Since last year, Aurinia Pharmaceuticals (NASDAQ:AUPH) has moved very little on the stock market. It is now in a holding pattern, in the range of $4.50 to $6. News of the launch of a mid-stage study, along with a quarterly earnings report before that, failed to ignite or hurt AUPH stock by much. Yet both events suggest that the company is on the right path.
On July 11, Aurinia launched a mid-stage Phase 2 clinical study that evaluates its drug, Voclosporin, for treating dry eye syndrome (or DES). The company will compare its tolerability (primary endpoint) and efficacy (secondary endpoint) to Allergan’s (NYSE:AGN) Restatis. The speculators are overwhelmingly bearish on the company — short float is 17.61 percent. Still, so far the risk of a spike in the stock is low, moving only to around $6.50 before profit-taking sends the stock back to the $5.50 range.
Long-time investors in Aurinia are aware of a Phase 3 study that has been underway since mid-2017 for Lupus Nephritis (LN). Results released at the end of 2019 could finally give the stock a positive lift. The management team has the experience in Lupus research. So chances are good that Aurinia will report good results for both the LN study and the dry eye one. As a small-cap stock — $476.7 million — its size may expand into the billions should the studies succeed.
Positive First-Quarter Results
On the surface, Aurinia’s first-quarter revenue of $0.03 million and an earnings-per-share loss of $0.18 ($15.5 million) would not impress investors. In the previous year, net loss was $51.9 million or $0.92 per share. The difference is due to the estimated fair value of derivative warrant liabilities. A more important line item on the balance sheet is the research and development spending, which increased to $8.9 million, up from $7.3 million in the previous year. Aurinia enrolled more patients, so the treatment costs increased.
The company ended the quarter with $159.1 million in cash, cash equivalents, and short-term investments. This is important because it supports management’s belief that it has enough funds for its existing LN program. This includes the Aurora trial and submission to the FDA. It also supports its Phase II trials for FSGS (Focal Segmental Glomerulosclerosis, a rare and potentially life-threatening disease) and dry eye study into 2020.
As a company that is in the early innings of drug discovery, investors are not betting heavily on its enormous future potential. This could be due to the company “keeping it real” for its clinical studies. To capture meaningful, realistic results, it is enrolling patients, not healthy subjects, for its Voclosporin and MMF study.
Aurinia’s deep commitment to LN beyond clinical studies is demonstrated through its involvement with Lupus Awareness month and World Lupus Day. This complements its education program that began in February for those living with LN.
AUPH Stock Valuation
According to TipRanks, five analysts covered the Aurinia stock in the last year. And based on two analysts, both have a “buy” rating on the stock and an average price target of $14. That is an upside of nearly 143 percent from the recent $5.77 closing price.
SimplyWall.St’s valuation model, which considers the company’s future cash flow, deduced the stock is overvalued. Even though the company has the potential for strong revenue growth, profits will not come until 2021 at the earliest.
Takeaway on AUPH Stock
Aurinia is a small-cap biotechnology company, so this stock is riskier than the average, established pharmaceutical stock. For investors who hold a basket of these types of companies, this stock has a good chance of going higher in the long-term.
Disclosure: Author does not own shares in any of the companies mentioned.