Aurinia Pharmaceuticals(AUPH) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of its financial condition and results Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of shareholders' equity, and statements of cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, and specific asset/liability components Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands): | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------- | :------------------- | :------------------ | | Total Assets | $555,013 | $470,860 | | Total Liabilities | $163,136 | $65,425 | | Total Shareholders' Equity | $391,877 | $405,435 | | Cash, cash equivalents and restricted cash | $46,397 | $94,172 | | Accounts receivable, net | $37,946 | $13,483 | | Inventories, net | $32,820 | $24,752 | | Finance right-of-use asset, net | $113,069 | — | | Current Finance lease liability | $13,328 | — | | Non-current Finance lease liability | $72,193 | — | Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's financial performance, detailing revenue, expenses, and net loss Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands): | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Revenue, Net | $54,515 | $55,779 | $130,418 | $105,595 | | Product Revenue, Net | $40,781 | $25,502 | $116,218 | $75,142 | | License, Royalty and Collaboration Revenue | $13,734 | $30,277 | $14,200 | $30,453 | | Loss from operations | $(16,263) | $(9,499) | $(62,017) | $(83,370) | | Net Loss | $(13,447) | $(8,989) | $(51,145) | $(82,134) | | Basic and diluted loss per share | $(0.09) | $(0.06) | $(0.36) | $(0.58) | Condensed Consolidated Statements of Shareholders' Equity (Three Months Ended September 30, 2023 and September 30, 2022) This section details changes in shareholders' equity for the three-month periods, including net loss and share-based compensation Shareholders' Equity (in thousands) - Three Months Ended September 30: | Metric | September 30, 2023 | September 30, 2022 | | :--------------------------- | :------------------- | :------------------- | | Total Shareholders' Equity | $391,877 | $423,425 | | Net Loss | $(13,447) | $(8,989) | | Share-based compensation | $11,808 | $8,320 | Condensed Consolidated Statements of Shareholders' Equity (Nine Months Ended September 30, 2023 and September 30, 2022) This section details changes in shareholders' equity for the nine-month periods, including net loss and share-based compensation Shareholders' Equity (in thousands) - Nine Months Ended September 30: | Metric | September 30, 2023 | September 30, 2022 | | :--------------------------- | :------------------- | :------------------- | | Total Shareholders' Equity | $391,877 | $423,425 | | Net Loss | $(51,145) | $(82,134) | | Share-based compensation | $33,543 | $25,398 | Condensed Consolidated Statements of Cash Flows This section summarizes cash flows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) - Nine Months Ended September 30: | Metric | 2023 | 2022 | | :-------------------------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(47,773) | $(89,979) | | Net cash provided by (used in) investing activities | $(449) | $(57,614) | | Cash provided by financing activities | $447 | $1,745 | | Net decrease in cash, cash equivalents and restricted cash | $(47,775) | $(145,848) | | Cash, cash equivalents and restricted cash, end of period | $46,397 | $86,052 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements 1. Organization and Description of Business This note describes the company's core business, key product, and development pipeline - Aurinia Pharmaceuticals Inc. is a biopharmaceutical company focused on autoimmune, kidney, and rare diseases[20] - LUPKYNIS® (voclosporin), the first U.S. FDA-approved oral therapy for active lupus nephritis (LN), was introduced in January 2021[20] - The company collaborates with Otsuka Pharmaceutical Co., Ltd. for LUPKYNIS® development and commercialization in the EU, Japan, and other territories[20] - Novel assets AUR200 and AUR300 are in pre-clinical development, with projected FDA submissions in 2023 and 2024, respectively[20] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and policies for financial statement preparation - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information[22] - The company believes it has sufficient resources ($338.5 million in cash, cash equivalents, restricted cash, and investments as of September 30, 2023) to fund operations for at least the next few years[26] - Major customers include two main U.S. commercial sales customers for LUPKYNIS® and Otsuka for collaboration revenue[26] Percentage of Total Revenues, Net from Main Customers: | Revenue Type | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Product revenue, net | 77% | 48% | 90% | 74% | | License, royalty and collaboration revenue | 21% | 52% | 9% | 26% | 3. Fair Value Measurements This note details valuation methodologies and inputs for financial assets measured at fair value Financial Assets Measured at Fair Value (in thousands): | Category | September 30, 2023 | December 31, 2022 | | :------------------------------------- | :------------------- | :------------------ | | Total financial assets | $338,491 | $389,390 | | Level 1 (Cash, cash equivalents and restricted cash) | $46,397 | $94,172 | | Level 2 (Corporate bonds, Commercial paper, Treasury bills/bonds) | $292,094 | $295,218 | - No credit loss allowance was recorded as of September 30, 2023, or December 31, 2022, as unrealized losses are considered temporary[41] 4. Cash, Cash Equivalents, Restricted Cash and Investments This note provides a breakdown of the company's liquid assets and investment portfolio Cash, Cash Equivalents, Restricted Cash and Investments (in thousands): | Metric | September 30, 2023 | December 31, 2022 | | :-------------------------------------------------- | :------------------- | :------------------ | | Total cash, cash equivalents, restricted cash and investments | $338,491 | $389,390 | | Available-for-sale debt securities | $292,094 | $295,218 | | Unrealized gains on available-for-sale securities, net of tax (Q3) | $73 | $326 | | Unrealized gains on available-for-sale securities, net of tax (YTD) | $114 | $(675) | | Total unrealized losses on investments | $(144) | $(256) | 5. Inventories, net This note details the composition of the company's inventory, including raw materials, work in process, and finished goods Components of Inventory, Net (in thousands): | Component | September 30, 2023 | December 31, 2022 | | :-------------------- | :------------------- | :------------------ | | Raw materials | $1,985 | $2,217 | | Work in process | $29,639 | $21,059 | | Finished goods, net of reserve | $1,196 | $1,476 | | Total inventories, net | $32,820 | $24,752 | - Reserves for finished goods inventories were approximately $1.1 million as of September 30, 2023, down from $3.9 million as of December 31, 2022, primarily related to potential inventory obsolescence[49] 6. Prepaid Expenses This note presents the breakdown of various prepaid assets held by the company Prepaid Expenses (in thousands): | Component | September 30, 2023 | December 31, 2022 | | :-------------------- | :------------------- | :------------------ | | Prepaid assets | $7,288 | $5,451 | | Prepaid deposits | $6,922 | $6,330 | | Prepaid insurance | $1,948 | $1,799 | | Total prepaid expenses | $16,158 | $13,580 | 7. Intangible Assets This note provides information on the company's intangible assets, such as patents and acquired intellectual property Intangible Assets, Net (in thousands): | Component | September 30, 2023 | December 31, 2022 | | :--------------------------------------------- | :------------------- | :------------------ | | Patents | $515 | $307 | | Acquired intellectual property and reacquired rights | $4,588 | $5,288 | | Internal-use software implementation costs | $158 | $830 | | Total intangible assets, net | $5,261 | $6,425 | - Amortization expense was approximately $0.5 million for both Q3 2023 and Q3 2022, and $1.4 million for YTD 2023 compared to $1.6 million for YTD 2022[54] 8. Property and Equipment, net This note details the company's property and equipment, net of accumulated depreciation Property and Equipment, Net (in thousands): | Component | September 30, 2023 | December 31, 2022 | | :-------------------------- | :------------------- | :------------------ | | Construction in progress | — | $255 | | Leasehold improvements | $3,243 | $2,978 | | Office equipment | $631 | $645 | | Furniture | $1,141 | $976 | | Computer equipment | $235 | $251 | | Less accumulated depreciation | $(1,754) | $(1,455) | | Total property and equipment, net | $3,496 | $3,650 | 9. Lease Obligations This note describes the company's lease arrangements, especially the finance lease for its manufacturing facility - The company entered into a finance lease for a dedicated manufacturing facility (monoplant) in Visp, Switzerland, with the lease commencement occurring in Q2 2023[59][61] - At lease inception, an ROU asset of approximately $117.6 million and a corresponding lease liability of $94.1 million were recorded for the monoplant[61] Monoplant Finance Lease (in thousands): | Metric | September 30, 2023 | | :-------------------------- | :------------------- | | ROU asset, net | $113,100 | | Lease liability | $85,500 | | ROU amortization (Q3 2023) | $4,400 | | ROU amortization (YTD 2023) | $4,600 | | Interest expense (Q3 2023) | $1,400 | | Interest expense (YTD 2023) | $1,500 | - Operating lease costs for all leases were $0.2 million for Q3 2023 and $0.6 million for YTD 2023[58] 10. Accounts Payable and Accrued Liabilities This note provides a breakdown of the company's current liabilities, such as employee and commercial accruals Accounts Payable and Accrued Liabilities (in thousands): | Component | September 30, 2023 | December 31, 2022 | | :------------------------------------- | :------------------- | :------------------ | | Employee accruals | $18,177 | $20,214 | | Commercial accruals | $13,437 | $8,620 | | Accrued R&D projects | $5,678 | $5,350 | | Trade payables | $8,854 | $3,087 | | Other accrued liabilities | $5,938 | $2,094 | | Income taxes payable | $225 | $625 | | Total accounts payable and accrued liabilities | $52,309 | $39,990 | 11. Deferred Compensation and Other Non-current Liabilities This note details the company's non-current liabilities, mainly deferred compensation arrangements Other Non-current Liabilities (in thousands): | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------- | :------------------- | :------------------ | | Deferred compensation and other non-current liabilities | $10,340 | $12,166 | - The balance primarily includes deferred compensation arrangements for certain former executive officers, contingent on future events[71] 12. License and Collaboration Agreements This note outlines the key terms and financial impacts of the company's licensing and collaboration agreements - The collaboration and license agreement with Otsuka for LUPKYNIS® includes an upfront cash payment of $50.0 million (2020), potential regulatory and pricing approval milestones up to $50.0 million, and tiered royalties (10-20%) on net product sales[72] - A $30.0 million regulatory milestone from Otsuka was recognized in 2022 following EC marketing authorization of LUPKYNIS®[74] - A $10.0 million pricing and reimbursement milestone was recognized as collaboration revenue in Q3 2023[74] License, Royalty and Collaboration Revenue from Otsuka (in thousands): | Period | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Three months ended September 30 | $12,700 | $30,200 | | Nine months ended September 30 | $13,200 | $30,400 | - AUR300 was secured through a global licensing and research agreement with Riptide Bioscience, Inc., involving a $6.0 million upfront license fee (2021) and a $4.0 million milestone payment (Q1 2022)[76] 13. Net Loss per Common Share This note presents the calculation of basic and diluted net loss per common share Net Loss per Common Share: | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss (in thousands) | $(13,447) | $(8,989) | $(51,145) | $(82,134) | | Weighted average common shares outstanding (in thousands) | 142,847 | 141,856 | 143,085 | 141,831 | | Net loss per common share | $(0.09) | $(0.06) | $(0.36) | $(0.58) | - Diluted net loss per share is the same as basic net loss per share because the company was in a loss position for all periods presented[77] Anti-dilutive Securities (in thousands) - Nine Months Ended September 30: | Security Type | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Stock options | 12,400 | 14,299 | | Unvested performance awards | 921 | — | | Unvested restricted stock units | 6,968 | 2,098 | | Total anti-dilutive securities | 20,289 | 16,397 | 14. Share-based Compensation This note details share-based compensation expense and activity for stock options and restricted stock units Share-based Compensation Expense (in thousands): | Expense Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $1,975 | $1,489 | $5,679 | $3,531 | | Selling, general and administrative | $9,560 | $6,625 | $26,969 | $21,480 | | Capitalized under inventories | $273 | $206 | $895 | $387 | | Total share-based compensation expense | $11,808 | $8,320 | $33,543 | $25,398 | - As of September 30, 2023, there was $39.2 million of unrecognized share-based compensation expense related to unvested awards, expected to be recognized over approximately 1.4 years[94] Stock Option Activity (in thousands, except price) - Nine Months Ended September 30, 2023: | Activity | Number of Shares | Weighted Average Exercise Price ($) | | :--------------------------- | :--------------- | :---------------------------------- | | Outstanding - December 31, 2022 | 13,295 | 12.09 | | Granted | 675 | 9.68 | | Exercised | (558) | 5.27 | | Forfeited | (1,012) | 14.11 | | Outstanding - September 30, 2023 | 12,400 | 12.10 | RSU and PA Activity (in thousands, except price) - Nine Months Ended September 30, 2023: | Activity | Number of Shares | Weighted Average Fair Value Price ($) | | :--------------------------- | :--------------- | :------------------------------------ | | Outstanding - December 31, 2022 | 1,980 | 10.84 | | Granted | 6,775 | 9.04 | | Vested | (569) | 11.71 | | Forfeited | (297) | 9.31 | | Outstanding - September 30, 2023 | 7,889 | 9.29 | 15. Income Taxes This note provides information on the company's income tax expense and related considerations Income Tax Expense (in thousands): | Period | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Three months ended September 30 | $298 | $954 | | Nine months ended September 30 | $92 | $973 | - The 2023 income tax expense is primarily due to current period tax not offset by a tax benefit, as losses were fully offset by a valuation allowance in significant jurisdictions and withholding taxes on foreign income[95] 16. Related Party Transactions This note discloses transactions and balances with entities or individuals considered related parties - ILJIN is considered a related party due to equity ownership over 5%, with $0.5 million payable as of September 30, 2023, due to a milestone[96] - Dr. Robert T. Foster, a Board member, is a related party with $0.5 million in current and $6.4 million in non-current liabilities as of September 30, 2023, related to former employee benefit obligations[97] 17. Commitments and Contingencies This note outlines potential future obligations and uncertainties, including legal proceedings - The company may be subject to claims and legal proceedings in the normal course of business, but management believes the ultimate resolution will not have a material adverse effect on its consolidated financial position[98] - No material changes to commitments and contingencies from previously described in the Annual Report on Form 10-K for 2022[98] 18. Other Funding Commitments This note describes the company's agreements with third parties for services and funding commitments - The company enters into agreements with contract research organizations, contract manufacturing organizations, and other third parties for services[99] - These agreements generally provide for termination upon notice, with specified amounts due upon termination, and actual payments are uncertain and contingent upon service initiation and completion[101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, discussing revenue drivers, expense changes, liquidity, and capital resources. It highlights the performance of LUPKYNIS®, pipeline advancements, and strategic initiatives Overview This section introduces the company's business, key product, and development pipeline - Aurinia is a fully integrated biopharmaceutical company focused on therapies for autoimmune, kidney, and rare diseases[104] - LUPKYNIS® (voclosporin) is the first U.S. FDA-approved oral therapy for active lupus nephritis (LN), launched in January 2021[104] - LUPKYNIS® is an orally administered calcineurin inhibitor (CNI) immunosuppressant that improves near and long-term outcomes in LN when used in combination with mycophenolate mofetil (MMF) and steroids[104] - Novel assets AUR200 and AUR300 are in pre-clinical development, with projected FDA submissions for AUR200 in 2023 and AUR300 in 2024[106] Recent Developments This section highlights significant recent events, including clinical study results, patent grants, and board actions - The AURORA Renal Biopsy Sub-Study showed LUPKYNIS® led to significantly earlier and greater reductions in proteinuria while maintaining stable renal function[107] - A new U.S. Patent (No. 11,622,991) for LUPKYNIS®'s unique dosing regimen was issued, potentially providing patent protection until 2037[108] - The Board of Directors initiated an exploration of strategic alternatives on June 29, 2023[109] - New board appointments include Dr. Karen Smith, Jeffrey A. Bailey, and Dr. Robert T. Foster, bringing expertise in biopharma leadership, commercial strategy, and M&A[109] Policies and Significant Judgments and Estimates This section confirms consistency of critical accounting policies and estimates with prior reports - There have been no material changes to the company's critical accounting policies and significant judgments and estimates as described in its Annual Report on Form 10-K for the year ended December 31, 2022[110] Product Revenues This section details the recognition and estimation of net product revenue from LUPKYNIS® sales - LUPKYNIS® is sold primarily to specialty pharmacies and specialty distributors in the United States, with revenue recognized upon delivery to the customer[111] - Product sales are recorded at the net sales price, which includes estimates of variable consideration for discounts and allowances, calculated using the expected value method[111][112] - Estimates for variable consideration are based on historical data, including patient mix and inventory not yet dispensed, with no material adjustments as of September 30, 2023[113] Results of Operations This section analyzes the company's financial performance, detailing changes in revenues and expenses Total Revenue, Net This section provides an overview of the company's total net revenue and its primary sources Total Net Revenue (in thousands): | Period | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Three months ended September 30 | $54,515 | $55,779 | | Nine months ended September 30 | $130,418 | $105,595 | - The majority of revenue comes from two main U.S. commercial customers for LUPKYNIS® and the collaboration partnership with Otsuka[117] Product Revenue, Net This section analyzes changes in net product revenue, driven by LUPKYNIS® sales and market penetration Net Product Revenue (in thousands): | Period | 2023 | 2022 | Change | | :------------------------------------- | :--------- | :--------- | :------- | | Three months ended September 30 | $40,781 | $25,502 | +$15,279 | | Nine months ended September 30 | $116,218 | $75,142 | +$41,076 | - The increase is primarily due to further penetration of the LN market, evidenced by 436 additional prescriptions (PSFs) in Q3 2023 and 1,353 additional PSFs in YTD 2023 compared to the prior year[119] - Approximately 1,939 patients were on therapy as of September 30, 2023, up from 1,354 patients as of September 30, 2022[119] License, Royalty and Collaboration Revenue This section details fluctuations in revenue derived from licensing, royalty, and collaboration agreements License, Royalty and Collaboration Revenue (in thousands): | Period | 2023 | 2022 | Change | | :------------------------------------- | :--------- | :--------- | :--------- | | Three months ended September 30 | $13,734 | $30,277 | $(16,543) | | Nine months ended September 30 | $14,200 | $30,453 | $(16,253) | - The decrease is primarily due to the recognition of a $30.0 million regulatory milestone from Otsuka in September 2022, partially offset by a $10.0 million pricing and reimbursement milestone recognized in September 2023[120] Cost of Sales This section explains the factors contributing to changes in the cost of goods sold Cost of Sales (in thousands): | Period | 2023 | 2022 | Change | | :------------------------------------- | :--------- | :--------- | :------- | | Three months ended September 30 | $6,769 | $2,447 | +$4,322 | | Nine months ended September 30 | $8,753 | $4,302 | +$4,451 | - The increase is primarily due to increased sales of LUPKYNIS® and the amortization of the monoplant finance right-of-use asset, which was placed into service in late June 2023[121][123] Gross Margin This section presents the company's gross margin percentages for the reported periods Gross Margin: | Period | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Three months ended September 30 | 88% | 96% | | Nine months ended September 30 | 93% | 96% | Selling, General and Administrative Expenses This section analyzes changes in selling, general, and administrative expenses, including professional fees and share-based compensation Selling, General and Administrative Expenses (in thousands): | Period | 2023 | 2022 | Change | | :------------------------------------- | :--------- | :--------- | :--------- | | Three months ended September 30 | $47,759 | $52,169 | $(4,410) | | Nine months ended September 30 | $144,964 | $148,898 | $(3,934) | - The decrease for both periods was primarily due to a reduction in professional fees and services (including legal fees) and other corporate costs (including rent and insurance), partially offset by an increase in share-based compensation expense[126][127] Research and Development Expenses This section details changes in research and development expenditures, driven by pipeline advancements and study completions Research and Development Expenses (in thousands): | Period | 2023 | 2022 | Change | | :------------------------------------- | :--------- | :--------- | :------- | | Three months ended September 30 | $13,605 | $10,973 | +$2,632 | | Nine months ended September 30 | $39,413 | $35,118 | +$4,295 | - The increase was primarily driven by higher CRO and developmental costs as the company advances its preclinical assets and an increase in share-based compensation expense[129][130] - This increase was partially offset by decreased costs associated with the completion of the AURORA 2 continuation study and drug interaction study in 2022[130] Other (Income) Expense, net This section explains the components and fluctuations of other income and expense items Other (Income) Expense, Net (in thousands): | Period | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Three months ended September 30 | $2,645 | $(311) | | Nine months ended September 30 | $(695) | $647 | - Changes are primarily related to expenses incurred for shareholder matters, foreign exchange gains on the revaluation of the monoplant finance lease liability, and changes in fair value assumptions for deferred compensation liability[131] Interest Expense This section details the interest expense incurred, primarily from the monoplant finance lease Interest Expense (in thousands): | Period | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Three months ended September 30 | $1,400 | — | | Nine months ended September 30 | $1,465 | — | - The interest expense is due to the commencement of the monoplant finance lease during the three months ended June 30, 2023[132] Interest Income This section explains the increase in interest income due to higher yields on investments Interest Income (in thousands): | Period | 2023 | 2022 | Change | | :------------------------------------- | :--------- | :--------- | :------- | | Three months ended September 30 | $4,514 | $1,464 | +$3,050 | | Nine months ended September 30 | $12,429 | $2,209 | +$10,220 | - The increase for both periods is due to higher yields on investments as a result of increased interest rates[133] Liquidity and Capital Resources This section discusses the company's financial resources, including cash, investments, and working capital, and their sufficiency Liquidity and Capital Resources (in thousands): | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------- | :------------------- | :------------------ | | Cash, cash equivalents and restricted cash | $46,400 | $94,200 | | Investments | $292,100 | $295,200 | | Working capital | $352,600 | $396,400 | - The decrease in cash, cash equivalents, restricted cash, and investments is primarily related to continued investment in commercialization activities, post-approval commitments for LUPKYNIS®, inventory purchases, pipeline advancement, and monoplant payments, partially offset by increased cash receipts from LUPKYNIS® sales[134] - The company believes its cash position is sufficient to fund current plans for at least the next few years, including commercial activities, R&D programs, and working capital obligations[135] Cash Flow Summary This section provides a summary of cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) - Nine Months Ended September 30: | Activity | 2023 | 2022 | | :------------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(47,773) | $(89,979) | | Net cash used in investing activities | $(449) | $(57,614) | | Cash provided by financing activities | $447 | $1,745 | | Net decrease in cash and cash equivalents | $(47,775) | $(145,848) | - The decrease in net cash used in operating activities is primarily due to an increase in cash receipts from LUPKYNIS® sales[138] - The decrease in cash used in investing activities was primarily related to the timing of investment purchases and the second capital expenditure payment for the monoplant, offset by proceeds from investment maturities[139] Off‑Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements - The company did not have, nor does it currently have, any off-balance sheet arrangements[140] Contractual Obligations This section states that there have been no material changes to the company's contractual obligations - There have been no material changes outside the ordinary course of business to the company's contractual obligations and commitments as described in its Annual Report on Form 10-K for the year ended December 31, 2022[141] Item 3. Quantitative and Qualitative Disclosures About Market Risks This section details the company's exposure to various market risks, including interest rate risk, foreign currency risk, inflation risk, and credit risk, and outlines the strategies employed to manage these exposures Interest Rate Risk This section discusses the company's exposure to interest rate fluctuations on its investment portfolio - The company's investment portfolio of $338.5 million (as of September 30, 2023) earns interest at various rates, exposing it to cash flow interest rate risk[143] - A hypothetical 100 basis point decrease in interest rates on investments would result in $3.0 million less interest annually[144] - The investment policy limits investments to highly rated debt and money market instruments, with restrictions on maturities and concentrations[143] Foreign Currency Risk This section outlines the company's exposure to foreign currency fluctuations, especially for its finance lease liability - The company is exposed to foreign currency risk, primarily with the Canadian dollar, Swiss Franc, Euro, and Great British Pound[145] - An $85.5 million finance lease liability related to the monoplant is exposed to Swiss Franc fluctuations; a 10% fluctuation would result in an approximate $8.6 million change in valuation[145] - Approximately $7.0 million in foreign denominated third-party payables are subject to foreign exchange fluctuations, with a 10% change impacting amounts due by $0.7 million[145] Inflation Risk This section describes how inflation impacts the company's operating costs and investment portfolio - Increasing inflation affects the company by raising costs for labor, commercial support, manufacturing, and clinical trial expenditures[147] - Inflation also impacts government rebates due to the consumer price index (CPI) penalty[147] - The investment portfolio may experience realized losses if investments are sold before maturity due to market volatility caused by increased interest rates[147] Credit Risk This section details the company's exposure to credit risk from cash, investments, and accounts receivable - The company's exposure to credit risk consists of cash and cash equivalents, investments, and accounts receivable[148] - Accounts receivable from its two main U.S. customers for LUPKYNIS® and the Otsuka collaboration accounted for approximately 97% of net trade accounts receivable as of September 30, 2023[149] - The company monitors economic conditions and customer creditworthiness, and has not experienced any issues with collectability or recorded any allowance for doubtful accounts in Q3 2023[149] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[151] Changes in Internal Control over Financial Reporting This section reports on any material changes to the company's internal control over financial reporting - There has been no change in the company's internal control over financial reporting during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting[152] PART II. OTHER INFORMATION This section provides additional information not covered in financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings This section updates on legal proceedings, specifically a shareholder class action lawsuit, and reiterates the company's defense commitment - A purported shareholder class action complaint, Ortmann v. Aurinia Pharmaceuticals, Inc. et al., was filed on April 15, 2022, alleging materially false and misleading statements regarding financial guidance and commercial prospects[155] - The company filed a motion to dismiss the amended complaint on October 20, 2023, and intends to vigorously defend itself[155] - Litigation can have an adverse impact due to defense and settlement costs, as well as diversion of management resources[154] Item 1A. Risk Factors This section updates risk factors from the 10-K, noting the Ukraine conflict's impact and clarifying LUPKYNIS® activity metric limitations - No material change in risk factors since the 2022 Annual Report on Form 10-K, except for the ongoing armed conflict in Ukraine and its potential adverse effects on business, operations, and financial condition[156][157] - Metrics relating to LUPKYNIS® activity (prescriptions/PSFs, conversion rates, persistency rates, patients on therapy) are not directly indicative of current or future financial performance due to various factors outside the company's control, including insurance coverage, cancellations, and discontinuations[157][158] - Revenue from main customers does not necessarily correlate to PSF numbers, meaning revenue could fluctuate contrary to PSF trends[159] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states no unregistered sales of equity securities or use of proceeds were reported for the period - None to report[160] Item 3. Defaults Upon Senior Securities This section states no defaults upon senior securities were reported for the period - None to report[160] Item 4. Mine Safety Disclosures This section states no mine safety disclosures were reported for the period - None to report[160] Item 5. Other Information This section states no other information is reported for the period - None to report[160] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, agreements, and certifications - Exhibits include Articles of Amalgamation, Amended and Restated By-Law No. 2, and a Cooperation Agreement dated September 21, 2023[162][163][164] - Certifications from the Principal Executive Officer and Principal Financial Officer are included pursuant to the Sarbanes-Oxley Act of 2002[165][166][167][168] - Inline XBRL Instance Document and Taxonomy Extension Schema Documents are also filed[169] Signatures This section contains official signatures of the company's principal executive and financial officers, certifying report accuracy - The report was signed by Peter Greenleaf, Chief Executive Officer, and Joseph Miller, Chief Financial Officer, on November 1, 2023[171]