Greetings, and welcome to the Aurinia Pharmaceuticals Q1 2018 financial results. At this time, all participants are in a listen-only mode. A brief 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. I would now turn the conference over to Celia Economides. Thank you. Please begin.
Thank you, operator. Good afternoon, everyone, and welcome to Aurinia's first quarter 2018 earnings call and general business update. With me on the call today from Aurinia are Richard Glickman, Chief Executive Officer, and Dennis Bourgeault, Chief Financial Officer. Joining us for our Q&A session will be Michael Martin, Chief Operating Officer, and Dr. Neil Solomons, Chief Medical Officer. This afternoon, we issued a press release detailing our Q1 2018 financial results and corporate updates. The press release and financial statement package is available on our website at auriniapharma.com, and a 6-K was 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 also be available following today's 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 make forward-looking statements based on 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 our statements are made as of today, May 10th, 2018, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. With that, let me turn the call over to Richard. Richard?
Well, thank you, Celia, and thank you to everyone, and good afternoon for joining us today as we review our first quarter financial results and provide a general business update. First off, I would like to acknowledge that today, May 10th, is recognized around the globe as World Lupus Day. This is a special and important day for those suffering with lupus, and we are grateful for the opportunity to work with a community that is so incredibly motivated, which in turn motivates us to work diligently on their behalf to bring a potential treatment for lupus nephritis to market. There are several activities taking place around the world today, and I urge you to take a look at the worldlupusday.org site. Additionally, the entire month of May is Lupus Awareness Month, so you will likely be seeing signs of purple in the community to bring awareness to this disease.
The first quarter has been characterized by diligently executing on our clinical programs. We have shifted from an early clinical stage company with one program to a late-stage clinical company with multiple programs. The clinical team has gone above and beyond to ensure we meet our previously stated timelines and without compromising any quality. With respect to our phase III clinical program in lupus nephritis, we remain on track to complete recruitment later this year and are incredibly pleased with the trial's progress at this stage. As of today, we have 212 sites activated and able to enroll patients throughout the world, with 28 countries now initiated. We took a different approach in recruitment to our phase III trial, where we opted to initiate and activate as many sites as possible from the beginning rather than activating a few at a time.
You may recall that patients that have active lupus nephritis are very ill. In our phase II trial, we enrolled some of the sickest patients ever studied with this disease. As a result, we have implemented several additional safety parameters in our phase II trial and are monitoring these very closely. The DSMB reviews all adverse events on an ongoing basis, and thus far, we believe the study is progressing very well. We continue to be motivated and have motivated patients and investigators participating in this trial and are encouraged by the level of interest the trial has been garnering around the globe. This team has an unparalleled track record in shaping the current treatment landscape for lupus nephritis, where there are no FDA or EMA-approved therapies, and our confidence continues to grow that we can execute a successful phase III program for voclosporin.
We have a wealth of data that has already been cultivated on voclosporin, and the AURORA trial is one of the final pieces of the puzzle. As previously disclosed, under voclosporin's Fast Track designation, we intend to utilize a rolling NDA process. We are actively putting together an NDA and expect to gain agreement with the FDA to submit the first module, the nonclinical module, in the second half of this year. We plan to submit the CMC module in the first half of next year and the clinical module in the first half of 2020. Additionally, in order to enhance and complete the clinical dossier, we plan to conduct a confirmatory drug-drug interaction study between voclosporin and MMF.
Legacy calcineurin inhibitors such as cyclosporine A have demonstrated an impact on MMF concentrations, and our goal with this short study is to confirm the insignificant impact of voclosporin on MMF concentrations that were previously reported in renal transplant studies. In order to achieve a more meaningful DDI study, we have decided to conduct the study with SLE patients rather than in healthy volunteers as we originally proposed. As a result, the commencement of the drug-drug interaction study will likely occur later this year. In this study, the patients will be monitored for only a period of two weeks, and we believe the results of the study will add to our knowledge of voclosporin in multi-targeted therapeutic treatment approach but should have no impact on our submission timelines or potential approval of voclosporin in LN.
We also intend to complete a study of voclosporin in pediatric patients after a potential FDA approval of the adult indication. Our commitment to LN goes beyond clinical trials. It is our goal to fill an unmet medical need. In the spirit of Lupus Awareness Month and World Lupus Day today, I wanted to once again highlight ALL IN, an educational program for people living with lupus nephritis that we launched in February of this year. The program is designed to raise awareness of lupus nephritis and to support members of the LN community. With the AURORA Phase III trial progressing well and having the necessary financial resources, we continue to build our business and extract the maximum value we can out of our lead asset, voclosporin. This brings us to an update on the new indications we are pursuing for voclosporin.
The first being focal segmental glomerulosclerosis, or FSGS. Approximately 5,400 patients are diagnosed each year with this disease, accounting for the largest segment, almost 30%, of patients with nephrotic syndrome. FSGS is a rare disease that attacks the kidney's filtering units, the glomeruli, causing serious scarring, which leads to permanent kidney damage and even failure. Similar to lupus nephritis, an early clinical response reduction in proteinuria is thought to be critical to long-term kidney health. While guidelines exist for this treatment, there are currently no approved therapies for FSGS in the U.S. or the European Union. After productive consultation with regulators in the first quarter, we will be initiating a phase II proof of concept open label study this June. Start-up activities are underway and we will be recruiting 20 treatment-naïve patients.
As we are essentially enrolling in newly diagnosed patients and this is a rare disease, we expect the enrollment could take up to 12 months, but we intend to have planned interim data readouts throughout the course of the trial. We have submitted our IND in Q1, which is now active. The FDA is in agreement with the guidance we provided on our proof of concept study, we look forward to initiate this program next month. As the company has been focused on lupus nephritis since its inception, expanding our scope to include other proteinuria renal diseases is synergistic with our current strategy and long-term vision of the company. The next indication we are pursuing is using voclosporin ophthalmic solution, or VOS, for the treatment of dry eye syndrome.
This is a different formulation of voclosporin, which is a unique, patented, aqueous preservative-free nanomicellar solution containing 0.2 voclosporin. As you know from previous disclosures, voclosporin has been shown to be three or four times more potent than cyclosporine A. VOS has its own separate formulation patents with exclusivity till 2031. Dry eye syndrome is a chronic disease in which a lack of moisture and lubrication on the eye surface results in irritation and inflammation of the eye. Dry eye syndrome is a multifactorial and heterogenous disease that is estimated to affect greater than 20 million people in the U.S. alone. Currently, there are two FDA-approved products for the treatment of dry eye. We believe that calcineurin inhibitors will remain a mainstay for treatment of dry eye and that opportunity for improved treatment exists within this multibillion-dollar market.
Studies with VOS have been completed in rabbits and dog models, and a single phase III study has been completed in 35 healthy volunteers and patients with dry eye syndrome. As you might recall, last April, we announced an agreement granting Merck Animal Health worldwide rights to develop and commercialize the treatment for dry eye in dogs. Merck Animal Health previously conducted proof of concept research in dogs suffering from dry eye, which affects 1 out of every 22 dogs. They are currently continuing their development program. We will be initiating our phase II-A head-to-head tolerability study of VOS versus Restasis in June 2018, and we expect the data to be available before the end of the year. This is a four-week study. Start-up activities are underway, and we will be recruiting up to 90 patients for this trial.
We have reactivated our existing IND and have had productive meetings with the FDA and are aligned to proceed. The goal of this program is to develop the best-in-class treatment option, and upon completion, we look forward to evaluating strategic alternatives for this asset. That is it for our clinical programs, and now on to general business. The company is now in a substantial growth phase, transitioning from an early-stage clinical company with one indication to a late-stage clinical program with multiple indications. To that end, we have added two new directors this quarter to enhance expertise on our board with the appointments of Jay Hayden and Dr. Michael Hayden. We are thrilled to be working with both of these individuals as we continue on our current trajectory. With that, I will turn the call over to Dennis Bourgeault, our CFO, to review the Q1 financial statements with you. Dennis?
Thank you, Richard. On the financials front, the interim financial statements of Aurinia for the first quarter ended March 31, 2018, have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board. The consolidated financial statements are presented in US dollars, which is the company's functional and presentation currency. All amounts mentioned are in US dollars. We reported a consolidated net loss of $15.5 million, or $0.18 per common share for the first quarter ended March 31, 2018, as compared to a consolidated net loss of $51.9 million, or $0.92 per common share for the first quarter ended March 31, 2017.
The loss for the first quarter ended March 31, 2018, reflected a $2.6 million increase in the estimated fair value of derivative warrant liabilities, compared to an increase of $40.8 million in the estimated fair value of derivative warrant liabilities for the first quarter ended March 31, 2017. An increase in estimated fair value of derivative warrant liabilities increases the loss for the period. The increases in the estimated fair value of derivative warrant liabilities were primarily the result of increases in our share prices at March 31, 2018 and March 31, 2017, compared to December 31, 2017 and December 31, 2016, respectively. These derivative warrant liabilities will ultimately be eliminated on the exercise of the warrants and will not result in any cash outlay by the company.
The net loss before these non-cash changes in estimated fair value of derivative warrant liabilities was $12.8 million for the first quarter ended March 31st, 2018. Compared to $11.2 million for the same period in 2017. Research and development or R&D expenses increased to $8.9 million in the first quarter of 2018, compared to $7.3 million in the first quarter of 2017. The increase in these expenses resulted from higher clinical patient enrollment and treatment costs associated with our AURORA trial and costs associated with the planning and startup phases for the FSGS and dry eye phase II trials and the lupus nephritis continuation study. R&D expenses for the first quarter ended March 31st, 2017, reflected costs related to the AURORA planning phase and completion costs for the phase II AURA-LV trial.
Corporate administration and business development expense increased to $3.8 million for the first quarter of 2018, compared to $3.4 million for the first quarter of 2017, and primarily reflecting increased personnel costs due to the expansion of company activities. We continue to be in a strong financial position. At March 31st, 2018, we had cash equivalents, and short-term investments of $159.1 million compared to $173.5 million at December 31st, 2017. Our working capital at March 31st, 2018, was $156.7 million compared to $167.1 million at December 31st, 2017. Net cash used in operating activities was $14.4 million for the first quarter ended March 31st, 2017, compared to $9.7 million for the first quarter ended March 31st, 2017.
We believe, based on our current plans, that we have sufficient financial resources to fund our existing lupus nephritis program, including the AURORA trial and the NDA submission to the FDA, conduct the planned phase II trials for FSGS and dry eye, and fund operations into 2020. With that, I'll turn the call back over to Richard for some closing remarks. Richard?
Thank you, Dennis. Once again, I'd like to thank the team here at Aurinia for the tremendous progress that we've made thus far in 2018. We are diligently executing on our clinical programs to ensure we meet our previously stated timelines. We are looking forward to a very busy rest of 2018 with the completion of recruitment of the phase III program in lupus nephritis, submission of the non-clinical module of our rolling NDA, the initiation of our FSGS and dry eye studies, and data in dry eye before the end of the year. 2017 was an extremely pivotal year for the company, and we are now a late-stage clinical biotech company that's diversifying its portfolio and building out its core competency. We are a nimble and dedicated team that continue to successfully execute upon our pre-stated milestones.
As a company, we have a drug candidate that is successful in phase III, has the potential to be the first approved therapy in the treatment of lupus nephritis. The efficacy and safety data supporting this drug is substantial. We have a clear regulatory path forward to approval, there is solid intellectual property base. We believe the market opportunity for this drug to be very substantial. It is with great confidence that we continue to advance voclosporin in its final development phase for lupus nephritis. With that, I'd like to turn the call back over to the operator to open the lines for Q&A.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, 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 would 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. Thank you. Our first question comes from the line of Joseph Schwartz with Leerink Partners. Please proceed.
Great. Thanks very much, and congrats on all the progress. I was wondering if you could tell us, at least qualitatively, how many of the over 200 sites have enrolled a patient, and how do you ensure quality conduct in a trial across such a wide clinical footprint? For example, things like ensuring uniform standards around the withdrawal of steroids and anything else that you think is germane for quality results.
Very fair question. The first one I actually can't answer because if I do, then I'll be actually giving you really, really tight guidance on how many patients are in the trial. I will say that the trial's progressing very well. Enrollment's gone extremely well. We're very pleased with how this trial is going forward. To your second question, which is really important, I'll try to give the first answer to it, and I think maybe Neil might kick in as well. We spend a lot of time educating sites.
I think very importantly, when you look at the outcome measures that we use in this study, they're very objective outcome measures, which was one of the, for us, the reasons we chose to work within lupus nephritis, rather than just lupus, because I think, of course, I believe the drug has promise in both areas. Specifically in lupus nephritis, having those very clear endpoints, having central laboratories, really makes a difference in our ability to execute a program like this. In addition, extensive monitoring of those patients and in conjunction with our CROs and with our team directly in the field, we really feel very good about how this trial is being conducted and how the individual sites are executing it.
Yeah. Just to add to that. Thanks, Richard. There are two levels of monitoring within this study. There is on-site monitoring. We have two CROs involved monitoring this study. Also remotely, we have experienced medical staff monitoring every single data point. That really helps us to be reassured that the key elements of the protocol are adhered to. As Richard said as well, just to reiterate, our endpoints are laboratory-driven by central laboratory readings. There's no disputes as to the results that are collected from each patient at each site.
I think the advantage of initiating that many sites really comes down to educating large numbers of physicians about our clinical program, also a realization over the years, you never know which sites are actually going to produce patients. We've learned from experience that if you, let's say, choose 50 sites you think are the best performers, you often are wrong, then you have all that extra time in gearing up the next sites. We spent the additional money and educated more sites, so that we could actually see who really are the producers. If a site doesn't produce for us, we tend to close down that site. That's the approach we've taken, and so far it's worked really well, and I think it'll provide us with an ability to deliver this program in a very timely manner.
Okay, great. My second question is on FSGS. Assuming you see remission on proteinuria in this FSGS study, what does that mean based on the regulatory precedent for some of your peers that have entered phase III recently after extensive interactions with the FDA to establish correlations between proteinuria and eGFR, which the agency seems ultimately interested in. Do you expect to go through the same exercise, or will you be able to avoid any of that groundwork?
I think what you're getting at is that a number of the companies have announced that they've got agreements on the accelerated approval pathway, whereby they have to not only reproduce the short-term reductions in proteinuria, but also continue to follow the patients up for long-term clinical outcomes. That's not necessarily the approach we're taking. It's certainly our understanding from our pre-IND discussions with the FDA that the short-term remission endpoints on their own may be adequate to support approval further down the line. In addition, obviously, eGFR is an important construct of the endpoint, but this is just a secondary endpoint in our study. Again, we believe that we have broad agreement with the FDA, but it'll all depend on the outcome of the phase II trial before we get agreement on our phase III design.
I think one of the important things here is when you take a look at fundamentally, not just the regulatory, but underlying the mechanism of action of this particular drug, both being an immunosuppressant and its impact on the disease overall, and the addition of it's having a direct impact on the podocyte, not just changing sort of very rapidly proteinuria levels, but actually having an impact potentially on the disease. I think that's going to fare very well for this particular product. We already know that calcineurin inhibitors actually work quite well in this disease. We think this is a better calcineurin inhibitor. I think that as we progress and as we have data, I think it's actually going to provide, I think, alternatives, eventually for patients if we're successful.
Also, I think from a regulatory perspective, I think our data is going to be very important in terms of how we ultimately design the phase II trial in conjunction with the regulators.
Great. Thanks for taking my question.
Take care, Joe. Thank you.
Thank you. Again, if you'd like to ask a question, please press star one on your telephone keypad now. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset prior to pressing the star keys. Thank you. Our next question comes from the line of Vernon Bernardino with H.C. Wainwright & Co. Please proceed.
Hi, everyone. Thanks for taking my question. Yes, definitely congrats on the progress, especially globetrotting as far as education is concerned regarding this trial. I wanted to follow up with Joe's questions. Have you experienced, in your education of the PIs in the sites, seeing any variability in how the patients are treated?
Hi, Vernon.
Hi.
Yeah, the protocol is really quite stringent, and that is, if not enforced, monitored very closely. In some ways there's a pre-selection going on. If a physician feels that the protocol medications that are dictated by AURORA don't fit in with their practice, then they're not included in the study or don't participate. In some ways, we're beyond what the physicians at individual sites, how they wish to treat their patients. We aim for uniformity in the study right across the board. That gives us the best quality data and the most easily available data to interpret at the end of the study.
Okay. Along those lines, though, are you experiencing, before you have to educate them, that you're seeing great variability in how they're treating patients, before you educate them?
Yeah. I think the thing about lupus nephritis, there being no approved drug at any given dose, I think there is inevitably a variety of ways in which patients are treated and different healthcare systems. Like I say, I think the beauty of a program such as AURORA and also AURA-LV before that, is the uniformity, which is imposed on them. I would go back to specifically answering your question. I think there are differences, but I think the physicians expect That it's not always clear exactly how these patients should be treated. The results from the AURA study suggest that even in the control arm of the study, the treatment was adequate or at least as good as they would achieve in their own clinics. We're comfortable that we're serving the physicians' needs.
Perfect, thanks. Then, a different question. When was the existing IND for VOS submitted? Can you please give a brief history of the thoughts about studying VOS at the time the IND was submitted, and were there any changes to it in front of reactivating the IND?
Well, the original work was done by Lux. Unfortunately for Lux, they didn't have the fiscal resources to pursue the indication. Instead, they chose a more difficult indication that required a systemic use of voclosporin, and as you recall, some of those trials were positive and some of them weren't positive. I think it would've been much wiser for them to pursue actual VOS for dry eye. I think it would've been a much easier pathway for them to approval, in fact. When we picked up the file, as you recall, we had very much a strategic priority to make sure that LN was executed effectively. After we felt we were confident in being able to drive that program forward, we felt comfortable in then beginning to look at the additional indications and also building out our team.
In the last year alone, since I've been on board, we've grown by 100% in terms of our personnel and our ability to execute programs. We then went back and looked at all of our intellectual property in a whole variety of areas, including in the VOS area, and we felt that, we're sitting on this asset. Merck Animal Health had run some experiments, as you recall. Those experiments were actually quite striking. We've never been able to share them, but they were quite dramatic. As a consequence, they made a decision they wanted to study this drug, comparing in their work directly against a drug similar to what is Restasis, of course. As a consequence, we made a decision that we would drive forward with the program, in humans, because it was relatively low cost, relatively from a hurdle we don't see as particularly high.
We talked about VOS as being about three to four times more potent. We also should mention that we're also delivering four times as much drug to the eye in that program. Our goal is really simple, which is show tolerability that's better than Restasis, because that's a huge issue, and show it's more efficacious in terms of its timeline. The thinking behind all of this was really, we had this really interesting asset, simple program to move forward. Personally, I think this is kind of a bit of a sleeper, and I think that we might be able to generate some pretty exciting data over the next little while. If it's positive, I think it could have a pretty significant impact on the potential value of our organization.
Yes. Congrats. Sounds like everything was very well thought out in front of this initiative. Thank you for taking my questions.
Oh, thanks. Thank you, Vern.
Thank you. We have no further questions in queue at this time. I'd like to return the floor to management for closing remarks.
Oh. Well, I'm taken off guard here. I was waiting for the next question. I know it's a short call, and I think things are going extremely well, and I think that's reflected by it being a short call. Once again, I thank you all for taking the time to listen to the call this afternoon. This is going to be a very active period coming up for us. The next several months with initiations of studies, before the end of the year, having a completed enrollment in our study, having data from dry eye. I think the last little while has been fairly quiet for news from us, and I hope in the next little while, we actually generate quite a bit of important, interesting developments for you, our shareholders. Once again, I thank you for participating in today's call.
Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.