Welcome to the Aurinia Pharmaceuticals first quarter 2019 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dr. Glenn Schulman. Please go ahead, sir.
Thanks, Kevin. Good afternoon, everyone. Welcome to Aurinia's first quarter 2019 financial results conference call. Joining me on the call today from the Aurinia team are Dr. Richard Glickman, Emeritus Chairman, CEO, and now advisor to the company, Mr. Peter Greenleaf, Chief Executive Officer, Dennis Bourgeault, Chief Financial Officer, Dr. Neil Solomons, Chief Medical Officer, and Mr. Michael Martin, Chief Operating Officer at Aurinia. This afternoon, we issued our press release detailing the first quarter 2019 financial results. The press release and the associated financial statement package is available on our website at www.auriniapharma.com and a 6-K filed with the SEC as well. I'd like to remind you that today's call is being webcast live on Aurinia's investor relations website, and a replay will be available following the call. The content of today's call is Aurinia's property. It cannot be reproduced or transcribed without our prior written consent.
During the course of this call, we may also make forward-looking statements based on our current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's press release, our most recent filings with Canadian securities authorities, and reports that we file on Form 6-K with the U.S. Securities and Exchange Commission. All of our statements made during today's call are as of today, May 14th, 2019, based upon information currently available to us. Except as required by law, we assume no obligation to update any such statements as of this date.
With that, let me turn the call over to the Aurinia team, starting with Dr. Richard Glickman, Emeritus CEO and Chairman, followed by some comments from Mr. Peter Greenleaf, who will take a few moments to introduce himself and provide his thoughts at this time regarding the next stages of growth for Aurinia, and then a summary of Q1 results by our CFO, Mr. Dennis Bourgeault. With all that, Richard.
Well, thanks, Glenn, and good afternoon, everyone. For those of you that know me, you'd understand that today is a really bittersweet day for me. I announced my intention to retire last November. Over the following months, we did an extensive search, resulting in a number of impressive candidates proceeding through the process. As we announced last month, we are delighted to have chosen Peter Greenleaf as our new CEO. Peter is the ideal individual to lead Aurinia through its next phase of growth and maturation. He brings a truly relevant experience needed to lead Aurinia forward. Without going into all the details of his stellar pharma career, I think in summary, he has the biopharma experience, having led both large and small organizations through the pre-commercial development process, regulatory approval, product launch, and global commercialization.
Furthermore, in his leadership role, he has also demonstrated a robust experience in business development, in M&A activity, and in financing, all culminating in a history of building significant value for shareholders. In short, it's truly a pleasure to welcome Peter to Aurinia. In my new role as an advisor to the company, I look forward to cheering and supporting the company as you lead Aurinia through its next phase of growth. With that, welcome once again to Aurinia. It's a pleasure to turn the call over to you, Peter.
Hey, Richard. Thank you very much for the kind words, and honestly, it's a pleasure to be here. Aurinia's in a substantial growth phase and really has transitioned from an early-stage clinical company, with one indication to a late-stage clinical development company with multiple indications, and today is actively preparing for the commercialization of voclosporin. I thought maybe I could spend a few minutes and talk a little bit about what attracted me to Aurinia and why I'm here today. Maybe I could pivot quickly to a short discussion about near-term priorities for Aurinia. Several months ago, I was approached by an investment banker who introduced me to Aurinia and mentioned the fact that Richard had decided to retire.
The reason for the outreach was because he knew me, knew my background, and knew that it was very well aligned to where Aurinia was and more importantly, where the company was headed. Obviously, I was intrigued by the outreach and made the decision to investigate it further. I spent several months doing my due diligence on the company, its management team and board, the science, the indications, the patient populations being addressed. What I learned confirmed my interest and opened my mind to the consideration of joining the company, aligned to my passion in the industry and my skill sets. There are a few times in a career where, as a leader, you can find the opportunity to build something great and do it for such an inspiring cause. For me, I've been lucky enough to have found a few of those opportunities over the years.
Aurinia, as a company, had a great drug and has a great drug in voclosporin. I believe it has the potential to be a pipeline and a single product, a drug that has shown very convincing evidence already in the treatment of both lupus nephritis and dry eye syndrome, and still has the potential for additional indications in the future. For lupus nephritis, there currently is no approved drug to treat the disease today, and there remains a massive unmet medical need. These patients suffer from their underlying disease, and even with current treatment approaches, they still progress to kidney failure. The potential opportunity to change the course of patients suffering from this disorder is the single largest reason why I joined the team here at Aurinia. In addition, the VOS Ophthalmic program for dry eye syndrome represents a substantial opportunity for Aurinia.
Despite the availability in the market of over-the-counter and prescription drug therapies, including the CNI cyclosporine
There remains a persistent need for improved therapies for dry eye syndrome in an already established multi-billion dollar global market. This market is also projected to nearly double over the next decade. VOS provides us with a great opportunity to not only leverage the established clinical and regulatory development pathways, but also the potential to enhance outcomes for patients. With FSGS and the potential for other areas of clinical development with voclosporin, we believe the asset represents an incredible opportunity for both patients and investors. During the process, I also had the opportunity to interact with the company's board of directors and management, and I can tell you that the people and the culture were very big drivers for me as well. At their current stage of development, Aurinia has attracted and built a very accomplished and experienced board of directors.
Further, the management team is tenured and passionate. They bring a successful track record to the table in the area of immunosuppression and specifically drug development in lupus nephritis. People are what make companies and drugs, in my opinion. Aurinia has great people around the table. The last point, clearly the opportunity to launch a drug to patients and caregivers that really moves the needle in terms of improving patients' outcome is always a huge draw for me. Actually, the ability to do it again, to create another great drug and build another great company, was extremely compelling for me. For all these reasons and more, I left what I was doing and made the transition to come and lead Aurinia. Obviously, I'm pretty excited about being here and starting contributing to this great company.
Shifting the gears, while I've officially only been at the company for two weeks now, I thought I'd spend two more minutes just to walk through my focus and near-term priorities. Obviously, transitioning into the role and integrating with the team and board is step 1. The knowledge transfer process from Richard and the team is well on its way, and I would say we're well ahead of the curve on this one. Next, keeping fully engaged, focused, and executing on our key priorities is key. Namely, I'll go through four or five. First is execution on the AURORA Phase III lupus nephritis trial and preparing to file the NDA. Driving investment decisions and subsequently executing on those for the VOS dry eye syndrome program is a critical next decision for us. Driving the right level of investment in pre-commercialization and company building activities.
Further evolving our pipeline through further investment in voclosporin and the possibility of even new compounds. Getting out there with our employees, the patients we serve, our key opinion leaders, and investors that are funding our success are all in motion. Lastly, embarking upon an exercise with our board of directors and management team to flesh out the company's longer strategy is also in motion. These are the obvious areas of focus for a company at this stage of development, and I look forward to updating you all on our progress in the upcoming weeks and months. Turning now to our corporate update. Aurinia has three programs ongoing in parallel that highlight the potential of a pipeline and a drug for our lead candidate, voclosporin. First and foremost, we're evaluating voclosporin in a Phase III trial for lupus nephritis.
In addition, oral voclosporin is also being tested for FSGS, or focal segmental glomerulosclerosis. Lastly, VOS, our ophthalmic solution being tested, is in the treatment of dry eye syndrome. Last September, Aurinia announced the early completion of enrollment in the AURORA Phase III clinical trial for the treatment of lupus nephritis. The target enrollment of 324 patients was surpassed due to high patient demand, with 358 lupus nephritis patients randomized at sites across 27 separate countries. We would like to thank our trial patients, the physicians, our CROs, the advocacy groups, and especially the Aurinia team for their extraordinary efforts, which led to this result. The AURORA clinical trial is a global double-blinded, placebo-controlled study to evaluate whether voclosporin, when added to background therapy of mycophenolate mofetil or CellCept, can increase the speed and overall renal response rates in the presence of low-dose steroids.
The primary endpoint for this study is complete response at 52 weeks, and with the study fully enrolled as of last September, we look forward to trial results by the end of this year, which, of course, if positive, will form the basis for our U.S. regulatory filing. As you know, lupus nephritis is a debilitating disease, and our team is extremely motivated and working diligently to potentially provide the first FDA-approved therapy for patients who are in desperate need of a new treatment option. We believe the totality of the data from both the AURORA and the AURA clinical trials will serve as the basis for a New Drug Application submission with the FDA following a successful completion of the AURORA clinical trial.
Under voclosporin's Fast Track designation, we're also utilizing the rolling NDA process, which will allow us to begin the submission process following a positive pre-NDA meeting with the FDA, which we anticipate occurring in the first quarter of 2020. To that end, we are actively preparing the non-clinical and CMC modules required for the NDA submission. Our current plan is to complete the NDA submission, including the full clinical module, in the second quarter of 2020, in line with our previously disclosed regulatory timelines. With respect to the dry eye program. The pilot phase II data reported by the company earlier this year showed that VOS was well-tolerated and actually producing some striking early efficacy results to the current market leader for dry eye syndrome, cyclosporine ophthalmic emulsion, or otherwise known as Restasis.
Based upon those exploratory phase IIa results, we're finalizing our plans to expand the VOS program and its path to market. Our plan is to initiate a phase II/III clinical study for dry eye syndrome in late 2019. This study will encompass certain critical regulatory requirements that the FDA has traditionally required for dry eye syndrome product approval, including dose optimization requirements and comparisons versus vehicle. This plan is being finalized internally as we speak, and we look forward to providing additional details on the program over the coming months. With that, I want to turn the call over now to Dennis Bourgeault, our CFO, to review the first quarter 2019 financial results with you. Dennis?
Thank you, Peter. On the financial front, the interim condensed consolidated financial statements of Aurinia have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board. These financial statements are presented in U.S. dollars, which is the company's functional and presentation currency. All amounts mentioned are in U.S. dollars. As at March 31, 2019, Aurinia had cash equivalents and short-term investments of $144.3 million compared to $125.9 million as at December 31, 2018. Net cash used in operating activities was $13.1 million for the first quarter ended March 31, 2019, compared to $14.4 million for the first quarter ended March 31, 2018.
The company believes that based on its current plans, that it has sufficient financial resources to fund the existing LN program, including the AURORA trial and the AURORA 2 extension trial, complete the NDA submission to the FDA, conduct the ongoing phase II study for FSGS, commence additional dry eye studies, and fund operations into mid-2020. The increase in Aurinia's cash position at March 31, 2019, was primarily the result of the following. On November 30, 2018, Aurinia had 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. This ATM facility was fully utilized in the first quarter of 2019. 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% commission and professional and filing fees related to the ATM offerings. Secondly, the remaining derivative warrants outstanding from the February 14, 2014 private placement offering were exercised in the first quarter ended March 31st, 2019. 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 $3.22 per common share, and as a result, Aurinia received cash proceeds of $1.5 million upon the issuance of 464,000 common shares. The company reported a consolidated net loss of $12.4 million, or $0.14 per common share, for the first quarter ended March 31st, 2019.
That compared to a consolidated net loss of $15.5 million or $0.18 per common share for the first quarter ended March 31st, 2018. The loss for the first quarter ended March 31st, 2019, reflected a reduction of $1.7 million in the estimated fair value of derivative warrant liabilities, compared to a deep increase of $2.6 million in the estimated fair value derivative warrant liabilities for the first quarter ended March 31st, 2018. 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 the company. The net loss before this non-cash change in estimated fair value of derivative warrant liabilities was $14.1 million for the first quarter ended March 31st, 2019, compared to $12.9 million for the same period in 2018.
Research and development expenses increased to $10.6 million for the first quarter ended March 31st, 2019, compared to $8.9 million for the first quarter ended March 31st, 2018. The increase in these expenses primarily reflected completion costs for the dry eye study and higher costs incurred for the AURORA 2 extension trial, the DDI study, and the FSGS phase IIa study, as these studies had more activity in the first quarter ended March 31st, 2019 compared to the same period in 2018.
Corporate administration and business development expenses increased slightly to $3.9 million for the first quarter of 2019, compared to $3.8 million for the first quarter of 2018. With that, I will turn the call back over to Peter for some closing remarks. Peter?
Thank you, Dennis. Before opening up to Q&A, I'd like to say that Aurinia is truly in a unique space and in a unique opportunity as a company. voclosporin has previously shown its potential in the AURA lupus nephritis trial, as well as in the exploratory phase II dry eye study. The strategic objectives for the company remain focused on voclosporin, its clinical development programs, pre-commercial and regulatory activities. Furthermore, we're working to build additional value around the VOS dry eye program and are focused on finalizing plans to enable the start of a phase II/III trial later this year. Lastly, I want to thank Richard once again for all of his tireless efforts building a passionate and dedicated organization, truly working to improve patient health. On behalf of patients, employees, and the board, Richard, thank you.
We look forward to providing additional updates on our progress over the coming months. With that, I'd like to turn the call back to the operator and open the line for Q&A. Operator?
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that was star one to ask a question at this time. Our first question today is coming from Joseph Schwartz from SVB Leerink. Your line is now live.
Hi there.
Hey, Joe.
Thanks very much, and it's great to reconnect, Peter. Can you, or could perhaps Neil would be better suited to answer this one, first on the efficacy considerations for AURORA. Can you remind us about the powering assumptions for the AURORA study? Then, what sorts of things have you done in terms of conduct in order to ensure orderly tapering of steroids, for example?
Joe, for the question. In terms of powering, I think probably the easiest thing to say about, without getting into detailed statistical discussions, is that we have basically twice as many patients per arm in this study as we did per arm in the AURA study. The study is well-powered, depending on your assumptions. If the assumptions are what we originally thought before the phase II trial, and I think we said that 25% versus 40%, the study is over 80% powered. It's certainly my feeling that the study is probably even better powered than that, given the patient numbers we had and also the results that we actually saw from the phase II trial. The study is well-powered. In terms of the operational medical safeguards in action, I think that was your question. Can you repeat the second of your question actually, Joe?
Yeah. It was still related to efficacy and what sorts of things have you implemented in order to prevent steroid tapering, for example, to confound the results. Do you have specific protocols that you can remind us about?
What we found actually from the phase II trial, that the steroid taper was remarkably well followed actually by almost all sites and most patients. The reason for that is because there's a desire for the physicians and the patients to actually try their best to drive steroids down as per the protocol. We have a very strict protocol taper that's actually prescribed in the protocol itself, with a couple of escape clauses permitted along the way in the protocol. The study has obviously been monitored on-site by our CRO at every site. In addition, we have a very robust medical monitoring team.
They're reviewing not only things like steroid taper to make sure all the assessments are being done on time, to make sure we get the results as ordered, but also obviously safety. We've gone into that before in a lot of detail. We believe the study is going to be, the protocol is being followed very well, at least to our initial indications. We believe it's being monitored very robustly according to GCP. Should the results be in our favor, I think this should be appropriate for FDA filing.
Mm-hmm. Okay, great. Thanks. On the safety side of things, a question we get sometimes is how exactly you've endeavored to avoid enrolling patients who could be at higher risk of death after what was seen in AURORA in the phase II. Are there particular exclusion criteria that you can reference for us, for example?
It's a multi-layered approach. Obviously, our choice of countries and sites, as we believe, permits us to avoid some of the patients who have poorer access to medical care. That was the very first thing we did. Then we put in place a very, very intensive medical monitoring process where every single patient being screened, and that's over 600 patients being screened for the study, underwent a detailed pre-screening protocol. There were certain pointers, without being specific exclusions, that we picked up from the phase II trial, most of those have been published and presented before, that put patients at particular risk of bad outcomes. If those pointers were fulfilled by the patient, the medical monitoring team would have a conversation with the physician who is entering the patient to make sure that it was the appropriate patient to go in.
Certainly, it's our understanding that that's been successful.
Mm-hmm. Okay. That's super helpful. Thanks for taking my questions.
Thank you. As a reminder, that's star one can be placed into question queue. Our next question is coming from Ed Arce from H.C. Wainwright. Your line is now live.
Hi. Great. Thanks for taking my questions, Peter, congratulations on joining Aurinia and leading a company with what I think is a unique asset and a strong and experienced team behind it.
Thanks, Ed. Good to be here. Good to be working with you again.
Likewise. My first question is around the lead program. There really isn't much new to say, I suppose, as you're approaching the last few months here of treatment. I was just wondering if between now and the end of the year, will there be any sort of interim announcements of any type on the progress or progression of the study before the top-line readout?
I'll try my best to answer for Neil, I think the short answer is no on the lupus nephritis trial. Simple answer is probably better there. On the dry eye program, as we communicated through the talk track in the intro, we're in the process internally of looking at the best approach to take towards a phase II/III trial that checks all the right regulatory boxes, hopefully sets the drug up for success, and does that in an expeditious and efficient way. We look forward to reporting that out over the next couple of months as we work through that internally and with our board. That will be new news in terms of what we're going to do with that asset. On the lupus nephritis trial, the simple answer is no. We'll know when we know, and that's towards the end of the year.
Right. Since you mentioned the dry eye program, as you just mentioned, there's still a lot that's under discussion and you're conferring with various experts and so forth. I was wondering if perhaps, since it's mentioned that the comparison needs to be versus vehicle, I suppose that's a euphemism for placebo, but will there also be an opportunity to have an active comparator, perhaps, like RESTASIS in the previous trial?
Ed, I think as we stated before, our main aim at this point is to pass regulatory muster. We know that we have to compare against vehicle. That's something that the regulators have done with all other development programs, to our knowledge. It's something that we have been told that we will do, and we intend to fulfill that. I think we have to be very careful about mixing and matching and trying to achieve too much within a study. It's certainly within the realms of possibility that we do those kind of comparisons at some point. I think we have to be careful about the aims of the next study, and that's to be as expeditious as possible in gaining regulatory approval.
Okay. Understood. Makes sense.
Just an extra comment along that, Ed. I think it's really critical. This is a well-defined pathway. The two CNIs have been approved down this pathway. If we do this right, we minimize our risk, we will be as fast as we can to move forward with the asset. Really, when you start adding these other programs and comparators, you're actually creating greater risk to the asset. Therefore, we know how to get this done. It's a very clear pathway. It can be done with minimal risk to our investors. The idea of doing additional studies adds value from a competitive and commercial perspective in the future. So those are actually being entertained as well. Fundamentally, if you want to get this drug approved as quickly and efficiently as possible, the pathway forward we're going to present will be the right pathway.
Great. Understood. That's helpful, Richard. Just, if I may, one last question around your third program in FSGS. It's been fairly quiet lately, and I know that that trial is progressing, hoping you could share with us any incremental updates, perhaps on enrollment or the progress of the trial in general. Thanks.
Yes, I'll answer that. Yes, as we have stated before this, we're going for a particularly difficult population. We're going for a treatment-naive population. A couple of things we're considering at the moment, in fact, doing. One is we are opening some more sites, going to one or two extra countries. That's happening as we speak. We're also considering some changes to the protocol as well to broaden some of the criteria slightly. We have to be careful. We have to balance the requirement or the wish to get the population that we want with also getting enough patients to make this study appropriate for analysis at the end. Again, we will update you when there's any material changes there, but that's where we are at the moment.
We're confident that the diligence that we're doing on the program is going to result in complete enrollments as per our previous commitments.
You remember, this was a sort of a bit of a back burner program for us for a while to the extent that when you looked at the life of the patent, et cetera, there was a limited life associated with it. With the extension of the IP right to 2037, all of a sudden now this becomes a really significant opportunity for the company. Of course, is now on the front burner as a consequence. These modifications will make it a lot easier and a lot more rapid to bring patients in. The fundamental issue is it's hard to find patients who don't see steroids, so we have to adapt to that. That's the reality. That's what we found, and that's how we're going to be able to drive this program forward a lot faster.
Okay. Thanks again. Appreciate it.
Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
I guess the only closing comments I would have would be just to reinforce how excited I am to be here and to be working with this team of passionate folks towards both of the disease states, all three of the disease states that we're focused on currently. We look forward to updating you on our progress as a company over the next couple of weeks and months. It's an exciting time for us, and we thank you for joining us today.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.