you know, we don't provide long-term guidance. We've indicated that on an annualized operating expense basis. We cut about $55 million to $60 million over the next 12 months, of which approximately 75% of that will be recognized in at least 2024. We do believe that with these reduced operating expenses and our focus on commercial execution, the time this growth specifically, we expect significant cash flows going forward on a go-forward basis. We will -- we obviously update you going forward on profitability. Some of this is tied to the timing around the restructuring charge as well as the share buyback plan. So, further insights will come in the future. But for now, we've kind of guided to a $55 million to $60 million OpEx savings on an annualized basis.

Thanks for taking my questions.

Thanks, Ed.

Thank you. We have reached the end of the question-and-answer session. I'll now turn the call back over to Peter Greenleaf for closing remarks.

Thank you very much. I want to thank everybody for their time today, and we look forward to coming up on future quarters reporting our results and keeping you updated on our plans. Thank you very much for joining us today. Have a great day.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.