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Operator
results and operational highlights for the second quarter and six months ended June 30, 2023. In addition, the company filed its quarterly financial statements on Form 10-Q. For more information, please refer to Arrhenius' filings with the U.S. Securities and Exchange Commission, which are also available on Arrhenius' website at arrheniuspharma.com. During this call, Arrania 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 Arrania's future financial results and businesses, please refer to the disclosures in Arrania's press release and its quarterly report on Form 10-Q, along with ARINIA's annual report on Form 10-K and all of its recent filings with the U.S. Securities and Exchange Commission and Canadian security authorities. Please note that all statements made during today's call are current as of today, Thursday, August 3, 2023, unless otherwise noted and are based upon information currently available to us at this time. Except as required by law, ARINIA assumes no obligation to update any such statements. Now, let me turn the call over to Arrhenius President and CEO, Peter Greenleaf. Peter?
Arrania
Thanks, Jamie, and good morning, everyone. I want to thank you all for joining us on the call today. On this morning's call, we will focus on the company's second quarter and six-month performance, our key commercial metrics for Leukinus, as well as a brief update on R&D and our progress outside the U.S., I will then turn the call over to Joe Miller, our CFO, to provide additional detail on our financial results. I'm pleased to share that we've continued to make significant progress over the last three months, recording our highest quarterly sales since the launch of Loop Kindness with net product revenues of $41.1 million. This represents an increase of 46% versus the prior year second quarter, and a 20% increase over the first quarter of 2023. These results bring our year-to-date Lucanus net product revenue through the end of the second quarter to $75.4 million. That represents an increase of over 52% versus the mid-year mark of 2022. Underlying this top-line financial performance, we had our best quarter to date across a number of commercial metrics, including... number of wallets shipped, patient conversion to drug, processing speeds in terms of time from PSF to drug shipped, as well as patient persistency rates. Patients converted from patient start forms to therapy was at an all-time high of 89%. Insurance processing speeds were improved as well. We are now converting more than 65% of our patients from initial PSF to drug being shipped within 20 days. And importantly, our 12-month persistency rates improved from 51% in the last quarter to 54% in Q2. Lastly, we now have a total of 1,911 patients currently on therapy as of June 30th of 2023. and nearly 3,500 patients exposed to the drug since launch. As I've stated on previous calls, our business plan for loop kinase is focused on three major interrelated strategies. The first is driving patient awareness and activation. The second being clinically differentiating loop kinase. And the last is ensuring that patients get access to therapy. because of course getting patients on drug and keeping on drug is critical. So how are we doing? On the patient front, we believe an informed patient can play a major role in their own disease management by understanding the need for and seeking routine urine screening and treatment. At the beginning of the second quarter, we announced and drove awareness across traditional and social media platforms with the launch of our branded disease awareness campaign, Get Uncomfortable, with our new spokesperson, Tony Braxton. This initiative reinforces a need for screening, routine monitoring and treatment by engaging and educating SLE patients to get uncomfortable and get serious about their kidney health by engaging with their physician. I'm pleased to report that through the first 100 days of this campaign, we've seen marked increases in overall awareness, media impressions and online activity. The campaign has already reached over 750 million people across social and digital media, with hundreds of thousands visits to the campaign website. Patients and family members are coming to our customer education website to learn more about the importance of screening and early treatment. Also, this site is where patients can find a specialist in their area to complete routine testing and discuss management of their lupus nephritis. While our consumer marketers are reaching patients via social media and direct-to-patient marketing campaign, our commercial sales team is continuing to drive an in-the-field execution by delivering the loop kinase clinical message. They are reinforcing the treatment guidelines for patient screening and treatment, as well as the Aurora data to our top decile customers. On our last call, we shared that we closed Q1 with our highest average healthcare provider engagement per day since launch. In March, we had our highest number of repeat and new prescribers in a month since we've launched the product. As we've previously communicated, Leukinus is a highly sensitive to promotion drug, and there is a strong correlation between call volume and prescribing behavior. Well, today I'm happy to share that we continued that momentum into the second quarter and beat our first quarter watermark. This makes the second quarter of 2023 our best quarter to date in terms of call activity towards healthcare professionals, providing deeper penetration into top decile physicians as well as first-time and repeat prescribers. Our recent Attitude Awareness and Usage Market Research Study reinforces that our clinical message is resonating. Intent to prescribe continues to grow and is on an all-time high. Additionally, Leukinus is leading over other therapies in the category on intent to prescribe over the next 30 days and over the next three months. In regard to our second imperative, clinical differentiation, we're excited with the new data which we launched into the market that further differentiates Leukinus from the current standard of care. Our medical affairs team recently released the biopsy stub study from the Aurora trial. This poster was presented at the Congress of Clinical Rheumatology East. These data demonstrated that Leukinus-treated patients showed histologic activity improvement with stable chronicity scores similar to the active control arm of MMF and low-dose steroids alone. meaning that the patient's kidney appears to be stable and does not demonstrate any further worsening of kidney function or nephrotoxicity at 18 months. Additionally, the Aurora II long-term extension study of the Aurora trial, looking at EGFR efficacy and safety across two and three years, was accepted and published online in Arthritis and Rheumatology. A&R is the official journal of the American College of Rheumatology, and it should be in the journal during the month of September. These two publications provide our medical affairs team with more data to share with prescribing physicians. These publications reinforce why leucinus should be the drug of choice in the management of lupus nephritis. These data also further differentiate loop kinase from the current standard of care across numerous parameters, specifically when looking at three-year EGFR, efficacy, and long-term safety. All of the aforementioned activities are having a measurable impact on patients, physicians, and, of course, loop kinase. By educating and activating the patient to get involved with their lupus nephritis care through our consumer marketing campaigns, Alongside our sales team messaging to physicians, we are helping to expand the market and drive further prescribing. This leads me to our patient start form activity for the second quarter. We had a solid performance with PSFs for Q2, totaling 451 patient start forms. This represents an increase of approximately 10% over the second quarter of 2022 and and is reasonably consistent with our first quarter performance of 2023. Through the end of July, we've recorded approximately 100 new PSFs. We can say with certainty that there is a summer effect to LN care when it comes to seeing patients, screening them, and absolute treatment. We believe it is most likely due to the asymptomatic effect of the condition and patients not feeling the need to check in with their rheumatologist or nephrologist during the summer months. Also, there were fewer selling days in July, and the timing of the July 4th holiday took more people out of the office. That said, our business fundamentals remained at an all-time high. All of our other marketing metrics are positive, and we believe that PSFs will return to growth over the coming months and in the fourth quarter. As I referenced earlier in the call, during this period, our conversion rates, that is converting patient start forms to patients on therapy, are at an all-time high with about 89% of patients converting onto drug. Our team has made further progress and continues to reduce time from PSF to submission to conversion to patients on drug with approximately 65% of patients getting on therapy in 20 days or less. This continues to improve over the past several quarters and is up over the first quarter of 61%. Meaningful progress and improvement on all fronts. At the end of the second quarter 2023, about 54% of patients remain on therapy at 12 months. This is an increase over previous quarters. We are extremely pleased to see this level of patient retention at 12 months. It shows loop kinase persistency is in line with or actually better than treatments for other chronic diseases. In May, we reported about 47% of patients remain on therapy for 15 months. And we're now seeing that more than 48% of patients remain on therapy at 15 months as the number of patients across that time period continues to grow. And while we've only seen a small number of patients through 18 months of therapy, About 44% remain on therapy through that time. This is up from the previously reported 41%. We believe this persistency can be attributed to the product's efficacy and safety profile out to three years and our patient support programs pulling through the work that's done by Arrheni Alliance. Consistent with prior periods, patients adhering to treatment regimen that is dosing and tablets per day, continues to be stable at approximately 80 to 85%. Based on everything I've just discussed, we're increasing our net product revenue guidance range from the updated guidance we gave in Q1 of 135 to $155 million to 150 to $160 million for the year 2023. Turning now to our R&D activity. We remain on track to filing an IND for AUR 200 by the end of the year. And we continue to enroll in our lupus nephritis registry and our post-approval regulatory commitment of a pediatric study. Lastly, let me close with our globalization effort for Leukinus. Our partnership with Otsuka has resulted in significant launch momentum outside the U.S. this year. Our partner has now launched Loop Kindness in Germany, Austria, Sweden, Finland, and Norway. Loop Kindness was recently approved in Switzerland and has received formal reimbursement approval in both the UK and Italy. And as a reminder, upon pricing and reimbursement approval in three of the five major EU countries, the company would be eligible for an additional $10 million milestone for Matsuka, which we still expect in the second half of 2023. In addition, our work in Japan remains on track for regulatory submission towards the end of the year. Upon approval in Japan, we would be eligible for an additional $10 million approval-related milestone, along with low double-digit royalties on net sales once the product is launched. So with that, I'd like to turn the call over now to Joe for more detailed review of our financials, and I'll then return at the end of the call for a quick recap and to open up the line to see what questions you might have. So with that, let me turn it over to Joe. Joe?
Jamie
Thank you, Peter, and good morning, everyone. As of June 30, 2023, we had cash, cash equivalents, restricted cash, and short-term investments of $350.7 million, compared to $389.4 million at December 31, 2022, and $361.5 million at the end of the first quarter of 2023. The decrease in cash, cash equivalents, restricted cash, and investments is primarily related to the continued investment in commercialization activities, post-approval commitments of our approved drug, Loop Kindness, inventory purchases, advancement of our pipeline, and the second capital expenditure payment for the monoplant, partially offset by an increase in cash receipts from the sales of Loop Kindness. We believe that we have sufficient financial resources to fund our operation, which include funding commercial activities, including FDA-related post-approval commitments, manufacturing and packaging of commercial drug supply, funding our supporting commercial infrastructure, advancing our research and development programs, and funding our working capital obligations for at least the next few years. Now let's take a few minutes and go into detail regarding our financial results for the second quarter and the six months ended June 30, 2023. Total net revenue in the second quarter increased 47% to $41.5 million from the prior year's second quarter of $28.2 million. Total net revenue increased 52% to $75.9 million from $49.8 million for the six months ended June 30, 2023 and June 30, 2022, respectively. The increase is primarily due to an increase in net product revenue from our two main customers for LoopKindness, driven predominantly by further penetration into the LN market. Net realizable revenue per patient for loop kindness remains higher than our initial guidance of $65,000 per patient per year on a quarterly basis. But as we discussed previously, we expect net realizable revenue per patient to continue approaching this figure on an annualized basis as more patients go on and stay on therapy over time, and as persistency, dosing, and payer mix evolve. Total cost of sales and operating expenses for the quarters ended June 30, 2023 and June 30, 2022 were $57.7 million and $64.2 million respectively. Total cost of sales for the six months ended June 30, 2023 was $121.7 million versus $123.7 million in the prior year period. Let me now give you a further breakdown of operating expenses, drivers, and fluctuations. Cost of sales were $1.6 million for the quarters ended June 30, 2023 and June 30, 2022. Cost of sales were $2 million and $1.9 million for the six months ended June 30, 2023 and June 30, 2022, respectively. Cost of sales for both periods remained consistent due to an increase of revenues offset by a write-down of FDA process validation batches that occurred during the second quarter of 2022. Gross margins for the quarters ended June 30, 2023 and June 30, 2022 was approximately 96% and 94%. Gross margin for the six months ended June 30, 2023 and June 30, 2022 was approximately 97% and 96%. Selling, general, and administrative SG&A expenses, inclusive of share-based compensation expense, were $47.1 million and $51.5 million for the quarters ended June 30, 2023 and June 30, 2022, respectively. SG&A expenses, inclusive of share-based compensation expense, were $97.2 million and $96.7 million for the six months ended June 30, 2023 and June 30, 2022, respectively. The primary drivers for the decrease in SG&A expense was a decrease in professional fees and services, including legal fees, incurred during the respective quarters. For the six months ended June 30, 2023, compared to the prior year period, The increase was due to an increase in share-based compensation expense and marketing expenses offset by a decrease in professional fees and services, which includes legal fees. Non-cash share-based compensation expense included with an SG&A expense for the quarter was $9.8 million versus $8.9 million for the prior year period. Non-cash share-based compensation expense included with SG&A was $17.4 million and $14.9 million for the six months ended June 30, 2023 and June 30, 2022, respectively. Research and development R&D expenses, inclusive of share-based compensation, were $12.7 million and $11.5 million for the quarters ended June 30, 2023 and June 30, 2022. R&D expenses, inclusive of share-based compensation expense, were $25.8 million and $24.1 million for the six months ended June 30, 2023 and June 30, 2022, respectively. The primary drivers for the increase for the quarter and six months ended June 30, 2023, as compared to the same periods ended June 30, 2022, were an increase in salaries and related employee benefit costs, share-based compensation expense, and clinical supply costs as the company advances its AUR 200 and AUR 300 programs and fulfills the post-approval FDA commitments related to look-kindness. The increase was partially offset by a decrease in contract resource organization costs related to the completion of the Aurora II Continuation Study and Drug-Drug Interaction Study, which was substantially completed in 2022. Non-cash share-based compensation expense included within R&D expense was $2.1 million and $1.1 million for the quarters ended June 30, 2023 and June 30, 2022, respectively. Non-cash share-based compensation expense included within R&D expense was $3.7 million and $2 million for the six months ended June 30, 2023 and June 30, 2022. Other income net was $3.6 million and $500,000 for the quarters ended June 30, 2023 and June 30, 2022, respectively. For the six months ended June 30, 2023, other income expense net was $3.3 million in income versus $1 million expense in the prior year period. The increase in other income is primarily related to a change in fair value assumptions related to our deferred compensation liability coupled with the foreign exchange gain related to our monoplant finance liability. Interest income was 4.1 million at June 30th, 2023 versus 500,000 for the prior year second quarter. Interest income was 7.9 million and 700,000 for the six months ended June 30th, 2023 and June 30th, 2022 respectively. The increase between periods is due to higher yields in our investment as a result of increased interest rates. For the quarters ended June 30th, 2023, ARENIA recorded a net loss of 11.5 million or eight cents net loss per common share as compared to a net loss of $35.5 million, or $0.25 net loss per common share for the quarter ended June 30, 2022. For the six months ended June 30, 2023, ARENIA recorded a net loss of $37.7 million, or $0.26 net loss per common share, as compared to a net loss of $73.1 million, or $0.52 net loss per common share for the six months ended June 30, 2022. With that, I'd like to hand the call back over to Peter for some closing remarks. Peter?
Arrania
Thanks, Joe. As you heard throughout the call, we're obviously excited about our strong results for the second quarter and our momentum through the first half of the year, hitting many all-time highs across the business. We remain focused on delivering Lucanus to patients in need and driving results in the U.S. and globally, and we look forward to keeping you posted along the way. I want to thank everyone for joining us again for the call. We'll now open up the call for any questions you might have.
Joe
Thank you. The floor is now open for questions. If you do have a question, you may press star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, it's star 1. And our first question comes from Joseph Schwartz from Lyric Partners. Go ahead, Joseph.
Joseph Schwartz
Hi, all. This is Will on for Joe this morning, and thank you for taking our questions, and congrats on the progress this quarter. So one for us to start just on seasonality, since Loop Kindness has been on the market for several years now and as a company has more experience with the launch, can you maybe provide some color on the strategies in place to help mitigate this impact of seasonality? And as we look to the third quarter, how should we be thinking about sales relative to the prior quarter? And I have a quick follow-up. Thank you.
Arrania
I say thanks, Will. So, you know, as I said on the call, if you go back not just quarters, but the last few years since launch, we've seen an impact in the summertime. And I think moving into this summer, our biggest question was being able to peel back whether the impact was, I hate to use seasonality because it brings people to viruses and infectious disease more so than you know, a typical specialty business. But clearly in our business, the question was, is this a summer effect or was it a COVID hangover, a COVID impact prior during the shutdown we saw in COVID? And I think what we've clearly seen coming into this year is that during the summertime, there's an impact on patient flow. So because this is a quiet disease and asymptomatic disease, patients aren't running into the physician office during the summer months to get regular screening. Second, that we've seen office staff, physicians, et cetera, spending less time in the office. We clearly saw that during the month of July. And we can track this not just through what we hear qualitatively, but we can see it quantitatively in our numbers, in the diagnosis numbers that we track, and even in the testing numbers that we track. And then lastly, even in our own company, we have the effect of people taking summer vacations, et cetera. Even though we manage that and can manage that, clearly these are time periods where there's just less activity. So if you look at the July performance, as it relates to PSFs, because we've not talked about patients on therapy. We've not talked about revenue performance through the first month of the quarter three. Clearly, we've seen some impact, but if you look at the trending so far this year and the trending into July, it's fairly predictive of what we've seen over the last two years. As we said on the call, belief is that we'll get back to a growth pattern as we move into August, and we'll see that get back to continued growth into Q3 and Q4, just like we saw last year. So, we feel confident that we'll be able to continue on the growth pattern, but as thinking about forecasting this business moving forward, although we don't give quarterly guidance, it's clear that during the month of July time period that we see a little bit of a dip and that the summer has impact. Your question on mitigating strategies, well, we do everything from special incentive compensation in our sales organization to increasing the flow of our marketing spend to targeted initiatives during the summertime to try to increase awareness of patients to continue or have continuity within their care. And, you know, really we put a blitz during pre-summer and through the summer. So that's why I say this is a predictive approach. thing that we're going to have to continue to manage through. And I think as I think about forecasting the business forward, that the summer is going to be something we need to take an impact as being potentially softer than other quarters on a go-forward basis. Into Q4, we feel very confident, not just based on past trends, but the tactical activity we have and the amount of emphasis we're going to have, you know, in terms of the flow of our tactics, people in field. And lastly, the Aurora 2 messaging that we're working through our medical team and through the publication that's now been issued out there, I think will have big impact as well. And remember, the extension study was a three-year data, not just looking at safety measures like EGFR, but also clinical efficacy measures as well.
Joseph Schwartz
Great. Very helpful. Thank you. And then if I could just sneak in a quick follow-up here. Could you just remind us on the biopsy data if you are going to be submitting these to the FDA and what your thoughts are on a potential timeline for an updated label to include these data? Thank you.
Arrania
Yeah, so the short answer is we've been in regular dialogue and have submitted a package of data to the FDA, not just including the biopsy data, but also including the extension data and other cuts of data that we had from the original Aurora trial. As we've said in the past, our goal will be to try to get this added to the label, but that's a negotiation with the FDA. We don't have a set timeline for it, but when we get more concrete dialogue back from the agency, we'll communicate that to you. Our hope would be, we believe this is extremely important to the prescriber. and can affect the patient benefit. So that's the way we're positioning it to the agency. We think it's important. As to where it will appear in the label, how it affects the indication statement, usage statement, and or the clinical trial section is to be determined. know that we've packaged it to the agency, and our hope is that we're gonna see this appear, and hopefully appear prominently, but that's a discussion we have to have with the agency.
Joseph Schwartz
Great, thanks again.
Arrania
Thanks, Will.
Joe
And our next question comes from Ed Arth from HC Wainwright. Go ahead, Ed.
Ed Arth
Hi, good morning, everyone, and thanks for taking my questions, and congrats on the quarter. So I just wanted to ask a broader question on sort of what underlying drivers are here. I mean, this is the second sort of beat and raise quarter in a row. And PFS are down slightly this quarter, while all other metrics are basically at or very near all-time highs. And there hasn't been a pricing change since December of 21. So I'm just wondering how you would characterize the sort of puts and takes and how you get to the increase in your revenue guidance. And then I have a couple of follow-ups.
Arrania
Okay. Thanks for the question, Ed. Yeah, I think you characterized it well. I mean, just about every metric we tracked in the business was at an all-time high in the quarter. And we saw that last quarter, too. So whether it's converting patients on to drug, we're doing it faster. Keeping patients on the drug at three months, six months, nine months, 12 months, 15 months, 18 months, all seem to be doing well and in some cases improving, right? These types of measures and then compliance to the regimen has been fairly consistent, but in the past two quarters has been almost at an all-time high too. So with those types of measures, we're keeping patients, keeping patients on drug. Obviously, those are having impact on revenue every quarter. We look at PSFs as our leading indicator or our NRX, our equivalent of an NRX. And that leading indicator won't change in terms of the measure until we would have to change our distribution pattern in order for that measure to change. So, for example, we do limited specialty distribution in the prescription star form or the patient star form is our initial prescription process. If we were to open up our class of trade, go broader, you could see typical IQ via data and prescribing data to become more actual prescribing at the retail level to become more important. But at this stage, it's not for us. But it is a leading indicator. And if those patients are getting on you know, as we said, 20% or at 20 days, 65% are getting on drugs. There's at very least for 65% of our patients, 20 days delay before those PSFs become reality. So any prior quarter, we're working those PSFs from that prior quarter in the current quarter. So all of your financial metrics can continue to grow. The way I think about PSFs is, you know, eventually, When you Six Sigma this business and you work every angle of persistency, getting patients on drug fast or keeping them on drug, you're eventually going to, if PSFs don't grow, you could hit a point in your business where you stop seeing new patients come into the mix. But that can still be offset if you see improvements in persistency at 18 months, at 24 months, et cetera. Like if we were keeping... 40 or 50% of our patients out to three years, Ed, you need to bring less patients into the mix in order to keep growing revenue. And that'll be a continued learning process as we go through the years of the product. One thing I do want to just correct, I think you said pricing, we haven't taken it since 2021. We did take up 20, but you said 2021. We did take a price increase in 2022. which I think, and Joe's here with me, was a total of 7.9%. And through some of our contracts where we have a price control mechanism in there for annual price increases, it's good to think about our price increase for the year at or around 3-ish or so percent that will net out with some of the agreements that we have in place. So I think I answered some of your questions. Let me just check in to make sure that's what you were looking for.
Ed Arth
Yes, Peter, that's very helpful. Appreciate that. And then just a couple more. I think you may have mentioned this before, but I didn't get the number. This metric of new patients on therapy, if you have that for this quarter and Q1. And then lastly, if you could repeat the milestone payments that you would expect with the coming approvals and launches XUS. Thanks so much.
Arrania
So within the quarter itself, in terms of new patients on therapy, we had approximately 190 new patients on therapy in the quarter. Your question on milestones, and this is driven from our ex-US agreement with Otsuka, there's two in the near term that we've guided to and talked about on the call. One is, of course, in Europe, we continue to get countries approving the drug. We have the global EU approval, but then the individual countries are doing their own assessments, and that continues to go well. But our agreement is when three of the five top countries in the EU get pricing approval, which is separate, obviously, then from actual drug approval in the country, then we have a $10 million milestone coming from Matsuoka. And we've said we believe that can happen in the calendar year towards the back half of the year. The second near-term milestone is the work we're doing in Japan. We've said that we believe we can submit to the PMDA by year end. And if we do that under a normal review cycle, you should see, you know, in 2024, but could bleed into 2025 if you have a longer review cycle, a $10 million milestone upon the approval of the drug in Japan. And included in that, of course, we get low double-digit royalties, and we have a cost-plus management supply agreement with Tsuka as well.
Ed Arth
Great. Thanks so much.
Arrania
Thanks, Ed.
Joe
And our next question comes from Jacqueline Liu from Oppenheimer. Go ahead, Jacqueline.
Jacqueline Liu
Hi, this is Jacqueline on Jasmine's team. Thank you for taking our questions. Great to see the improvement in persistency numbers at 12 months. Would you be able to share how those numbers have been evolving at later time points? What sort of long-tail chronic utilization the product is having especially given the added publications, education, and awareness of such chronic use?
Arrania
That's a good question. Thank you, Jacqueline. So first off, as we've said, And I hope people appreciate that we give metrics to the point where, you know, when I go back and look at our transcript, I'm throwing so many numbers out there that you guys must have to go back and actually read the transcript to get all the numbers. So just appreciating the fact that when we have meaningful information, quantitatively, we like to report it. I think it's important just to give the perspective. So we've not given out to, you know, 24 months at this stage. And the reason for that historically has been when we don't have enough of an N or enough of a number of patients coming into that time period, we don't want to give an insignificant projection. And we've gone pretty low on those numbers. But crossing 24 months right now, when we have enough patients crossing that time period, we'll be more than happy to provide what that estimate is. But as we said on the call, 12 15 and 18-month persistency have all improved. They're all around within the vicinity of previously reported, but they're up single-digit percentages over where they've been. So we believe some of our initiatives are helping that. We also believe compliance to the dosing regimen on a 30-day basis is due to a lot of the work we're doing around persistency through a renal alliance, through the patient awareness programs that we're doing, et cetera. As I was talking to our commercial team just yesterday, one of the interesting ones that I hope we'll be able to report at some point is what a diagnosis rates look like and are we seeing an uptick over time in the number of patients sort of filling the top end of the funnel in terms of being diagnosed with lupus nephritis because we think there's a big opportunity there as well. And our Tony Braxton Get Uncomfortable campaign centers on a lot of that, not just staying on your medicines, but also if you have lupus going in and making sure you get checked for kidney-related problems. Anyway, we'll report when we get to 24 months with enough patients, but all the other metrics we've reported up to this point in terms of persistency are up.
Jacqueline Liu
Great. Thank you.
Joe
And our next question comes from David Martin from Bloomberg. Go ahead, David.
David Martin
Hi, guys. Thanks for taking my questions. Back to the persistency. I'm wondering when patients come off Luchinus, does their proteinuria stay low for a period and therefore docs think that patients can take a holiday on the drug or does it rebound quickly and should the patients come back on quickly?
Arrania
So when patients come off of drug, it is for, as we've said in the past, David, a host of different reasons. It can be anything from patients being lost to follow up, to patients deciding they don't want to take the drug anymore, to a physician deciding clinically that they're going to put them on a drug holiday because their proteinuria has reduced, which, by the way, does not align with guidelines, but we do see happen. The list is long. All I can tell you is it's usually doc-driven or patient-driven, not payer-driven. In other words, hey, patient crossed a year, and after a year, payers are saying they won't pay for the therapy. In terms of the positive around how can, if a patient discontinues off of drug, do they come back? We do have data, albeit we've not posted quantitative numbers on this. We do know that patients and physicians, if proteinuria elevates again, they get them back in control. And they almost treat it, not the majority of physicians, but a grouping of physicians treat it as almost a flaring and remitting disease, although there is not a guideline out there or program that I've attended that talks about it that way. The positive is patients who do get on our drug can be readdressed with drug, and we do see that happening.
David Martin
Okay, great. Shifting gears a bit, so you initiated a strategic review that could possibly include sale of the company. When you had your Q1 call, you were kind of adamant that selling the company now wasn't the right thing to do. I'm wondering what are the factors that kind of went into you changing your mind? I know the board has changed a bit, but why have you changed your mind?
Arrania
Just to qualify what I may have said in the first quarter, I guess from a selling the company standpoint, I don't necessarily see that as something that's determined by us per se. There has to be two parties in that equation. We're a public company. We have a fiduciary responsibility to shareholders. We have to always keep an open mind to all strategic alternatives. And we announced back in June that we were exploring strategic alternatives. And as we said, we were doing this in response to requests from shareholders. So first, we believe exploring strategic alternatives is something that our leadership team actually does every day. You know, this review may or may not result in a transaction, and the nature of the type of transaction could be anything from an outright sale of a company to a merger to the company acquiring or licensing an asset to doing nothing and just staying the course and continuing to grow Loop Kindness in the company. And then second, in particular, given the fulsomeness of what a strategic review is, because you went right to selling the company, and as we've said, we're looking at strategic alternatives, because it's fulsome in nature. how we're approaching this process, these things take time, right? And we've not set a timetable for the completion of the process, although we have a sense of urgency and we don't anticipate providing updates along the way in terms of a progress review until we actually believe it's appropriate and or necessary. As a result, David, we're not going to get on every call and say where are we with the strategic review process until we've concluded upon it. But to your first point about being adamant against the sale of a company, that's not probably what we've ever said. I think it takes two to tango in that exercise, and we are a public company and we understand our fiduciary responsibilities, so we're always open to strategic alternatives for the company outside of what we're doing right now.
David Martin
Okay, got it. Thanks.
Joe
Thanks, Dave. And our next question comes from Stacy Ku from TD. Go ahead, Stacy.
Dave
Hi, this is Vish on for Stacy. Thank you so much for taking our questions and congratulations on another very strong quarter. So we've done some clinician checks on loop kindness, and it's striking that all our clinicians are very aligned in their long-term positive views on loop kindness' long-term potential. But even among those specialists, prescribing is very diverse. So could you maybe speak to a little bit on what you are seeing right now in terms of the percentage of patients that are getting prescribed lupkinis for induction alone versus maintenance alone versus both induction and maintenance so that we can get a sense of how lupkinis is being used right now? And where do you think this adoption pattern will change as long-term experience is gained and in light of the new published data?
Arrania
Well, we don't hear physicians talk about the treatment of the disease in a world of I want to induce remission and I want to maintain remission. So I think the best way we can guide investors towards how should I think about, you know, how long patients stay on drug are the time periods or the time intervals and the percent of patients on drug at time intervals that we report as the best way to say how are docs using the drug, right? And while there's a multitude of different reasons as to why patients and or docs discontinue, I think the percentage that cross a year, the percentage across 18 months and two years says something about the, how the drug is actually being used. We've seen physician lectures from some, from the top thought leaders out there that say, well, how long should I actually look to maintain patients? And while the guidelines are pretty open-ended on this, they say you should get a patient under control and keep them under control. We've heard numbers like three to five years patients should stay on therapy. But there's a mix of how physicians do that, whether they put them on our drug to induce, put them on Ben-Lista in combination, keep them on MMF and steroids over the long haul. There's a host of different strategies that are being enacted out there. And I think there's huge opportunity to drive data-driven practices answers to that question because there is a lot of new data out there that should drive physician practice and new data being produced that will continue to evolve it. So, I think our persistency numbers that we report across the time periods we do is the best way to look at, you know, whether there's induction and maintenance. 50% or so of our patients are still seeing drug at or around 12 months. That's the best way to think about it. And it looks like after 12 months that the curve starts to flatten out more. Although it's declining, it flattens. You're not seeing 30% and 40% reductions per month. On your question about your doc or your comment on doc checks, listen, all of our awareness usage data and predictive data, which is more qualitative, but we try to take a representative sample of our physician call-on universe, says they intend to use the product in the next 30 days. They intend to use more of it over time. And it's all extremely positive. to oversimplify how we need to deeper penetrate. One is on the patient front. We've got to get all physicians to universally see that a patient, when they're at a gram of protein, that this is an appropriate patient to treat. There's wide differences in how physicians see and don't, at least from what we see, always follow the guidelines. how aggressively they treat. Some wait till a patient is at three to five grams of proteinuria or protein in the urine before they actually call it LN. And if you look at the guidelines, the guidelines get to LN at a much lower level. So we've got to push that continuum down. And then lastly, we have to continue to work on our prescriber base. We have to continue to expand the total number of treaters and get more depth per prescriber. And both of those have increased significantly year-to-date, but we still have a ways to go in terms of the adoption curve.
Dave
Perfect. Thank you.
Joe
And our next question comes from Maury Raycraft from Jefferies. Go ahead, Maury.
Maury Raycraft
Hi, good morning. This is Ferdinand from Maury. Congrats on the update, and thank you for taking our questions. So I just want to clarify, what proportion of the prescribers are repeat prescribers? And then on the patient side, what are you hearing from patients for them to remain on therapy for longer term?
Arrania
Can you repeat the second part of that question? Because I was still just, I didn't catch it.
Maury Raycraft
And then on the patient side, what are you hearing from patients for them to remain on therapy for longer term?
Arrania
So we've not given percentage penetration numbers, but in terms of total number of prescribers, we're probably at or around, call it 1,500 prescribers and growing that have utilized the product to date. And a large percentage of that number are repeat prescribers. So We've also said that our decile 7 to 10s are a highly concentrated group in terms of the prescriptions that they do. So this is not a disease where you should be thinking, okay, well, how many rooms, how many nefs, and I got to get all of them using. Some rooms, some nefs treat very little of this disease. But we want to see more prescribers for sure. And then we want to get the depth of prescribing happening. And I'll go back to my previous statement that Some of it is not that they just don't want to use our drugs. Some of it is that they believe they shouldn't be treating lupus nephritis until it turns to three to five grams of protein in the urine. And this is obviously not congruent with the guidelines that are out there. So all these numbers have been improving and are on a good pace. But in order to increase PSFs and increase the revenue run rate, we've got to go deeper and wider. Got it. And then your question on patients, I didn't answer, so let me quickly answer. I'm not sure we've seen market research from the patient side to say what's going to get them on drug and keep them on drug. We do know that they need to be made aware of the seriousness of their condition. When you have SLE, the predominance of the management of the disease centers around fatigue and skin and joint, the things that actually you feel every day. It's the underlying things you don't feel that are the most impactful and can be the most significant in terms of bad outcomes for the disease, like proteinuria. And the tactics we're using, whether it's the pee in the cup campaign or the get uncomfortable campaign, with patients are to educate them on the more severe component of their lupus and what they need to do to get enacted. And part of that messaging is to stay on drug. I think the best way to measure the effectiveness out, because we don't, at least in front of me, have a qualitative metric, is to look at our persistency numbers and say, is it happening? And look at our adherence numbers to prescribing regimen and to say if it's happening in both those metrics. are not just doing well, but improving so far every quarter.
Maury Raycraft
Makes sense. Just another clarification, you mentioned increase in revenue from two main customers. Wondering if you can provide some more color on that.
Arrania
We have a limited distribution model. We have two specialty distributors, and it was in Joe's section because it's a financial qualification. We recognize revenue when we ship to those DCs.
Maury Raycraft
Got it. And the last question I guess for Joe, like it said that you have better gross margins. So wondering what the gross to net is at this point.
Jamie
Yeah, we have not guided specifically to our gross to net percentages. The margin fluctuation was driven by the fact that in 2022 we had reserves for some FDA validation batches. So we had to build some inventory reserves in the prior year. We didn't have the same thing in 2023. Got it.
Joe
Thank you so much.
Jamie
Thank you.
Joe
And our next question comes from Justin Kim from Oppenheimer. Go ahead, Justin.
Justin Kim
Hi, everyone. Sorry for joining a little late. I just wanted to ask a follow-up to one of the questions asked. You know, with the announced sort of strategic priorities, I just wanted to touch base on the pipeline and, you know, any updates there in terms of your expectations for milestones or guidelines on 200, 300?
Arrania
Yeah, no changes. We've basically said that we are projecting an IND filing for AUR 200 by year end, and we believe we're on target to do that. And I think under that, we'll then be able to engage in more of a conversation as to where this goes, how it competes, where you're going to develop it, all the right next questions for an early stage asset moving into an IND filing. AUR 300, as we've talked about previously, Justin, You know, we're still doing some tweaking on the formulation, and we think that's a 24 deliverable for IND. Nothing off target there in terms of our previous projections, but no change on either. And then, you know, other pipeline, you know, to some degree was – well, to a big degree was externalization or business development. Obviously, I would envelop that into the strategic review process we're looking at right now.
Joseph Schwartz
All right, great. Thanks so much.
Arrania
Thanks, Justin. Okay. Operator, if that's our last question, I just want to close by saying thank you all for joining us today. We look forward to updating you in the next quarter. Have a great day.
Joe
Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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