Aurinia Pharmaceuticals Inc

Greetings, and welcome to ARENIA 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Andrea Christopher, head of the Corporate Communications and Investor Relations for ARENIA 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, ARINIA's Chief Executive Officer, and Joe Miller, our Chief Financial Officer. Today, we will review and discuss ARINIA'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 Arrhenia's filing with the U.S. Securities and Exchange Commission and applicable Canadian securities authorities, which are also available on Arrhenia's website at arrheniapharma.com. During today's call, Arrhenia 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 discussion of factors that could affect Arrhenia's future financial results and business, Please refer to the disclosures in ARINIA's press release and its annual report on Form 10-K, and all of its recent filings with the U.S. 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 15, 2024, unless otherwise noted, and are based upon information currently available to us. Except as required by law, ARINIA assumes no obligation to update any such statements. Let me turn the call over to Arunia'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 Lubkinis. 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, Arena 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 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, Irinia added 438 patient start forms, or PSFs, 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 additional patients. This includes restarts, defined as patients coming back onto therapy who do not require a PSF, and an estimate of new patients beginning therapy in the hospital channel. The addition of patient restarts and patients coming through the hospital channel are newly reported in the fourth quarter since they've achieved numerical significance for the first time. Hospital and restart numbers are both new indicators of growth for us. We know that restart patients have been off therapy for a considerable amount of time before restarting. Restarts represent a strong indicator for the brand because they demonstrate that physicians are comfortable using loop kinase as a first-line therapy, and they likely indicate the importance of maintaining loop kinase for a sustained period of time. It's important to note that treating flares is not aligned with the most recent treatment guidelines. These guidelines out there call for patients to remain on therapy for three to five years. I'll talk more about our commercial strategy in a moment, but this is why we continue to encourage physicians to follow the guidelines and treat lupus nephritis more aggressively. Regarding our hospital numbers, we ship wallets to hospital pharmacies with little to no visibility into how these hospitals are dispensing the drug to actual patients. Therefore, we estimate how many patients come from those wallets based on average wallet utilization across all patients. As previously discussed, the hospital market was completely closed off to us for the first two years of the launch due to the global pandemic. Now that we have a broader hospital access, we're looking closely at how we approach these institutions and addressing some of the complexities that are inherent in the hospital systems and integrated healthcare networks. We're beginning to see the impact of our execution in this space with the wallet shipments and patients beginning to pull through. For the full year, we added a total of 1,791 PSFs, an increase of approximately 9% year over year. And from January 1st, 2024 through February 9th of the same year, we added approximately 191 PSFs. Adding to the PSF number, we have approximately 40 new patients from both restarts and the hospital channel. In addition, I'm pleased to report that our conversion rates continue to improve, with approximately 85% of PSFs converted to therapy. We're also improving the time it takes to get patients on therapy. Throughout 2023, we increased our processing speed at all time periods, 30, 60, and 90 with 63% of our patients starting therapy in 20 days or less. I'd like to point out that this is a meaningful improvement year over year. Our 12-month persistency continues to improve and is now approximately 55%. We are encouraged to see almost 45% of patients remain on therapy at 18 months, with that number holding steady out to 24 months. And consistent with prior periods, adherence to loop kinase treatment remained strong at approximately 86% at year end. The increase in patients on therapy in the quarter was driven predominantly by improvements in new PSFs, patient restarts, hospital fills, conversion rates, and processing speeds, and overall improvements in persistency. Exiting 2023, a total of 2,066 patients were on therapy. This represents an increase of over 35% over 2022. As we stated on previous calls, our strategy to grow loop kinase in the lupus nephritis market is focused on three key areas. The first, educating healthcare providers on the need to screen and treat more aggressively. Second, Activating the patient to proactively discuss screening and treatment with their physicians. And lastly, continuing to clinically differentiate loop kinase and position it as part of the foundation therapy in the treatment of lupus nephritis. To address the first, we continue to increase our focus on healthcare professionals and key opinion leaders by leveraging our long-term clinical data and the updated ULAR and CADEGO guidelines. Our messaging is focused on encouraging physicians to recognize that all SLE patients may be at risk for lupus nephritis and that active screening and routinely monitoring lupus nephritis patients are critical. Prioritizing early diagnosis with every SLE patient. Treating to target goals and reducing protein levels to minimize steroid use. Start treatment with an effective combination therapy and leverage combination therapies with the goal of increased renal response. And lastly, continuing to treat for at least three to five years following a complete renal response. We're already seeing meaningful impact from these clinical developments, and we will continue to reinforce this messaging through our robust marketing and sales efforts. In terms of patient activation, We focus our efforts on educating SLE and lupus nephritis patients and driving them to have provocative and proactive conversations with their physicians about screening and treatment. Our messaging reinforces the importance of routine urine screening, the seriousness of the threat of lupus nephritis progressing, and the critical need to start and stay on treatment. We deliver these messages through a mix of highly targeted social and digital initiatives as well as in-person advocacy events. Finally, our customer facing teams are focused on clinical differentiation and delivering the loop kindness clinical story targeted towards the highest potential writers. Our activities against these targets have steadily increased throughout 2023. And in the fourth quarter, we further increased the depth of prescribing in our current base of customers. And in addition, expanded new customers and new writers. Building on the momentum we established in the fourth quarter, we now have over 5,000 PSF since launch. And based on everything we've discussed today, we're reaffirming our 2024 net product revenue guidance range of $200 to $220 million. Shifting gears, I'd like to now discuss the conclusion of our strategic review and provide additional context. Please note that you will find further details of the review located within our recently issued annual report on Form 10-K and related press release. To remind everyone of how we got here, in connection with our annual general meeting held May 17th of 2023, certain shareholders expressed their desire for the company to undergo a strategic review process. At the 2023 AGM, Two of the company's most senior and experienced nominees for directors did not receive requisite majority under the company's majority voting policy and accordingly submitted their resignations to the board. Those resigning members were replaced with two new directors, both with significant pharma and business development backgrounds. And additionally, in connection with the collaboration agreement that we entered into with one shareholder, we agreed to appoint Dr. Robert Foster, the inventor of Vaklosporin, to our board. Given the results of the AGM, as well as the desires expressed by certain shareholders, on June 29th of 2023, the company announced that it had initiated exploration of strategic alternatives. It was noted that the process would consider a wide range of options for the company, including but not limited to a potential sale, merger, or other strategic transactions. The company retained J.P. Morgan as its financial advisor to lead the strategic review. Following the announcement of the process, J.P. Morgan and Arinia put together a comprehensive data room, a corporate presentation, and materials to support the overall review process. J.P. Morgan then engaged with more than 60 parties. That engagement led to 11 non-disclosure agreements being signed with potentially interested parties. ARINI also conducted multiple meetings and presented to multiple parties, including some that did not sign nondisclosure agreements on a non-competential basis. The data room itself was extensive, containing over 200,000 pages of materials across 4,300 files. Despite significant effort put into the exploration of strategic alternatives from ARINI's board, its management, and our advisors, only one party submitted a preliminary non-binding expression of interest, which remains subject to customary conditions, including a formal due diligence. After review of that expression of interest, Arrhenius Board elected to allow that party into a detailed formal diligence process. At the conclusion of its diligence process, the counterparty elected not to submit a formal offer. In addition to exploring the sale of the company, ARINIA also explored multiple alternatives, including the potential for acquiring, merging, or licensing other entities or assets. The Board ultimately determined that none of the other alternatives explored and that were available to it to pursue were in the best interest of the company and its shareholders. Based on the outcome of this extensive strategic review, The board believes that the best path forward is for management to streamline its operations as announced today and focus on the company's commercial execution. We expect this to provide us with financial firepower to generate meaningful cash flow, which we intend to redeploy in the short term to repurchase shares and over time continue to build balance sheet strength. We believe this strength will provide us with the financial flexibility to consider a wide range of alternatives over the next few years. This could include diversifying our portfolio through the addition of new pipeline assets or creating scale through the acquisition of commercial assets or other strategies that we believe will allow the company to continue to grow and drive towards its mission. For even more context, in 2018, The company under previous management and at the board's direction engaged a leading investment bank and conducted a confidential strategic review process. After extensive outreach, the company received only one non-binding expression of interest, which included a due diligence process, but in the end did not result in a formal offer. And outside of these two expressions of interest, the company has never received any offer of any kind. The board and management, though, remain open to exploring opportunities that are in the best interest of the company and are open to considering any bona fide offers that the company receives. In addition, following the conclusion of the strategic review, the company is reaffirming its commitment to the value enhancement by driving loop kindness growth while maintaining a sharp focus on operating efficiencies and maximizing cash flows. As a result, the company is ceasing further development of both AUR 200 and AUR 300. Correspondingly, the company expects to take a restructuring charge of approximately $11 to $15 million in the first quarter of 2024. This charge will primarily be made up of severance costs, contract termination costs, and other costs associated with terminating these programs. We anticipate reducing employee headcount by at least 25% by the end of the first quarter of 2024. There is no planned reduction in headcount in commercial or commercial supporting roles. The company expects to recognize annual cost savings of approximately $50 to $55 million on a go-forward basis with no impact on our commercial investment. In addition, the Board has approved a share repurchase program of up to $150 million of the company's common shares, the maximum amount of which is subject to receipt of regulatory approval in Canada. This reflects confidence in Arrhenius' growth prospects and a continued commitment to enhancing both short and long-term value for shareholders and other stakeholders. While we know there will be questions about timing and details of this near-term strategic shift, I can tell you that we will execute quickly and decisively to maximize the benefits. I'd now like to turn the call over to Joe to provide additional details of the share repurchase program that we announced today, as well as more detailed review of our financial results. I will then return at the end of the call for a quick recap and to open up the line for your questions. With that, Joe.