Dr. Richard Glickman reports

AURINIA REPORTS FOURTH QUARTER AND FULL YEAR 2018 FINANCIAL RESULTS AND OPERATIONAL HIGHLIGHTS

Aurinia Pharmaceuticals Inc. has released its financial results for the fourth quarter and year ended Dec. 31, 2018. Amounts, unless specified otherwise, are expressed in U.S. dollars.

Fiscal 2018 and recent highlights:

• Notice of allowance from the United States Patent and Trademark Office (USPTO) for claims that have the potential to cover voclosporin's method of use and dosing protocol for lupus nephritis until December, 2037;
• Phase 2a dry eye study results released in January, 2019, demonstrating statistically superior efficacy of voclosporin ophthalmic solution (VOS) versus Restasis (cyclosporine ophthalmic emulsion);
• Aurora phase 3 trial in lupus nephritis completed patient enrolment ahead of schedule in September, 2018 -- on track for top-line data in late 2019;
• Phase 2 focal segmental glomerulosclerosis study with voclosporin initiated in June, 2018, with patient recruitment continuing;
• Cash, cash equivalents and short-term investments of $125.9-million as of Dec. 31, 2018;
• Balance sheet strengthened with additional $30-million raised through ATM (at-the-market) facility during Q1 2019.

"The team at Aurinia has made extraordinary progress throughout 2018 by achieving a number of significant clinical milestones with voclosporin, and we are excited for what lies ahead in 2019. In addition to completing enrolment in the Aurora phase 3 trial ahead of schedule last September, we also released phase 2a dry eye study results with VOS that we believe further demonstrate the potential of voclosporin," commented Dr. Richard M. Glickman, chief executive officer and chairman of the board at Aurinia Pharmaceuticals.

Dr. Glickman further commented, "With the recent notice of allowance we received from the USPTO for claims covering voclosporin's method of use and dosing protocol for the treatment of proteinuric kidney diseases, including LN, we are very pleased with the additional exclusivity that could extend to December, 2037, which I believe provides additional value-creating opportunities for our shareholders."

Highlights

USPTO notice of allowance

On Feb. 25, 2019, Aurinia announced that it received a notice of allowance from the USPTO for claims directed at its novel voclosporin dosing protocol for LN (U.S. patent application No. 15/835,219).

The allowed claims broadly cover the novel voclosporin individualized flat-dosed pharmacodynamic treatment protocol adhered to and required in both the previously reported phase 2 AURA-LV trial and the company's continuing phase 3 confirmatory Aurora trial. Notably, the allowed claims cover a method of modifying the dose of voclosporin in patients with LN, based on patient-specific pharmacodynamic parameters.

This notice of allowance concludes a substantive examination of the patent application at the USPTO and, after administrative processes are completed and fees are paid, is expected to result in the issuance of a U.S. patent with a term extending to December, 2037. If the FDA (U.S. Food and Drug Administration) approves the use of voclosporin for LN and the label for such use follows the dosing protocol under the notice of allowance, the issuance of this patent will expand the scope of intellectual property protection for voclosporin, which already includes robust manufacturing, formulation, synthesis and composition of matter patents.

Aurora LN clinical trials

Aurinia's phase 3 clinical trial (Aurora) is evaluating voclosporin for the treatment of LN, which was initiated in May, 2017, and completed enrolment in September, 2018. The target enrolment of 324 patients was surpassed due to high patient and investigator demand, with 358 LN patients randomized in sites across 27 countries. Top-line data are expected to be available in Q4 2019.

A significant percentage of patients who have completed the Aurora trial are rolling over into the Aurora blinded extension trial (Aurora 2). The purpose of Aurora 2 is to assess the long-term benefit/risk of voclosporin in patients with LN. this trial is not a requirement for potential regulatory approval of voclosporin.

Dry eye syndrome

In July, 2018, Aurinia initiated a phase 2a head-to-head study of voclosporin ophthalmic solution versus Restasis 0.05 per cent for the treatment of moderate DES to severe DES. This four-week study enrolled a total of 100 patients.

In January, 2019, the company released results from this study. The study evaluated efficacy, safety and tolerability head to head with Restasis:

• VOS showed statistical superiority to Restasis on FDA-accepted objective signs of DES.
• 42.9 per cent of VOS subjects versus 18.4 per cent of Restasis subjects (p equals 0.0055) demonstrated 10-millimetre improvement in Schirmer tear test (STT) at week 4.
• VOS showed statistical superiority to Restasis in fluorescein corneal staining (FCS) (p equals 0.0003).
• The primary end point of drop discomfort at one minute on the first day of therapy showed no statistical difference between the treatment groups, as both groups exhibited low drop discomfort scores.

With respect to the primary end point of drop discomfort, VOS did not meet the primary end point, as both drugs were well tolerated and demonstrated less than anticipated drop discomfort. However, secondary outcome measures on efficacy, namely the STT and FCS, demonstrated statistically superior results over Restasis.

Focal segmental glomerulosclerosis

Aurinia initiated a phase 2 proof-of-concept study for FSGS in June, 2018, and is currently in the process of enrolling patients with this disease. This proof-of-concept phase 2 open-label study aims to enroll approximately 20 treatment-naive patients diagnosed with primary FSGS.

Financial liquidity at Dec. 31, 2018

At Dec. 31, 2018, Aurinia had cash, cash equivalents and short-term investments of $125.9-million, compared with $173.5-million of cash and short-term investments at Dec. 31, 2017. Net cash used in operating activities amounted to $51.6-million for the year ended Dec. 31, 2018, compared with $41.2-million for the year ended Dec. 31, 2017.

At-the-market facility

On Nov. 30, 2018, Aurinia entered into an open market sale agreement with Jefferies LLC, pursuant to which the company could, from time to time, sell, through ATM offerings, common shares that would have an aggregate offering amount of up to $30-million. Subsequent to year-end, the ATM was fully utilized. Aurinia received gross proceeds of $30-million and issued 4.6 million common shares. The company incurred share issue costs of $1.2-million, including a 3-per-cent commission as well as professional and filing fees related to the ATM offering.

Feb. 14, 2014, warrant exercises

The derivative warrants outstanding related to the Feb. 14, 2014, private placement offering were exercised subsequent to Dec. 31, 2018. Certain holders of these warrants elected the cashless exercise option and the company issued 687,000 common shares on the cashless exercise of 1.3 million warrants. Three holders of 464,000 warrants exercised these warrants for cash at a price of $3.2204. The company received cash proceeds of $1.5-million and issued 464,000 common shares.

The company believes, based on its current plans, that Aurinia has sufficient financial resources to finance the existing LN program, including the Aurora trial and the Aurora 2 extension trial, complete the NDA (new drug application) submission to the FDA, conduct the continuing phase 2 study for FSGS, commence additional DES studies and finance operations into mid-2020.

Financial results for the fourth quarter ended Dec. 31, 2018

The company reported a consolidated net loss of $14.6-million, or 17 cents per common share, for the fourth quarter ended Dec. 31, 2018, compared with a consolidated net loss of $3.3-million, or four cents per common share, for the fourth quarter ended Dec. 31, 2017.

The loss for the fourth quarter ended Dec. 31, 2018, reflected an increase of $593,000 in the estimated fair value of derivative warrant liabilities, compared with a reduction of $9-million in the estimated fair value of derivative warrant liabilities for the fourth quarter ended Dec. 31, 2017.

The net loss before the non-cash change in estimated fair value of derivative warrant liabilities was $13.9-million for the fourth quarter ended Dec. 31, 2018, compared with $12.3-million for the same period in 2017.

Research and development (R&D) expenses increased to $10.8-million in the fourth quarter of 2018, compared with $8.7-million in the fourth quarter of 2017. The increase in these expenses primarily reflected costs incurred for the Aurora 2 extension trial, the DDI study, and the FSGS and DES phase 2 studies, which were newly enrolled studies in 2018.

Corporate, administration and business development expenses increased to $3.5-million for the fourth quarter of 2018, compared with $3.1-million for the fourth quarter of 2017, reflecting higher professional fees incurred during the fourth quarter of 2018.

Financial results for the year ended Dec. 31, 2018

For the year ended Dec. 31, 2018, Aurinia recorded a consolidated net loss of $64.1-million, or 76 cents per common share, which included a non-cash increase of $10-million related to the estimated fair value annual adjustment of derivative warrant liabilities at Dec. 31, 2018. After adjusting for this non-cash impact, the net loss before this change in estimated fair value of derivative warrant liabilities was $54.1-million.

This compared with a consolidated net loss of $70.8-million, or 92 cents per common share, in 2017, which included a non-cash increase of $23.9-million in the estimated fair value of derivative warrant liabilities for the year ended Dec. 31, 2017. After adjusting for this non-cash impact for 2017, the net loss before this change in estimated fair value of derivative warrant liabilities was $46.9-million.

The change in the revaluation of the derivative warrant liabilities is primarily driven by the change in the company's share price. The company's share price of $6.82 was significantly higher at Dec. 31, 2018, compared with the company's share price of $4.53 at Dec. 31, 2017. This increase in the company's share price resulted in large increases in the estimated fair value of derivative warrant liabilities for each of 2018 and 2017. The derivative warrant liabilities will ultimately be eliminated on the exercise or forfeiture of the warrants and will not result in any cash outlay by Aurinia.

The company incurred R&D expenses of $41.4-million for the year ended Dec. 31, 2018, compared with $33.9-million for the year ended Dec. 31, 2017. The increase in R&D expenses in 2018 primarily reflected costs related to the Aurora 2 extension trial, the DDI study, and the FSGS and DES phase 2 studies.

The company incurred corporate, administration and business development expenses of $13.7-million for the year ended Dec. 31, 2018, compared with $12.1-million for the same period in fiscal 2017. The increase in these expenses reflected higher corporate activity levels over all as well as higher personnel compensation costs, which included a non-cash stock compensation expense of $4.2-million for the year ended Dec. 31, 2018, compared with $3.2-million for the year ended Dec. 31, 2017.

The audited financial statements and management's discussion and analysis for the year ended Dec. 31, 2018, are accessible at Aurinia's website, on SEDAR and on EDGAR.

Aurinia will host a conference call and webcast to discuss the fourth quarter and year ended Dec. 31, 2018, financial results on Tuesday, March 19, 2019, at 4:30 p.m. ET. This event can be accessed at the company's website.

About Aurinia Pharmaceuticals Inc.

Aurinia Pharmaceuticals is a late-clinical-stage biopharmaceutical company focused on developing and commercializing therapies to treat targeted patient populations impacted by serious diseases with a high unmet medical need. The company is currently developing voclosporin, an investigational drug, for the potential treatment of lupus nephritis, focal segmental glomerulosclerosis and dry eye syndrome. The company is headquartered in Victoria, B.C., and focuses its development efforts globally.

                       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
                                (in thousands of U.S. dollars, except per-share data)
 
                                                                Three months ended Dec. 31,       Year ended Dec. 31,
                                                                        2018          2017        2018          2017
Revenue                                                                                                             
Licensing revenue                                                        $29           $30        $118          $418
Contract revenue                                                           -             -         345             -
Total revenue                                                             29            30         463           418
Expenses                                                                                                            
Research and development                                              10,839         8,691      41,382        33,930
Corporate, administration and business development                     3,498         3,118      13,674        12,096
Amortization of acquired intellectual 
property and other intangible assets                                     349           356       1,545         1,434
Amortization of property and equipment                                     6             5          20            22
Other expense (income)                                                  (736)          196      (2,065)         (196)
                                                                      13,956        12,366      54,556        47,286 
Net (loss) before change in estimated fair value of                                                                    
derivative warrant liabilities                                       (13,927)      (12,336)    (54,093)      (46,868)
Change in estimated fair value of 
derivative warrant liabilities                                          (593)        9,004      (9,954)      (23,924)
(Loss) before income taxes                                           (14,520)       (3,332)    (64,047)      (70,792)
Income tax expense                                                        73             -          73             - 
Net (loss) for the period                                            (14,593)       (3,332)    (64,120)      (70,792)
Other comprehensive (loss)                                                                                             
Item that may be reclassified subsequently to (loss)                                                                   
Net change in fair value of short-term investments                         -            11           -           (78)
Net comprehensive (loss) for the period                              (14,593)       (3,321)    (64,120)      (70,870)
Net (loss) per common share                                                                          
Basic and diluted (loss) per common share                              (0.17)        (0.04)      (0.76)        (0.92)

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