After Patent News, Aurinia Pharmaceuticals Still Has More to Prove

Aurinia Pharmaceuticals (NASDAQ:AUPH) leapt close to 20% on Monday. AUPH stock took off after the announcement of a new patent for the application method of its lupus nephritis drug.

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This gave AUPH stock some much-needed excitement. Shares have languished between $5 and $6.50 for most of the past year, as investors await key clinical trial readouts.

Bulls hope this patent news may finally break the gridlock and allow the stock to reach its highest levels in several years. However, Aurinia still has more work to do.

Why The Patent News Matters

There was an interesting reaction with Aurinia stock after the news came out. At first, the stock didn’t jump too much — opening up just a few percent. But throughout the day, shares traded steadily higher as investors further considered the consequences.

On the one hand, this is an important development for Aurinia. One of the lingering issues with Aurinia has been that the primary patents around its Voclosporin were initially set to expire in 2022.

Normally, a biotech company has a much longer window to generate exclusive revenues from its products before generic competitors launch their own versions. Given that short window, bears have suggested that Aurinia would have issues profiting adequately when the drug comes to market.

Aurinia had several options to deal with this issue. They already managed to use one regulatory pathway to get a five-year extension out of 2027. So that had reduced the investment risk substantially. Still, most clinical stage biotech companies have patent exclusivity much longer than eight years, so investors were right to price that in as a risk for AUPH stock.

With this patent, Aurinia may have overcome this challenge.

What Changed, And What Hasn’t

On Monday, Aurinia published a press release, stating:

“Notably, the allowed claims cover a method of modifying the dose of voclosporin in patients with lupus nephritis (LN) based on patient specific pharmacodynamic parameters.”

The new patent on Voclosporin runs out through 2037, giving Aurinia excellent protection from generic competition.

That said, reading carefully, we see that the patent covers modification of the dose of Voclosporin, not the actual drug itself. It’s seemingly unclear if generics could still compete with Voclosporin as long as they use a different dosing method. And there’s still another much bigger question to deal with first: Will the drug be approved? After all, a patent won’t matter if the drug never makes it to market.

The all-important Phase III trial is set to deliver results around the end of 2019. It’s far from a given that Voclosporin will succeed and go on to obtain FDA approval. The company’s previous trial ran into significant safety issues with patients dying during the study. Given the FDA’s concerns on safety issues, investors should be careful about assuming approval before the definitive trial results come in.

On top of that, in the previous trial, the company’s lower dose version of the drug showed a stronger clinical effect than the higher dose version. Again, there is a plausible explanation for this: management suggests the higher dose version wasn’t tolerated well in patients. Still, an inconsistent dose response is another caution flag for biotech trials.

To summarize, while the patent news is a plus for AUPH stock, don’t overlook the small matter that the drug still has to perform in its pivotal phase III trial and pick up FDA approval.

AUPH Stock Verdict

The company does have a few other options beyond the key lupus trial. It is also testing Voclosporin for other conditions, such as dry eye. That program produced a mixed set of clinical results recently. It missed its key endpoint, but showed stronger efficacy than expected.

It’s unclear what exactly this will mean for the dry eye program going forward. In any case, phase III results are still a few years away. Additionally, there is much more competition in that market than there would be for lupus nephritis.

So, despite the flurry of attention for dry eye that Aurinia proponents have shown, don’t get distracted from the main event. The lupus results should be coming up within a year from now. Those results will determine whether or not AUPH stock delivers for its shareholders.

Finally, I should note the unambiguously positive thing about Aurinia at this point: its strong fiscal position. As of the most recent quarter, it had $139 million in cash, and was burning ~$45 million annually. That gives it more than two years to keep advancing the clinical pipeline.

On top of that, the company subsequently announced a $30 million stock offering, which will add a few more quarters worth of working cash to its already substantial treasury. While Aurinia’s ultimate success is far from certain, they’ve got a respected management team and enough cash to give Voclosporin time to attempt to prove its potential.

At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.

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