Shares of Aurinia Pharmaceuticals (AUPH -4.44%) recently jumped thanks to excitement about the company's new lupus treatment. The Food and Drug Administration recently made voclosporin (brand name Lupkynis) the company's first commercial-stage product.

Analysts who follow Aurinia Pharmaceuticals have raised their sales estimates for Lupkynis following its approval. General attention for the stock has gone through the roof. Here's why.

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An improvement?

Lupkynis is an improvement on cyclosporine, a decades-old immunosuppressive drug used to reduce the risk of post-transplant organ rejection, and the active ingredient in a popular dry eye treatment called Restasis. Voclosporin is supposed to be an improvement on the old standard because it swaps out one of 11 amino acids that comprise cyclosporine. Producing evidence of an improvement was more challenging than the company had originally hoped.

Aurinia Pharmaceuticals had already been testing voclosporin as a potential lupus treatment, but switched gears a few years ago to focus on a new formulation of voclosporin for the treatment of dry eye syndrome, which turned out to be a total disaster.

In theory, voclosporin requires a lower dosage than cyclosporine to do the same job, which should make it easier to tolerate. That line of reasoning fell apart when results from a head-to-head study against Restasis didn't show an improvement as regards tolerability in 2019. Last November, Aurinia Pharmaceuticals had to tell investors that voclosporin failed to outperform a placebo as a potential treatment for dry eye.

Good news

After these challenges, Aurinia finally got good news on voclosporin. On Monday, Jan. 25, 2021, the FDA approved voclosporin capsules for the treatment of lupus nephritis. Clinical trial results leading to the approval show that patients who received voclosporin in addition to standard care were 2.7 times more likely to achieve a clinical response.

Voclosporin has been in development for a long time now, and some investors were worried that it could lose market exclusivity shortly after its commercial launch. Luckily for Aurinia, the FDA's approval includes a very specific dosing protocol unique to the treatment of lupus nephritis that could prevent generic competition from entering the U.S. market until 2037.

Big expectations

Systemic lupus is a rare autoimmune disorder caused by an overactive immune system that attacks a variety of healthy tissues. A majority of systemic lupus patients eventually experience progressive kidney damage, a condition called lupus nephritis.

In the U.S., there are between 200,000 and 300,000 patients with systemic lupus. About a third of them had already progressed to lupus nephritis by the time they received their first lupus-related diagnosis. 

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Aurinia Pharmaceuticals set a list price that could run to more than $140,000 per year, although Aurinia expects net revenue per patient to average around $65,000 for a year of treatment. Some bullish analysts think annual voclosporin sales could top out at more than $1 billion, but investors need to consider the challenges its newly compiled sales team faces before loading up on shares of this risky biotech stock.

Tough launch ahead 

Independent new drug launches flop more often than they succeed, partly because the most promising new drug candidates are licensed or acquired before they're ready to launch commercially. Aurinia Pharmaceuticals hasn't attracted a big partner to help market voclosporin and plans to handle its first new drug launch on its own. 

In smaller clinical trials than Aurinia Pharmaceuticals ran with voclosporin, cyclosporine appeared safe and effective as a treatment for lupus nephritis, too. Aurinia's new sales team could convince physicians to prescribe this expensive new drug to their lupus nephritis patients, but that doesn't mean governments and healthcare plan sponsors will jump to pay for it.

A lack of evidence that voclosporin can outperform cheap generic cyclosporine isn't the only obstacle. The FDA also applied a black box warning to the voclosporin label regarding increased risks of cancer and serious infections.

Safety concerns could make competing with Benlysta from GlaxoSmithKline (GSK 0.19%) extremely difficult. The FDA first approved Benlysta as a treatment for systemic lupus in 2011. Last December, the agency expanded Benlysta's prescribing label to include lupus nephritis patients. GlaxoSmithKline's drug isn't hindered by any black box warnings.

Aurinia Pharmaceuticals finished September with $392 million in cash after losing $80 million during the first nine months of 2020. Investors considering this biotech stock should wait until they see signs of a successful launch that will stop the losses before the company needs to tap investors again.