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Could Aurinia Pharmaceuticals Be a Millionaire-Maker Stock?

By Cory Renauer - Feb 22, 2018 at 7:54AM

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This small-cap biotech could be on the edge of something big.

Plenty of small-cap biotech stocks have made millionaires out of patient investors. A $94,000 investment in Kite Pharma's 2014 IPO would have made you a millionaire when Gilead Sciences acquired the company around three-and-a-half years later. If you're willing to consider long-term timelines, just $11,000 worth of Biogen stock purchased 20 years ago could have made you a millionaire as well.

Auriana Pharmaceuticals Inc. (AUPH -2.24%) doesn't have a product to sell yet, but there's a chance it could make millionaires out of investors willing to scoop up some shares at recent prices. Of course, there's a lot that can go wrong along the way. Let's take a closer look to see if it has what it takes.

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Image source: Getty Images.

Huge unmet need

Around 200,000 U.S. patients receive their first systemic lupus erythematosus diagnosis each year, and a majority of these patients will develop lupus nephritis (LN). This debilitating form of the disease often leads to life-threatening kidney damage, even for patients who take existing treatments.

The average annual medical costs are an estimated $58,000 per U.S. patient. Once the disease progresses far enough to require dialysis or kidney transplantation, things really get expensive. A drug that prevents patients from progressing to end-stage renal disease could save end payers billions, and it looks like Aurinia's lead candidate, voclosporin, fits the bill. During the mid-stage Aura study, 49% of patients given voclosporin with standard LN treatments experienced a complete remission during the 48-week trial, versus just 24% in the control group.

Historically, LN patients driven to remission by standard treatments are 10 times less likely to need dialysis or a transplant, within a decade of starting that treatment. Instead of forcing Aurinia to run a decade-long trial to track disease progression, the Food and Drug Administration is willing to review voclosporin's application if 23.7 mg taken twice daily significantly improves complete renal response rates when added to available therapies. That's essentially the same hurdle it already bounded over, but there's still a lot to be worried about.

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Image source: Getty Images.

Potential pitfalls

Aurinia is using 23.7 mg twice daily in the pivotal Aurora study because, during the mid-stage Aura trial, patients given a higher dosage of voclosporin responded less often. In fact, the number of patients exhibiting complete remission at 24 weeks wasn't strong enough to be considered statistically significant.

Getting less benefit with more medicine is the sort of unexplainable phenomenon that casts doubt on an experimental drug's efficacy. Luckily the difference between both dosages was less startling after 48 weeks. In terms of partial remissions, the higher dose actually pulled ahead of the lower.

Unfortunately, the lack of a dose-dependent response wasn't the only problem that popped up during the 265-patient Aura trial. A terrifying 13 patients died during the study, but Aurinia was quick to point out that serious adverse event frequencies weren't dosage-dependent, either. There were two in the high-dose voclosporin arm, 10 in the low-dose voclosporin arm, and four in the placebo group, if you include three patients who passed away after the study completed.

A millionaire maker?

If the Aurora trial completes with efficacy data in line with previous observations, and far fewer serious adverse events than during the Aura study, this stock could make millionaires out of investors taking risks they probably shouldn't.

If approved, voclosporin will be competing with poorly tolerated steroids that aren't much help to begin with. With this in mind, the company thinks peak annual sales could reach $1.4 billion. Considering the number of long-term patients that might benefit, it's a reasonable estimate.

Biotech stocks tend to trade at mid-single digit multiples of total annual revenue. That suggests a successful voclosporin launch could eventually cause Aurinia's market cap to swell more than 10 times its current size.

That would be a solid return and well worth a small bet relative to your overall portfolio. In order to make you a new millionaire, though, you'd have to risk sums much larger than you can afford to lose.

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