Aurinia Pharmaceuticals Inc

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?

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?

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?