Pat McKeough replied to a Member of his Inner Circlewho has been keeping a close eye on a Canadian pharmaceutical stock. The company specializes in treatments for serious diseases that require extra medical therapies and interventions, such as lupus.
Aurinia Pharmaceutical’s most advanced drug, for the treatment of lupus nephritis, is about to enter the most expensive and intense of its clinical trials. Pat notes that the company has sufficient cash to let it develop drugs well into 2020. While the company’s drugs may ultimately fill an important need, the risks are considerable with early-stage biotech firms.
Where investors lose more money
“Overall, investors lose more money to conflicts of interest than to any other single risk. That’s not a comment about the average broker’s sense of ethics. It’s simply a matter of frequency of exposure times risk per exposure. For example, suppose you tell your broker that you have some money and you want to invest it aggressively…”
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Q: Pat: I have been following Aurinia Pharmaceutical from the sidelines throughout 2017. I would value your opinion. Thank you.
A: AURINIA PHARMACEUTICALS (symbol AUP on Toronto; www.auriniapharma.com), was formed from the 2013 merger of Isotechnika Pharma and Aurinia Pharmaceuticals.
The company is a clinical-stage biopharmaceutical company focused on developing and commercializing therapies to treat patient populations suffering from serious diseases but with a need for more medical therapies and interventions. The company’s primary focus right now is on the development of voclosporin, a drug for the treatment of lupus nephritis.
Lupus nephritis is inflammation of the kidney caused by systemic lupus erythematous (SLE). Also called lupus, SLE is an autoimmune disease. With lupus, the body’s immune system targets its own body tissues. Lupus nephritis happens when lupus involves the kidneys.
In October 2017, Aurinia announced plans to investigate the effectiveness of voclosporin in treating two related kidney diseases: focal segmental glomerulosclerosis (FSGS) and minimal change disease (MCD).
FSGS is a rare disease that attacks the kidney’s filtering units (glomeruli), causing serious scarring that can lead to permanent kidney damage and even failure. Minimal change disease is a kidney disease in which large amounts of protein is lost in the urine.
Additionally, the company has announced plans to evaluate its exclusive nanomicellar voclosporin ophthalmic solution (VOS) for the treatment of keratoconjunctivitis sicca or dry-eye syndrome (DES).
Growth stocks: On track to complete Phase III enrollment in second half of 2018
The most advanced of its programs is its Phase III clinical trial (AURORA) for the treatment of lupus nephritis. Aurinia is on track to complete the subject enrollment for this study in the second half of 2018 and has 138 clinical trial sites worldwide.
In Phase I trials, a small group of 20 to 80 healthy volunteers is selected to assess the new drug’s safety, tolerability and possible side effects.
Phase II trials involve groups of 20 to 300 people. They will assess how well the drug works and continue with Phase I safety assessments. When a new drug fails, it usually occurs during Phase II.
Phase III studies are the strictest scientific trials. These are conducted by two or more clinical research centres on patient groups of 300 to 3,000. They aim to compare the drug to the current “gold standard” of treatment. Phase III trials are the most expensive, time-consuming and difficult to design and run.
The company held cash of $182.4 million, or $2.32 a share, at the end of the most recent quarter. It’s using up its cash at a rate of around $12.0 million per quarter, or $48.0 million a year. Therefore, its cash balance is sufficient to let it further develop its drugs well into 2020.
But early-stage biotech firms like Aurinia entail huge risk—in particular, its drugs could fail to advance past the progressively rigorous tests awaiting them.
Inner Circle recommendation: The shares are okay to hold, but only for highly aggressive investors willing to accept those risks.
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