UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________ to ________________

Commission file number: 001-36421

Aurinia Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)


Alberta, Canada
(State or other jurisdiction of incorporation or organization)
~~#1203-4464 Markham Street~~#140, 14315 - 118 Avenue ~~Victoria, British Columbia V8Z 7X8~~Edmonton, Alberta T5L 4S6			98-1231763
(Address of principal executive offices)			(I.R.S. Employer Identification Number)

(250) 744-2487

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the registrant's classes of common shares, as of the latest predictable date. As of ~~November~~August 2, ~~2022,~~2023, the registrant had ~~142,109,703~~143,422,464 of common shares outstanding.

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of exchange on which registered
Common shares, no par value	AUPH	The Nasdaq Global Market LLC

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets (una ud ited) as of Se ~~ptember~~June 30, ~~30, 2022 (unaudited)~~ 2023 and December 31, ~~2021~~2022

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2023 and ~~nine~~June 30, ~~months ended~~ ~~September~~ ~~30,~~ 2022 ~~and~~ ~~September~~ ~~30, 2021~~

Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the three and six ~~nine~~months ended ~~September~~June 30, ~~30, 2022~~2023 and ~~September~~June 30, ~~30, 2021~~2022

Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~six months ended Se ~~ptember~~June 30, ~~30, 2022~~2023 and ~~September~~June 30, ~~30, 2021~~2022

Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements (unaudited)

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1819

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2324

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

2528

Item 3.

Defaults Upon Senior Securities

2528

Item 4.

Mine Safety Disclosures

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30, 2022 December 31, 2021
(unaudited)
ASSETS
Current assets
Cash, cash equivalents and restricted cash $ 86,052 $ 231,900
Short-term investments 290,592 234,178
Accounts receivable, net 41,771 15,414
Inventories, net 25,320 19,326
Prepaid expenses 12,159 11,710
Other current assets 3,808 796
Total current assets 459,702 513,324
Non-current assets
Other non-current assets 13,049 11,838
Property and equipment, net 3,758 4,418
Acquired intellectual property and other intangible assets, net 6,839 8,404
Right-of-use assets, net 4,945 5,383
Total assets 488,293 543,367
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 40,123 34,947
Other current liabilities 724 4,640
Operating lease liabilities 918 1,059
Total current liabilities 41,765 40,646
Non-current liabilities
Deferred compensation and other non-current liabilities 15,833 15,950
Operating lease liabilities 7,270 7,680
Total liabilities 64,868 64,276
Commitments and contingencies (Note 17)
SHAREHOLDER’S EQUITY
Common shares - no par value, unlimited shares authorized, 142,110 and 141,600 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively 1,184,020 1,177,051
Additional paid-in capital 79,188 59,014
Accumulated other comprehensive loss (1,527) (852)
Accumulated deficit (838,256) (756,122)
Total shareholders' equity 423,425 479,091
Total liabilities and shareholders’ equity $ 488,293 $ 543,367


(unaudited)	June 30, 2023		December 31, 2022

ASSETS
Current assets
Cash, cash equivalents and restricted cash	$	81,707	$	94,172
Short-term investments	269,006		295,218
Accounts receivable, net	19,499		13,483
Inventories, net	33,155		24,752
Prepaid expenses	11,332		13,580
Other current assets	1,208		1,334
Total current assets	415,907		442,539

Non-current assets

Other non-current assets	1,518		13,339
Property and equipment, net	3,650		3,650
Acquired intellectual property and other intangible assets, net	5,683		6,425
Finance right-of-use asset, net	117,428		—
Operating right-of-use assets, net	4,714		4,907
Total assets	$	548,900	$	470,860

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	41,375		39,990
Deferred revenue	3,228		3,148
Other current liabilities	2,088		2,033
Finance lease liability	14,016		—
Operating lease liabilities	954		936
Total current liabilities	61,661		46,107

Non-current liabilities
Finance lease liability	79,422		—
Operating lease liabilities	6,814		7,152
Deferred compensation and other non-current liabilities	8,711		12,166
Total liabilities	156,608		65,425
Commitments and contingencies (Note 17)
SHAREHOLDER’S EQUITY
Common shares - no par value, unlimited shares authorized, 143,369 and 142,268 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively	1,196,480		1,185,309
Additional paid-in capital	98,832		85,489
Accumulated other comprehensive loss	(1,020)		(1,061)
Accumulated deficit	(902,000)		(864,302)
Total shareholders' equity	392,292		405,435
Total liabilities and shareholders' equity	$	548,900	$	470,860

The accompanying notes are an integral part of these condensed consolidated financial statements.

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)


		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30,				September 30,					June 30,				June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(unaudited)									(unaudited)
Revenue	Revenue									Revenue
Product revenue, net	Product revenue, net	$	25,502	$	14,638	$	75,142	$	22,113	Product revenue, net	$	41,100	$	28,148	$	75,437	$	49,640
License and collaboration revenue		30,277		29		30,453		88
License, royalty and collaboration revenue										License, royalty and collaboration revenue	394		43		466		176
Total revenue, net	Total revenue, net	55,779		14,667		105,595		22,201		Total revenue, net	41,494		28,191		75,903		49,816
Operating expenses	Operating expenses									Operating expenses
Cost of sales	Cost of sales	2,447		254		4,302		610		Cost of sales	1,563		1,599		1,984		1,855
Selling, general and administrative	Selling, general and administrative	52,169		44,645		148,898		128,772		Selling, general and administrative	47,081		51,532		97,205		96,729
Research and development	Research and development	10,973		20,066		35,118		39,990		Research and development	12,650		11,525		25,808		24,145

Other (income) expense, net	Other (income) expense, net	(311)		55		647		859		Other (income) expense, net	(3,630)		(476)		(3,340)		958
Total cost of sales and operating expenses	Total cost of sales and operating expenses	65,278		65,020		188,965		170,231		Total cost of sales and operating expenses	57,664		64,180		121,657		123,687
Loss from operations	Loss from operations	(9,499)		(50,353)		(83,370)		(148,030)		Loss from operations	(16,170)		(35,989)		(45,754)		(73,871)
Interest expense										Interest expense	(65)		—		(65)		—
Interest income	Interest income	1,464		106		2,209		420		Interest income	4,101		483		7,915		745
Net loss before income taxes	Net loss before income taxes	(8,035)		(50,247)		(81,161)		(147,610)		Net loss before income taxes	(12,134)		(35,506)		(37,904)		(73,126)
Income tax expense		954		8		973		34
Income tax (benefit) expense										Income tax (benefit) expense	(642)		9		(206)		19
Net loss	Net loss	(8,989)		(50,255)		(82,134)		(147,644)		Net loss	$	(11,492)	$	(35,515)	$	(37,698)	$	(73,145)
Other comprehensive loss:	Other comprehensive loss:									Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities, net of tax of nil		326		(2)		(675)		11
Unrealized (loss) gain on available-for-sale securities, net of tax of nil										Unrealized (loss) gain on available-for-sale securities, net of tax of nil	(32)		(235)		41		(1,001)

Comprehensive loss	Comprehensive loss	$	(8,663)	$	(50,257)	$	(82,809)	$	(147,633)	Comprehensive loss	$	(11,524)	$	(35,750)	$	(37,657)	$	(74,146)
Basic and diluted loss per share	Basic and diluted loss per share	$	(0.06)	$	(0.39)	$	(0.58)	$	(1.15)	Basic and diluted loss per share	$	(0.08)	$	(0.25)	$	(0.26)	$	(0.52)
Weighted-average common shares outstanding used in computation of basic and diluted loss per share	Weighted-average common shares outstanding used in computation of basic and diluted loss per share	141,856		128,443		141,831		128,084		Weighted-average common shares outstanding used in computation of basic and diluted loss per share	142,777		141,726		142,904		141,734

The accompanying notes are an integral part of these condensed consolidated financial statements.

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands)

(unaudited)


	Common Shares
Three Months Ended June 30, 2023	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at March 31, 2023	143,029	$	1,193,019	$	88,885	$	(988)	$	(890,508)	$	390,408
Shares issued on exercise of stock options and vesting of performance awards	130	1,351		(1,117)		—		—		234
Issuance of common shares in conjunction with ESPP program	210	2,110		(1,204)		—		—		906
Share-based compensation	—	—		12,268		—		—		12,268
Unrealized loss on available-for-sale securities, net	—	—		—		(32)		—		(32)
Net loss	—	—		—		—		(11,492)		(11,492)
Balance at June 30, 2023	143,369	$	1,196,480	$	98,832	$	(1,020)	$	(902,000)	$	392,292

	Common Shares
Three Months Ended June 30, 2022	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at March 31, 2022	141,742	$	1,178,807	$	64,686	$	(1,618)	$	(793,752)	$	448,123
Shares issued on exercise of stock options and vesting of performance awards	23	172		(55)		—		—		117
Issuance of common shares in conjunction with ESPP program	127	1,905		(682)						1,223
Shared-based compensation	—	—		10,055		—		—		10,055
Unrealized loss on available-for-sale securities	—	—		—		(235)		—		(235)
Net loss	—			—		—		(35,515)		(35,515)
Balance at June 30, 2022	141,892	$	1,180,884	$	74,004	$	(1,853)	$	(829,267)	$	423,768

~~(unaudited)~~

Common Shares
Three Months Ended September 30, 2022 Shares Amount Additional
paid in
capital Accumulated
Other
Comprehensive
(Loss) Income Accumulated
Deficit Total
Shareholders'
Equity
Balance at June 30, 2022 141,892 $ 1,180,884 $ 74,004 $ (1,853) $ (829,267) $ 423,768
Shares issued on exercise of stock options and vesting of performance awards and restricted stock units 218 3,136 (3,136) — — —
Share-based compensation — — 8,320 — — 8,320
Unrealized gain on available-for-sale securities, net — — — 326 — 326
Net loss — — — — (8,989) (8,989)
Balance at September 30, 2022 142,110 $ 1,184,020 $ 79,188 $ (1,527) $ (838,256) $ 423,425
Common Shares
Three Months Ended September 30, 2021 Shares Amount Additional
paid in
capital Accumulated
Other
Comprehensive
(Loss) Income Accumulated
Deficit Total
Shareholders'
Equity
Balance at June 30, 2021 128,396 954,572 51,022 (792) (672,545) 332,257
Shares issued on exercise of stock options 1,172 12,579 (3,505) — — 9,074
Exercise of warrants 2 8 (2) — — 6
Shared-based compensation — — 7,092 — — 7,092
Unrealized loss on available-for-sale securities, net — — — (2) — (2)
Net loss — — — — (50,255) (50,255)
Balance at September 30, 2021 129,570 $ 967,159 $ 54,607 $ (794) $ (722,800) $ 298,172
Common Shares
Nine Months Ended September 30, 2022 Shares Amount Additional
paid in
capital Accumulated
Other
Comprehensive
(Loss) Income Accumulated
Deficit Total
Shareholders'
Equity
Balance at December 31, 2021 141,600 $ 1,177,051 $ 59,014 $ (852) $ (756,122) $ 479,091
Shares issued on exercise of stock options and vesting of performance awards and restricted stock units 383 5,064 (4,542) — — 522
Issuance of common shares in conjunction with ESPP program 127 1,905 (682) — — 1,223
Share-based compensation — — 25,398 — — 25,398
Unrealized loss on available-for-sale securities, net — — — (675) — (675)
Net loss — — — — (82,134) (82,134)
Balance at September 30, 2022 142,110 $ 1,184,020 $ 79,188 $ (1,527) $ (838,256) $ 423,425
Common Shares
Nine Months Ended September 30, 2021 Shares Amount Additional
paid in
capital Accumulated
Other
Comprehensive
(Loss) Income Accumulated
Deficit Total
Shareholders'
Equity
Balance at December 31, 2020 126,725 $ 944,328 $ 39,383 $ (805) $ (575,156) $ 407,750
Shares issued on exercise of stock options 2,324 22,097 (6,745) — — 15,352
Exercise of warrants 521 734 (697) — — 37
Shared-based compensation — — 22,666 — — 22,666
Unrealized gain on available-for-sale securities, net — — — 11 — 11
Net loss — — — — (147,644) (147,644)
Balance at September 30, 2021 129,570 $ 967,159 $ 54,607 $ (794) $ (722,800) $ 298,172

The accompanying notes are an integral part of these condensed consolidated financial statements.

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~SHAREHOLDERS' EQUITY

Nine Months Ended September 30,
2022 2021
(in thousands) (unaudited)
Cash flows used in operating activities:
Net loss $ (82,134) $ (147,644)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 2,487 2,030
Upfront license and milestone expense — 10,000
Share-based compensation expense 25,398 22,666
Write-down of inventory 2,464 —
Other, net 587 1,005
Net changes in operating assets and liabilities
Accounts receivable (26,356) (9,815)
Inventories, net (8,458) (5,366)
Prepaid expenses and other current assets (3,461) (6,541)
Non-current assets (830) 247
Accounts payable, accrued and other liabilities 875 1,149
Lease liabilities (551) 499
Net cash used in operating activities (89,979) (131,770)
Cash flows used in investing activities:
Purchase of investments (403,184) (342,831)
Proceeds from investments 346,109 263,752
Upfront lease payment (381) (11,838)
Upfront license payment — (6,000)
Purchase of non-current assets (158) (268)
Additions to internal use-software implementation costs — (1,198)
Net cash used in investing activities (57,614) (98,383)
Cash flows from financing activities
Proceeds from exercise of stock options and employee share purchase plan 1,745 15,353
Proceeds from exercise of warrants — 37
Cash provided by financing activities 1,745 15,390
Net decrease in cash, cash equivalents and restricted cash (145,848) (214,763)
Cash, cash equivalents and restricted cash, beginning of period 231,900 272,350
Cash, cash equivalents and restricted cash, end of period $ 86,052 $ 57,587
Supplemental cash flow information
Cash received for interest $ 1,705 $ 671
Cash paid for taxes $ (779) $ (236)
Cash paid for amounts included in the measurement of lease liabilities $ (897) $ (195)
Supplemental disclosure of noncash transactions
Initial recognition of operating lease right-of-use asset $ — $ 419
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash, cash equivalents $ 85,341 $ 57,587
Restricted cash 711 —
Total cash, cash equivalents and restricted cash $ 86,052 $ 57,587
(in thousands)

(unaudited)



	Common Shares
Six Months Ended June 30, 2023	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at December 31, 2022	142,268	$	1,185,309	$	85,489	$	(1,061)	$	(864,302)	$	405,435
Shares issued on exercise of stock options and vesting of performance awards and restricted stock units	891	9,061		(7,188)		—		—		1,873
Issuance of common shares in conjunction with ESPP program	210	2,110		(1,204)		—		—		906
Share-based compensation	—	—		21,735		—		—		21,735
Unrealized gain on available-for-sale securities, net	—	—		—		41		—		41
Net loss	—	—		—		—		(37,698)		(37,698)
Balance at June 30, 2023	143,369	$	1,196,480	$	98,832	$	(1,020)	$	(902,000)	$	392,292

	Common Shares
Six Months Ended June 30, 2022	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at December 31, 2021	141,600	$	1,177,051	$	59,014	$	(852)	$	(756,122)	$	479,091
Shares issued on exercise of stock options	165	1,928		(1,406)		—		—		522
Issuance of common shares in conjunction with ESPP program	127	1,905		(682)		—		—		1,223
Shared-based compensation	—	—		17,078		—		—		17,078
Unrealized loss on available-for-sale securities, net	—	—		—		(1,001)		—		(1,001)
Net loss	—	—		—		—		(73,145)		(73,145)
Balance at June 30, 2022	141,892	$	1,180,884	$	74,004	$	(1,853)	$	(829,267)	$	423,768

The accompanying notes are an integral part of these condensed consolidated financial statements.

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2023		2022
(in thousands)	(unaudited)
Cash flows used in operating activities:
Net loss	$	(37,698)	$	(73,145)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	1,243		1,374
Amortization of right-of-use assets	193		304
Net amortization of premiums and discounts on short-term investments	(5,599)		351
Share-based compensation expense	21,735		17,078

Other, net	(3,235)		2,160
Net changes in operating assets and liabilities
Accounts receivable, net	(6,016)		(2,758)
Inventories, net	(8,403)		(7,953)
Prepaid expenses and other current assets	2,374		(4,914)

Non-current assets	(16)		(517)
Accounts payable, accrued and other liabilities	1,245		(6,242)

Operating lease liabilities	(319)		(355)
Net cash used in operating activities	(34,496)		(74,617)
Cash flows used in investing activities:
Purchase of investments	(256,439)		(232,955)
Proceeds from investments	288,291		225,677
Upfront lease payment	(11,864)		—

Purchase of long-lived assets	(524)		(118)

Capitalized patent costs	(212)		—
Net cash provided by (used in) investing activities	19,252		(7,396)
Cash flows from financing activities
Proceeds from exercise of stock options and employee share purchase plan	2,779		1,745

Cash provided by financing activities	2,779		1,745

Net decrease in cash, cash equivalents and restricted cash	(12,465)		(80,268)
Cash, cash equivalents and restricted cash, beginning of period	94,172		231,900
Cash, cash equivalents and restricted cash, end of period	$	81,707	$	151,632

Supplemental cash flow information
Cash received for interest	$	2,713	$	528
Cash paid for income taxes	$	(277)	$	(779)
Cash paid for amounts included in the measurement of lease liabilities	$	(531)	$	(572)

Supplemental disclosure of noncash transactions
Finance right-of-use asset obtained in exchange for lease obligations (monoplant)	$	117,622	$	—
Finance lease liability arising from obtaining right-of-use assets (monoplant)	$	94,120	$	—

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash, cash equivalents	$	81,389	$	151,408
Restricted cash	318		224
Total cash, cash equivalents and restricted cash	$	81,707	$	151,632

The accompanying notes are an integral part of these condensed consolidated financial statements.

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.Organization and Description of Business

Aurinia Pharmaceuticals Inc. (Aurinia or the Company) is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations ~~that are impacted by serious diseases~~ with a high unmet medical ~~need.~~need that are impacted by autoimmune, kidney and rare diseases. In January 2021, the Company introduced LUPKYNIS® (voclosporin), the first U.S. Food and Drug Administration (FDA) approved oral therapy for the treatment of adult patients with active lupus nephritis (LN) and continues to conduct pre-clinical, clinical, and regulatory activities to support the voclosporin development program as well as ~~our~~ other assets. Aurinia engaged with Otsuka Pharmaceutical Co., Ltd. (Otsuka) as a collaboration partner for development and commercialization of LUPKYNIS in the European Union (EU), Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the Otsuka Territories).

On August 17, 2021, the Company announced the addition of two novel assets AUR200 and AUR300. AUR200 and AUR300 are currently undergoing pre-clinical development with projected submission of Investigational New Drug Applications (INDs) to the FDA (or their equivalent) for AUR200 in ~~2023.~~2023 and for AUR300 in 2024.

On September 15, 2022, the European Commission (EC) granted marketing authorization of LUPKYNIS to ~~Otsuka Pharmaceutical Co., Ltd. (Otsuka).~~Otsuka. The centralized marketing authorization is valid in all European (EU) member states as well as in Iceland, Liechtenstein, Norway and Northern Ireland.

As of April 1, 2023, Aurinia's head office ~~is located at #1203-4464 Markham Street, Victoria, British Columbia, Canada~~ and ~~its~~ registered office is located at ~~#201, 17873-106 A~~#140, 14315-118 Avenue, Edmonton, ~~Alberta.~~Alberta, Canada. Aurinia also has a U.S. commercial office located at 77 Upper Rock Circle Suite 700, Rockville, Maryland, 20850 United States.

Aurinia is incorporated pursuant to the Business Corporations Act (Alberta). The Company’s common shares are traded on the Nasdaq Global Market (Nasdaq) under the symbol AUPH.

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments considered necessary for fair presentation in accordance with U.S. GAAP. The condensed consolidated balance sheet as of ~~December 31, 2021~~June 30, 2023 was derived from audited annual consolidated financial statements but does not include all annual disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The results of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full year or any other future periods.

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aurinia Pharma U.S., Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated). All intercompany balances and transactions have been eliminated in consolidation and operate in one segment.

These unaudited condensed consolidated financial statements are presented in U.S. dollars, which is the Company's and all of its foreign subsidiaries' functional ~~currency, therefore,~~currency. Therefore, there is no currency translation adjustment upon consolidation as the remeasurement of gains or losses are recorded in the condensed consolidated statements of operations. All monetary assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the exchange rate on the balance sheet date. ~~Revenues~~Non-monetary assets and ~~expenses~~liabilities (along with their related expenses) are ~~remeasured~~translated at the rate of exchange in effect on the date assets were acquired. Monetary income and expense items are translated at the average ~~exchange rate during the~~foreign currency period. Foreign exchange gains and losses arising on translation or settlement of a foreign currency denominated monetary item are included in the ~~condensed~~ consolidated statements of ~~operations.~~operations and recorded in other (income) expense, net.

The Company is devoting the majority of ~~our~~ operational efforts and financial resources towards the commercialization and post approval commitments of ~~our~~the approved drug, LUPKYNIS. The Company is also expending efforts towards ~~our newly acquired~~pipeline assets AUR200 and AUR300. Taking into consideration the Company's cash, cash equivalents, restricted cash and investments of ~~$376.6~~$350.7 million as of ~~September~~June 30, ~~2022,~~2023, the Company believes that it has sufficient resources to fund its operations for at least the next few years beyond the date that the unaudited condensed consolidated financial statements are issued.

~~Significant Accounting Policies~~

Other than as described below, the Company's significant accounting policies have not changed from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

~~Restricted cash: Restricted cash consists of the 2021 Employee Share Purchase Plan (2021 ESPP) deposits of $0.7 million and $0.3 million as of September 30, 2022 and December 31, 2021, respectively.~~

Major Customers: The Company currently has two main customers for U.S. commercial sales of LUPKYNIS and a collaboration ~~partner~~partnership with Otsuka for sales of ~~LUPKYNIS~~semi-finished product in the ~~EU, Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the "Otsuka Territories").~~Otsuka Territories. Revenues from the two main customers in the U.S. accounted ~~in total of~~for approximately ~~48% for the three months ended September 30, 2022 and 74% for the nine months ended September 30, 2022~~98% of the Company's total ~~revenues. Our collaboration partner~~revenues for ~~sales outside~~the three and six months ended June 30, 2023. Revenues from the two main customers in the U.S. accounted for approximately ~~52% and 26%~~99% of the Company's total revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022 of the Company's total revenues.~~2022.

In late March 2022, wethe Company provided a nominal additional discount to both of ~~our~~its two main U.S. customers, applicable for ~~the remainder of~~ the 2022 calendar year, in connection with holding additional amounts of LUPKYNIS on hand due to supply chain concerns. In December 2022, the Company extended the nominal discount to the end of 2023. Such discounts, or any future discounts, may result in reduced sales to these customers in subsequent periods and substantial fluctuations in ~~our~~ revenues from period to period. The Company monitors economic conditions, the creditworthiness of customers and government regulations and funding, both domestically and abroad. The Company regularly communicates with its customers regarding the status of receivable balances. Global economic conditions and customer specific factors may require the Company to periodically ~~re-evaluate~~reevaluate the collectability of its receivables and based on this evaluation the Company could potentially incur credit losses. The Company has had no historical write-offs related to customers or receivables.

Significant Accounting Policies

The Company's significant accounting policies have not changed from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Product Revenues

In the United States (and territories), the Company sells LUPKYNIS primarily to specialty pharmacies and specialty distributors. These customers subsequently ~~resell~~distribute the Company's products to ~~health care providers~~patients and ~~patients.~~healthcare providers. Revenues from product sales are recognized when the customer obtains control of ~~our~~the Company's product, which typically occurs upon delivery to the customer.

Reserves for discounts and allowances: Product sales are recorded at the net sales price, ~~(transaction price),~~ which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to ~~our~~the customer) or a liability (if the amount is payable to a party other than ~~our~~the customer).

The Company's estimates of reserves established for variable consideration are calculated based upon utilizing the expected value method. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.

Significant judgment is required in estimating variable consideration. In making these estimates, ~~we consider~~the Company considers historical data, including patient mix and inventory sold to ~~our~~ customers that has not yet been dispensed. ~~We use~~The Company uses a data aggregator and historical claims to estimate variable consideration for inventory sold to ~~our~~ customers, including specialty pharmacies and specialty distributors, that has not yet been dispensed. Actual amounts may ultimately differ from the Company's estimates. If actual results vary, the Company ~~adjust~~adjusts these estimates, which could have an effect on earnings in the period of adjustment. As of ~~September~~June 30, ~~2022, we~~2023, the Company did not have any material adjustments to variable consideration estimates based on actual results. These specific adjustments are detailed further in ~~our~~the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Any consideration related to sales-based royalties (and sales-based milestones) will be recognized when the related sales occur. As of September 30, 2022, we recognized $30.0 million for the regulatory milestone related to the EC marketing authorization of LUPKYNIS.2022.

Accounts ~~receivable, net:~~Receivable, Net: Accounts receivable are stated at their net realizable value. The Company's accounts receivable ~~represents~~represent amounts due to the Company from product sales and from its Otsuka collaboration agreement (Note 12). ~~Milestone payments that have not been invoiced as of the balance sheet date are recorded as unbilled accounts receivable.~~ As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, accounts receivable, net are ~~$41.8~~$19.5 million and ~~$15.4 million.~~$13.5 million, respectively. The accounts receivable, net as of September 30, 2022 includes $28.8 million due from Otsuka related to the achievement of a regulatory milestone in September 2022, for which payment was received on October 31, 2022. ~~The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Our~~Company's standard credit terms range from 30 to 45 ~~days. We do~~days and does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the

customer and receipt of payment will be one year or less. ~~We estimate~~The Company estimates the allowance for doubtful accounts using the current expected credit loss, or CECL, model. Under the CECL model, the allowance for doubtful accounts reflects the net amount expected to be collected from the account receivables. ~~We evaluate~~Aurinia evaluates the collectability of these cash flows based on the asset’s amortized cost, the risk of loss even when that risk is remote, losses over an asset’s contractual life, and other relevant information available to ~~us.~~the Company. Accounts receivable balances are written off against the allowance when it is probable that the receivable will not be collected. The allowance for doubtful accounts was ~~$nil~~nil as of ~~September~~June 30, ~~2022~~2023 and ~~as of~~ December 31, ~~2021.~~2022.

Share-Based Compensation: The Company follows ASC Topic 718, Compensation - Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors. The Company records compensation expense based on the fair value on the grant date using the graded accelerated vesting method for all share-based payments related to stock options, performance awards (PAs), restricted stock units (RSUs) and purchases under the Company's 2021 ~~ESPP. For stock options,~~Employee Share Purchase Plan (ESPP). The estimated fair value of performance-based awards is measured on the grant date and is recognized when it is determined that it is probable that the performance condition will be achieved. The Company has elected a policy for all share-based awards to estimate forfeitures ~~are estimated~~ based on historical forfeiture experience at the time of grant and ~~revised~~revise in subsequent periods if actual forfeitures differ from those estimates. ~~For RSUs and PAs, forfeitures are accounted for as they occur.~~

Recently ~~adopted accounting pronouncements~~Adopted Accounting Pronouncements

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes~~ (Topic 740): Simplifying the Accounting for Income Taxes, which clarifies and simplifies certain aspects of the accounting for income taxes such as eliminating the exception to the general intraperiod tax allocation principle. The standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2020. The Company adopted the ASU effective January 1, 2021, with no material impact on the condensed consolidated financial statements.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to make annual disclosures about transactions with a government (including government assistance) by analogizing to a grant or contribution accounting model. The required disclosures include the nature of the transaction, the entity's related accounting policy, the financial statement line items affected and the amounts reflected in the current period financial statements, as well as any significant terms and conditions. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted the ASU effective January 1, 2022, with no material impact on the condensed consolidated financial statements.

3. Fair Value Measurements

The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The carrying value of accounts receivable, accounts payable and accrued liabilities approximate their fair value because of their short-term nature. Estimated fair value of available-for-sale debt securities are generally based on prices obtained from commercial pricing services.

In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the

Company’s assumptions about how market participants would price assets and liabilities). As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

•Level 1 - Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

•Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

•Level 3 - Unobservable inputs that reflect the reporting entity’s own assumptions.

The following table summarizes the financial assets (cash, cash equivalents, restricted cash and short-term investments) measured at fair value on a recurring basis:


		September 30, 2022									June 30, 2023
(in thousands)	(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:	Financial assets:									Financial assets:
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	86,052	$	—	$	—	$	86,052	Cash, cash equivalents and restricted cash	$	81,707	$	—	$	—	$	81,707
U.S. agency security		—		4,904		—		4,904
Corporate bond		—		98,068		—		98,068

Corporate bonds										Corporate bonds	—		21,660		—		21,660
Commercial paper	Commercial paper	112,633		—		—		112,633		Commercial paper	—		154,447		—		154,447
Treasury bill		—		26,704		—		26,704
Treasury bond		—		44,553		—		44,553
Yankee bond		—		3,730		—		3,730
Treasury bills										Treasury bills	—		40,020		—		40,020
Treasury bonds										Treasury bonds	—		52,309		—		52,309
Yankee bonds										Yankee bonds	—		570		—		570
Total financial assets	Total financial assets	$	198,685	$	177,959	$	—	$	376,644	Total financial assets	$	81,707	$	269,006	$	—	$	350,713


		December 31, 2021									December 31, 2022
(in thousands)	(in thousands)	Level 1		Level 2		Level 3		Total		(in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:	Financial assets:									Financial assets:
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	231,900	$	—	$	—	$	231,900	Cash, cash equivalents and restricted cash	$	94,172	$	—	$	—	$	94,172
Certificates of deposit		—		3,140		—		3,140
Corporate bond		—		21,820		—		21,820
U.S. agency securities										U.S. agency securities	—		4,948		—		4,948
Corporate bonds										Corporate bonds	—		104,080		—		104,080
Commercial paper	Commercial paper	206,724		—		—		206,724		Commercial paper	—		125,187		—		125,187
Treasury bill		—		2,494		—		2,494
Treasury bills										Treasury bills	—		12,282		—		12,282
Treasury bonds										Treasury bonds	—		42,220		—		42,220
Yankee bonds										Yankee bonds	—		6,501		—		6,501
Total financial assets	Total financial assets	$	438,624	$	27,454	$	—	$	466,078	Total financial assets	$	94,172	$	295,218	$	—	$	389,390

The Company's Level 1 instruments include cash, cash equivalents and restricted cash ~~and commercial paper~~ that are valued using quoted market prices. ~~We estimate~~Aurinia estimates the fair values of ~~our~~ investments in corporate debt securities, government and government related securities and certificates of deposits by taking into consideration valuations obtained from third-party pricing services. The fair value of ~~our~~the Company's short-term investments classified within Level 2 is based upon observable inputs that may include benchmark yield curves, reported trades, issuer spreads, benchmark securities and reference data including market research publications. At ~~September~~June 30, ~~2022,~~2023 and December 31, ~~2021,~~2022, the weighted average remaining contractual maturities of ~~our~~Aurinia's Level ~~1 and~~ 2 investments were approximately 7 months. It is the Company's intent for ~~7 months and 8 months, respectively. These~~these investments to have an overall rating of A-1, or higher, by Moody’s, Standard & Poor’s and Fitch.

No credit loss allowance was recorded as of ~~September~~June 30, 2023 and December 31, 2022, as ~~we do~~the Company does not believe the unrealized loss is a result of a credit loss due to the nature of ~~our~~the investments. WeAurinia also considered the current and expected future economic and market conditions and determined that the estimate of credit losses was not significantly impacted.

Refer to Note 4, “Cash, Cash Equivalents, Restricted Cash and Short-Term Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.

4. Cash, Cash Equivalents, Restricted Cash and Short-Term Investments

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had ~~$376.6~~$350.7 million and ~~$466.1~~$389.4 million, respectively of cash, cash equivalents, restricted cash and short-term investments summarized below. As of ~~September~~June 30, 2023 and December 31, 2022, ~~$376.6~~$269.0 million and $295.2 million were available-for-sale debt securities which are carried at fair market value. ~~As of December 31, 2021, $446.9 million were classified as available-for-sale and $19.2 million were held-to-maturity.~~

September 30, 2022
(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Cash, cash equivalents and restricted cash $ 86,052 $ — $ — $ 86,052
U.S. agency security 4,900 4 — 4,904
Corporate bond 98,448 — (380) 98,068
Commercial paper 112,833 — (200) 112,633
Treasury bill 26,721 — (17) 26,704
Treasury bond 44,670 — (117) 44,553
Yankee bond 3,742 — (12) 3,730
Total cash, cash equivalents, restricted cash and short-term investments $ 377,366 $ 4 $ (726) $ 376,644
December 31, 2021
(in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Cash, cash equivalents and restricted cash $ 231,900 $ — $ — $ 231,900
Certificates of deposit 3,144 — (4) 3,140
Corporate bond 2,592 — (1) 2,591
Commercial paper 206,764 — (40) 206,724
Treasury bill 2,497 — (2) 2,495
Total $ 446,897 $ — $ (47) $ 446,850
Total held to maturity securities at amortized cost 19,228
Total cash, cash equivalents, restricted cash and short-term investments $ 466,078


	June 30, 2023
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash, cash equivalents and restricted cash	$	81,707	$	—	$	—	$	81,707

Corporate bonds	21,670		—		(10)		21,660
Commercial paper	154,566		—		(119)		154,447
Treasury bills	40,011		9		—		40,020
Treasury bonds	52,404		—		(95)		52,309
Yankee bonds	570		—		—		570
Total cash, cash equivalents, restricted cash and short-term investments	$	350,928	$	9	$	(224)	$	350,713



	December 31, 2022
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash, cash equivalents and restricted cash	$	94,172	$	—	$	—	$	94,172
U.S. agency securities	4,951		—		(3)		4,948
Corporate bonds	104,174		—		(94)		104,080
Commercial paper	125,255		—		(68)		125,187
Treasury bills	12,290		—		(8)		12,282
Treasury bonds	42,301		—		(81)		42,220
Yankee bonds	6,503		—		(2)		6,501


Total cash, cash equivalents, restricted cash and short-term investments	$	389,646	$	—	$	(256)	$	389,390

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, accrued interest receivable from the investments were ~~$0.7~~$0.4 million and ~~$0.1~~$1.1 million, respectively. During the three months and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had ~~$0.3 million~~$32 thousand and ~~$0.7 million~~$41 thousand unrealized ~~gains~~losses and ~~losses~~gains on available-for-sale securities, net of tax, respectively, which are included as a component of comprehensive loss on the consolidated statements of operations. Currently, the Company does not intend to sell investments that are in an unrealized loss position, and it is unlikely wethe Company will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. ~~We have~~The Company has determined that the gross unrealized losses on ~~our~~ investments at ~~September~~June 30, ~~2022,~~2023, were temporary in nature. Realized gains or losses were immaterial during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

The Company's short-term investments as of ~~September~~June 30, ~~2022~~2023 mature at various dates through ~~June 2023.~~March 2024.

5. Inventories, net

Inventories are valued under a standard costing methodology on a first-in, first-out basis and are stated at the lower of cost or net realizable value. The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. Capitalized costs of inventories for LUPKYNIS mainly include third party manufacturing costs, transportation, storage, insurance, and allocated internal labor.

The Company assesses recoverability of inventory each reporting period to determine any write-down to net realizable value

resulting from excess or obsolete inventories. As of ~~September~~June 30, ~~2022, we have~~2023, Aurinia recorded reserves of finished goods inventories of approximately ~~$2.7~~$2.3 million which were primarily related to process validation batches used for FDA approval.

The components of inventory, net are as follows:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022
Raw materials	Raw materials	$	2,217	$	2,217	Raw materials	$	1,998	$	2,217
Work in process	Work in process	20,150		12,566		Work in process	29,813		21,059
Finished goods		2,953		4,543
Total inventories		$	25,320	$	19,326
Finished goods, net of reserve						Finished goods, net of reserve	1,344		1,476
Total inventories, net						Total inventories, net	$	33,155	$	24,752

6.Prepaid Expenses

Prepaid expenses are as follows:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022

Prepaid assets	Prepaid assets	$	5,725	$	5,316	Prepaid assets	$	7,296	$	5,451
Prepaid deposits	Prepaid deposits	3,582		4,762		Prepaid deposits	3,981		6,330
Prepaid insurance	Prepaid insurance	2,852		1,632		Prepaid insurance	55		1,799
Total prepaid expenses	Total prepaid expenses	$	12,159	$	11,710	Total prepaid expenses	$	11,332	$	13,580

7.Intangible Assets

The following table summarizes the carrying amount of intangible assets, net of accumulated amortization.


		September 30, 2022							June 30, 2023
(in thousands)	(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount		(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Patents	Patents	$	1,473	$	(1,249)	$	224	Patents	$	1,774	$	(1,277)	$	497
Acquired intellectual property and reacquired rights	Acquired intellectual property and reacquired rights	15,126		(9,580)		5,546		Acquired intellectual property and reacquired rights	15,126		(10,305)		4,821
Internal-use software implementation costs	Internal-use software implementation costs	2,873		(1,804)		1,069		Internal-use software implementation costs	2,873		(2,508)		365
		$	19,472	$	(12,633)	$	6,839		$	19,773	$	(14,090)	$	5,683


		December 31, 2021							December 31, 2022
(in thousands)	(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount		(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Patents	Patents	$	1,471	$	(1,176)	$	295	Patents	$	1,569	$	(1,262)	$	307
Acquired intellectual property and reacquired rights	Acquired intellectual property and reacquired rights	15,126		(8,804)		6,322		Acquired intellectual property and reacquired rights	15,126		(9,838)		5,288
Internal-use software implementation costs	Internal-use software implementation costs	2,873		(1,086)		1,787		Internal-use software implementation costs	2,873		(2,043)		830
		$	19,470	$	(11,066)	$	8,404		$	19,568	$	(13,143)	$	6,425

Amortization expense for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was approximately $0.5 million for both periods and for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$1.6~~approximately $1.0 million for both periods.

1011

8. Property and Equipment, net

Property and equipment, net are as follows:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022
Construction in progress	Construction in progress	$	217	$	393	Construction in progress	$	—	$	255
Leasehold improvements	Leasehold improvements	2,978		2,978		Leasehold improvements	3,243		2,978
Office equipment	Office equipment	645		645		Office equipment	631		645
Furniture	Furniture	976		976		Furniture	1,141		976
Computer equipment	Computer equipment	251		262		Computer equipment	235		251
		5,067		5,254			5,250		5,105
Less accumulated depreciation	Less accumulated depreciation	(1,309)		(836)		Less accumulated depreciation	(1,600)		(1,455)
Property and equipment, net	Property and equipment, net	$	3,758	$	4,418	Property and equipment, net	$	3,650	$	3,650

9. Lease Obligations

The Company has the following lease obligations:

Victoria, British Columbia

~~During August~~In December 2020, ~~the Company signed~~Aurinia entered into a lease for ~~commercial~~ office space in Victoria, British ~~Columbia for a new corporate headquarters that was expected to commence in April 2022.~~

Columbia. During the fourth quarter of 2020, the Company entered into 18-month facility and furniture leases for its existing corporate head office located in Victoria, British Columbia. The lease terms commenced on January 1, 2021 with an end date of August 31, 2022.

On August 3, 2022, we provided notice of termination for the lease of the intended new corporate headquarters space in Victoria on the basis that the landlord's work was not completed by the time required under the lease. As a result of the termination, the company expensed $0.3 million of CIP cost that was related to the new corporate headquarters.

On September 1, 2022, the fixed lease term ended ~~for Aurinia's existing corporate headquarters~~on the Victoria lease and the Company exercised its right to enter into a short-term month to month lease, of which expenses are incurred in SG&A. On March 31, 2023, the Company terminated the Victoria lease.

Rockville, Maryland

During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland for a total of 30,531 square feet of office space. The lease has a remaining term of approximately 9eight years and has an option to extend for two five-year periods after the initial term of 11 years has elapsed and has an option to terminate after seven years. As of ~~September~~June 30, ~~2022,~~2023, the Company had a right-of-use (ROU) asset of ~~$4.9~~$4.7 million and lease liability of ~~$8.2~~$7.7 million included in the condensed consolidated balance sheets. As of December 31, ~~2021,~~2022, the Company had a right of use asset of ~~$5.2~~$4.9 million and lease liability of ~~$8.6~~$8.0 million included in the condensed consolidated balance sheets. The Company recorded leasehold improvement incentives in the amount of $2.3 million as additions to the lease liability. The lease term commenced on March 12, 2020. When measuring the lease liability, the Company discounted lease payments using its incremental borrowing rate at March 12, 2020. The incremental borrowing rate applied to the lease liability on March 12, 2020 was 5.2% based on the financial position of the Company, geographical region and term of lease.

Edmonton, Alberta

~~As of September 30,~~During October 2022, the Company ~~has~~entered into a ~~short~~long term lease in Edmonton ~~Alberta in which expenses are recognized in SG&A.~~for a total of 4,375 square feet of office space. The lease is a six year lease and has an option to renew after five years at prevailing market rates. The lease commenced on November 1, 2022 and the Company recorded the lease as an operating lease. The lease is not material to the Company's financial position.

~~The~~For all leases, the Company incurs variable lease ~~costs under the existing Victoria and Rockville leases.~~costs. These costs include operation and maintenance costs included in SG&A and are expensed as incurred. The variable lease costs are not material to the Company's financial position.

The operating lease costs for all leases for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022 and September 30, 2021 are~~2023 were $0.2 million and ~~$0.8~~$0.4 million, ~~for both periods~~ respectively.

~~The following table represents the weighted-average remaining~~ Operating lease ~~term and discount rate as of September 30, 2022:~~

As of September 30, 2022
Weighted Average Remaining Lease Term (years) Weighted Average Discount Rate
Operating leases 8.9 5.22%

~~The following table provides a summary of operating lease liabilities payments~~costs for the ~~next five years~~three and ~~thereafter:~~six months ended June 30, 2022 were $0.3 million and $0.5 million, respectively.

(in thousands) Operating Lease Payments
Remainder of 2022 $ 263
2023 1,061
2024 1,085
2025 1,110
2026 1,135
Thereafter 5,638
Total future minimum lease payments 10,292
Less: lease imputed interest (2,104)
Total future minimum lease payments $ 8,188
Monoplant

On December 15, 2020, the Company entered into a collaborative agreement with Lonza to build a dedicated manufacturing facility within Lonza’s existing small molecule facility in Visp, Switzerland. The dedicated facility (also referred to as "monoplant") ~~will be~~is equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the ~~manufacture~~

manufacturing of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand.

Following U.S. regulatory approval of LUPKYNIS in January 2021, the construction of the facility began. The Company has ~~commenced~~completed a capital expenditure payment program for the monoplant totaling approximately CHF 21.0 million. The first capital expenditure payment was made in February 2021 of $11.8 million (CHF 10.5 million) and was treated as an upfront lease payment and recorded under other non-current assets on the condensed consolidated balance sheets. The second payment ~~is not~~of $11.9 million (CHF 10.5 million) became due ~~until~~when the facility ~~fulfills~~fulfilled the required operational qualifications, which ~~is estimated to be~~occurred during the ~~first half~~second quarter of 2023. ~~Upon completion of~~The Company now has the ~~monoplant, the Company will have the~~exclusive right to ~~maintain sole dedicated~~ use of the monoplant by paying a quarterly fixed facility fee.

The Company ~~expects to account for~~has determined that the arrangement will be accounted for as a finance lease under ASC 842. Under ASC 842, the lease term begins at the commencement date and is based on the noncancellable period for which a lessee has the right to use an underlying asset. Aurinia determined that the lease commencement occurred at the point when the FDA manufacturing validation process began, which occurred during the three months ended June 30, 2023.

The Company, at lease inception, recorded an ROU asset of approximately $117.6 million and a corresponding lease liability of $94.1 million, which is the present value of the minimum lease payments ~~total approximately $73.0 million,~~ beginning ~~April~~July 2023 and expiring in ~~2030,~~2030. The incremental borrowing rate applied to value the lease liability at inception is 6.19%, which was based on the financial position of the Company, geographical region and ~~are not included in~~term of lease.

As of June 30, 2023, the ~~above table.~~ROU asset and corresponding lease liability balance were $117.4 million and $93.4 million, respectively. For the three months ended June 30, 2023, related to the lease, the company incurred unrealized foreign exchange gain on the revaluation of the lease liability of $0.7 million, ROU amortization of $0.2 million, and interest expense of $0.1 million.

The following table represents the weighted-average remaining lease term and discount rate as of June 30, 2023:

As of June 30, 2023

Weighted Average Remaining Lease Term (years)

Weighted Average Discount Rate

Operating leases

8.2

5.27%

The following table provides a summary of lease liabilities payments for the next five years and thereafter:


(in thousands)	Finance Lease Payments		Operating Lease Payments
Remainder of 2023	$	12,061	$	449
2024	16,081		1,114
2025	16,081		1,141
2026	16,081		1,170
2027	16,081		1,199
Thereafter	36,186		4,534
Total future minimum lease payments	112,571		9,607
Less: lease imputed interest	(19,133)		(1,839)
Total future minimum lease payments	$	93,438	$	7,768

Beinheim

The Company has entered into an equipment and facility finance lease for a backup manufacturing encapsulation site in Beinheim, France that has not yet commenced and is therefore, not included in the above table. As part of the agreement, the Company expects to make payments of approximately ~~$0.9~~$1.0 million prior to lease commencement and the ~~future~~present value of minimum lease payments will total approximately $0.1 million.

1213

10.Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are as follows:


(in thousands)	(in thousands)	September 30, 2022		December 31, 2021		(in thousands)	June 30, 2023		December 31, 2022

Employee accruals	Employee accruals	$	16,511	$	18,278	Employee accruals	$	14,066	$	20,214
Commercial accruals	Commercial accruals	9,140		5,916		Commercial accruals	12,984		8,620
Accrued R&D projects	Accrued R&D projects	8,995		6,412		Accrued R&D projects	6,158		5,350
Trade payables						Trade payables	4,808		3,087
Other accrued liabilities	Other accrued liabilities	5,411		3,527		Other accrued liabilities	3,216		2,094
Income taxes payable	Income taxes payable	66		814		Income taxes payable	143		625
Total accounts payable and accrued liabilities	Total accounts payable and accrued liabilities	$	40,123	$	34,947	Total accounts payable and accrued liabilities	$	41,375	$	39,990

11.Deferred Compensation and Other Non-current Liabilities

The Company recorded other non-current liabilities of ~~$15.8~~$8.7 million and ~~$16.0~~$12.2 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The balance as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 primarily included deferred compensation arrangements whereby certain former executive officers as of March 8, 2012 were provided with future potential employee benefit obligations for remaining with the Company for a certain period of time. These obligations ~~were~~are also contingent on the occurrence of uncertain future events. ~~Other non-current liabilities also include milestone payments deemed probable to be paid in the future.~~

12.License and Collaboration Agreements

Otsuka Contract

On December 17, 2020, the Company entered into a collaboration and license agreement with Otsuka for the development and commercialization of oral LUPKYNIS in the Otsuka Territories.

As part of the agreement, the Company received an upfront cash payment of $50.0 million in 2020 for the license agreement and has the potential to receive up to $50.0 million in regulatory and pricing approval related milestones. The Company will provide semi-finished product of LUPKYNIS to Otsuka on a cost-plus basis, and will receive tiered royalties on future sales ranging from 10 to 20 percent (dependent on territory and achievement of sale thresholds) on net product sales by Otsuka, along with additional milestone payments based on the attainment of certain annual sales. In addition, certain collaboration services are to be provided to Otsuka on agreed upon rates.

In furtherance of the collaboration and license agreement with Otsuka mentioned above, on August 1, 2022, the Company entered into a commercial supply agreement with Otsuka, formalizing the terms to supply semi-finished goods of LUPKYNIS to Otsuka in the Otsuka Territories, including sharing production capacity ~~sharing~~ of the monoplant.

On September 15, 2022, the European Commission (EC) granted marketing authorization of LUPKYNIS. The centralized marketing authorization is valid in all EU member states as well as in Iceland, Liechtenstein, Norway and Northern Ireland. The approval triggered a $30.0 million milestone to the Company, which was recognized as collaboration revenue for the year ended December 31, 2022. On November 29, 2022 Aurinia announced that the MHRA had granted marketing authorization of LUPKYNIS in Great Britain. On April 24, 2023, LUPKYNIS received regulatory approval in Switzerland. The Company continues to progress with regulatory approval with Otsuka in the ~~three~~other Otsuka Territories.

License, royalty and ~~nine months period ended September 30, 2022 and was subsequently received on October 31, 2022.~~collaboration revenue

For the three and ~~nine~~six months ended ~~September~~June 30, 2023, the Company recognized $394 thousand and $466 thousand, respectively of license, royalty and collaboration revenue from services provided under the agreement. For the three and six months ended June 30, 2022, the Company recognized ~~$0.2 million~~$13 thousand and ~~$0.4 million, respectively, of collaboration service revenue from Otsuka.~~$117 thousand, respectively.

Riptide License

On August 17, 2021, AUR300 (M2 macrophage modulation via CD206 binding) was secured through a global licensing and research agreement with Riptide Bioscience, Inc. (Riptide), a private company. As part of the agreement, in 2021 the Company paid Riptide an upfront license fee of $6.0 million which was expensed as research and development on the condensed consolidated statements of operations. During the first quarter of 2022, Aurinia paid $4.0 million for the achievement of a one-time milestone. Additional payments are due upon certain development, clinical and regulatory milestones, and royalties will be payable upon commercialization.

13.Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share. The numerator and denominator used in the calculation of basic and diluted net loss per common share are as follows:


		Three months ended September 30,				Nine Months Ended September 30,					Three months ended June 30,				Six months ended June 30,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021		2022		2021		(in thousands, except per share data)	2023		2022		2023		2022
Net loss	Net loss	$	(8,989)	$	(50,255)	$	(82,134)	$	(147,644)	Net loss	$	(11,492)	$	(35,515)	$	(37,698)	$	(73,145)
Weighted average common shares outstanding	Weighted average common shares outstanding	141,856		128,443		141,831		128,084		Weighted average common shares outstanding	142,777		141,726		142,904		141,734
Net loss per common share (expressed in $ per share)	Net loss per common share (expressed in $ per share)	$	(0.06)	$	(0.39)	(0.58)		(1.15)		Net loss per common share (expressed in $ per share)	$	(0.08)	$	(0.25)	$	(0.26)	$	(0.52)

The Company did not include the securities in the following table in the computation of the net loss per common share because the effect would have been anti-dilutive during each period:


		Nine months ended September 30,			Six months ended June 30,
(in thousands)	(in thousands)	2022	2021	(in thousands)	2023	2022
Stock options	Stock options	14,299	12,837	Stock options	12,752	14,355
Unvested performance awards	Unvested performance awards	—	857	Unvested performance awards	921	—
Unvested restricted units		2,098	201
Warrants		—	1,012
Unvested restricted stock units				Unvested restricted stock units	7,063	2,008
		16,397	14,907		20,736	16,363

14.Share-based Compensation

The Company's Amended and Restated Equity Incentive Plan (the Plan), which was adopted and approved by the Company's shareholders in June 2021, allows for an issuance of up to an aggregate of 23.8 million shares ~~(inclusive of then outstanding awards)~~ and provides for grants of stock options, performance awards (PAs), and restricted stock units (RSUs) that may be settled in cash and common shares. Also in June 2021, the Company's shareholders adopted and approved the Company's 2021 ~~ESPP,~~Employee Stock Purchase Plan (ESPP), which allows for the issuance of up to 2.5 million shares. The 2021 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code ~~(the Code)~~ but also permits the Company to include the employees, including non-United States employees, in offerings not intended to qualify under Section 423. The purpose of the 2021 ESPP is to provide eligible employees with opportunities to purchase the Company’s common shares at a discounted price.

During ~~the second quarter of~~ 2022, the Company modified the 2021 ESPP for the current and future offerings. The new ESPP terms shortened the plan from four ~~(4)~~ purchases over a ~~24 month Offering Period~~24-month offering period to two ~~(2)~~ purchases over a ~~12 month~~12-month offering period. Additionally, the ESPP now contains a rollover mechanism; that is, if the stock price on the purchase date is less than the offering price (as that is determined under the 2021 ESPP), that offering is then canceled and any participants are rolled into ~~the~~a new ~~12 month~~12-month offering period at the lower price.

As a result of the modification, $475 thousand of incremental expense was added to the estimated expense for the November 2022 and May 2023 purchase dates (to be amortized over the new 12 month offering period). Additionally, the originally scheduled purchase date in November 2023 is no longer planned given the new 12 month offering period; therefore, the modification also resulted in a “repurchase for no consideration” under ASC 718. The Company recognized an additional $651 thousand of unamortized expense for the cancelled November 2023 purchase, which was recorded during the second quarter of 2022.

In addition to stock options, ~~performance awards~~PAs and RSUs granted under the Plan, the Company has granted certain stock options and RSUs as inducements material to new employees entering employment in accordance with Nasdaq Listing Rule 5635(c)(4). The inducements were granted outside of the ~~Plan during 2022.~~Plan.

Stock Options

The Plan requires the exercise price of each option not to be less than the closing market price of the Company’s common shares on the business day immediately prior to the date of grant. The ~~board~~Board of ~~directors~~Directors approves the vesting criteria and periods at its discretion. The options issued under the ~~plan~~Plan are accounted for as equity-settled share-based payments.

The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted. The assumptions used for the annual volatility and expected life of the options are reviewed and updated annually. The Company considers historical volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the expected life of the options was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of the grant. The expected life is based upon the contractual term, taking into account expected employee exercise and expected post-vesting employment termination behavior.

The following weighted average assumptions were used to estimate the fair value of the options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021:~~2022:


		2022			2021				2023			2022
Annualized volatility	Annualized volatility	70		%	66		%	Annualized volatility	71		%	70		%
Risk-free interest rate	Risk-free interest rate	2.01		%	0.38		%	Risk-free interest rate	3.83		%	1.83		%
Expected life of options in years	Expected life of options in years	5.0 years			4.0 years			Expected life of options in years	5.0 years			5.0 years
Estimated forfeiture rate	Estimated forfeiture rate	12.1		%	8.9		%	Estimated forfeiture rate	12.6		%	11.7		%
Dividend rate	Dividend rate	0.0		%	0.0%			Dividend rate	0.0		%	0.0%
Fair value per common share option	Fair value per common share option	$	6.60		$	6.64		Fair value per common share option	$	5.99		$	7.00

The increase of the risk-free interest rate during the six months ended June 30, 2023 was due to the increase of higher yields on government benchmark bonds.

The following table summarizes the option award activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


		September 30, 2022				June 30, 2023
		Number of shares (in thousands)	Weighted average exercise price $			Number of shares (in thousands)	Weighted average exercise price $
Outstanding - December 31, 2021		12,074	$	12.84
Outstanding - December 31, 2022					Outstanding - December 31, 2022	13,295	$	12.09
Granted	Granted	3,809	11.25		Granted	558	9.78
Exercised	Exercised	(77)	6.47		Exercised	(362)	5.25
Forfeited	Forfeited	(1,507)	14.63		Forfeited	(739)	14.58
Outstanding - September 30, 2022		14,299	$	12.26
Outstanding - June 30, 2023					Outstanding - June 30, 2023	12,752	$	12.04

~~Performance Awards and~~ Restricted Stock Units and Performance Awards

On October 23, 2020, the Company issued 439,000 PAs to executive management of the Company whose vesting was contingent upon meeting specific performance metrics based on the results for the year ended December 31, 2021. Each PA which vested entitled the participant to receive common shares on the basis of the performance metrics set. On March 18, 2021 performance metrics were set and formally communicated. Therefore, March 18, 2021 was the grant date and the fair value on the grant date was $13.56. The ~~PAs vested in 2022 and the participant was required to achieve at least one of the performance metrics to obtain the portion of the award associated with the metric.~~

On August 6, 2021, the Company granted approximately 619,000 PAs and RSUs. The grant date for the PAs and RSUs was August 6, 2021 and the fair value on the grant date was $14.42 as this was the date performance measures were set and communicated to employees. The PAs vested on the employee's first anniversary of the grant date and the employee was required to achieve at least one of the performance metrics to obtain the portion of the award associated with the metric. The RSUs had no performance metrics and vested on the one year anniversary of the grant.

~~During the 2022, the~~ Company has granted RSUs and ~~intends to grant RSUs throughout the year~~PAs under the Plan, as well as inducements for certain new hires as discussed above. The RSUs and PAs are fair valued based on the previous business days' market price of ~~our~~ common shares on the date of the grant.

The following table summarizes the PARSU and ~~RSU~~PA activity for the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


		September 30, 2022				June 30, 2023
		Number of shares (in thousands)	Weighted average exercise price $			Number of shares (in thousands)	Weighted average fair value price $
Outstanding - December 31, 2021		347	$	13.33
Outstanding - December 31, 2022					Outstanding - December 31, 2022	1,980	$	10.84
Granted	Granted	2,311	11.26		Granted	6,695	9.04
Vested	Vested	(305)	14.17		Vested	(530)	11.92
Forfeited	Forfeited	(255)	12.39		Forfeited	(161)	9.59
Outstanding - September 30, 2022		2,098	$	11.04
Outstanding - June 30, 2023					Outstanding - June 30, 2023	7,984	$	9.28

Compensation Expense

The Company recognized share-based compensation expense for the three ~~and nine~~ month periods ended ~~September~~June 30, 2023 and June 30, 2022 ~~and September 30, 2021~~ as follows:


		Three months ended September 30,				Nine Months Ended September 30,					Three months ended June 30,				Six months ended June 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
Research and development	Research and development	$	1,489	$	1,038	$	3,531	$	3,201	Research and development	$	2,114	$	1,066	$	3,704	$	2,042
Selling, general and administrative	Selling, general and administrative	6,625		6,000		21,480		19,189		Selling, general and administrative	9,820		8,883		17,409		14,855
Capitalized under inventories	Capitalized under inventories	206		54		387		276		Capitalized under inventories	334		106		622		181
Share-based compensation expense	Share-based compensation expense	$	8,320	$	7,092	$	25,398	$	22,666	Share-based compensation expense	$	12,268	$	10,055	$	21,735	$	17,078

As of ~~September~~June 30, ~~2022,~~2023, there was ~~$33.6~~$48.4 million of unrecognized share-based compensation expense related to unvested awards granted which is expected to be recognized over a weighted-average period of approximately ~~1.4~~1.5 years.

15.Income Taxes

The effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021~~2022 differed from the federal statutory rate applied to losses before income taxes primarily as a result of the mix of income, losses and valuation allowances.

The Company recognized an income tax benefit of approximately $642 thousand and $206 thousand for the three and six months ended June 30, 2023 respectively. The Company recognized an income tax expense of approximately ~~$1.0 million for the three and nine months ended September 30, 2022. The Company recognized an income tax expense of approximately $8~~$9 thousand and ~~$34~~$19 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively.~~2022. The income tax benefit recognized in 2023 relates to a current period and prior period favorable adjustment in U.S. income taxes. The income tax expense recognized for ~~these periods is~~2022, was a result of

income in certain ~~jurisdictions and withholding taxes on foreign income.~~jurisdictions. The ~~Company currently has~~ tax expense ~~in certain jurisdictions that are~~is not offset by a tax ~~benefits. The increase from prior periods was due to withholding taxes.~~benefit as the Company has losses which are fully offset by a valuation allowance in its significant jurisdictions.

~~Uncertain Tax Positions~~

The Company was under examination by the Canadian Revenue Agency for years 2017 and 2018. In March 2022, the Company was notified by the Canadian Revenue Agency that the examination is now complete and there were no findings and as a result, there is no additional tax expense or benefit recognized in regards to the audit. There are no outstanding tax audits ongoing at September 30, 2022.

16.Related Party Transactions

~~ILJIN SNT Co., Ltd (ILJIN) was considered to be a~~During the three and six months ended June 30, 2023 and year ended December 31, 2022, the Company had no related party due to their equity ownership of over 5% as per their public filing. The outstanding related party amount payable to ILJIN was the result of a settlement completed on September 20, 2013 between ILJIN and the Company. During 2021, Aurinia paid ILJIN $6.0 million upon achievement of specific milestones. The amount payable to ILJIN is nil as of September 30, 2022 and December 31, 2021.transactions.

17.Commitments and Contingencies

The Company may, from time to time, be subject to claims and legal proceedings brought against it in the normal course of business. Such matters are subject to many uncertainties. Management believes the ultimate resolution of such contingencies

will not have a material adverse effect on the consolidated financial position of the Company. The Company's material commitments and contingencies have not changed in any material manner from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and the quarterly report for the quarter ended ~~September 30, 2022.~~March 31, 2023.

Other Funding Commitments

In the normal course of business, the Company enters into agreements with contract research organizations, contract manufacturing organizations and other third parties for services to be provided to the Company. Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement. The actual amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of services to be provided to the Company.

~~18.Subsequent Events~~

The Company’s Compensation Committee granted 4 new employees an aggregate of 20,800 inducement stock options and an aggregate of 12,500 inducement RSUs. The options have a per share exercise price of $7.52, ~~the closing price of Aurinia's common stock on September 30~~, 2022. The stock options and RSUs have a grant date of October 3, 2022. The stock options and RSUs were granted as inducements material to the new employees entering employment with Aurinia in accordance with Nasdaq Listing Rule 5635(c)(4).

On October 17, 2022, Aurinia mutually agreed with Robert Huizinga, PhD RN, CNeph(C), Executive Vice President, Research and Neil Solomons, M.D., Chief Medical Officer, to cease their employment with Aurinia, each effective October 31, 2022.

Aurnia has entered into separation agreements with Dr. Huizinga and Dr. Solomons which will supersede and replace all the severance arrangements between Aurinia and Dr. Huizinga and Dr. Solomons, set forth in their respective employment agreements with Aurinia, dated October 1, 2018 and September 12, 2012, respectively (together, as amended, the Employment Agreements). The terms of the separation agreements are expected to be consistent with the terms of the Employment Agreements, respectively.

1718

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly ~~Report.~~Report on Form 10-Q. The information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~or the~~(the Securities ~~Act,~~Act), and Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act), which are subject to the “safe harbor” created by those sections, as well as “forward-looking information” as defined in applicable Canadian securities laws. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans; objectives of management; the key potential benefits of LUPKYNIS; our belief that we have sufficient financial resources to fund our current plans for at least the next few years; ~~and~~ our potential to receive certain payments and royalties under our agreement with Otsuka Pharmaceuticals Co. Ltd., or Otsuka; and that an ~~IND~~investigational new drug (IND) application (or equivalent) is expected to be submitted for AUR200 in 2023 and AUR300 in ~~2023.~~2024. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “propose,” “intend,” “continue,” “potential,” “possible,” “foreseeable,” “likely,” “unforeseen” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking ~~statements.~~statements, including that there can be no assurance that the initiated strategic review process will result in Aurinia pursuing a particular transaction or other strategic outcome in a timely manner, or at all. We have made numerous assumptions about the forward-looking statements and information contained herein, including among other things, assumptions about: the accuracy of reported data from ~~third party~~third-party studies and reports; that our IP rights are valid and do not infringe the IP rights of third parties; our assumptions relating to the capital required to fund operations for the next few years; the assumption that our current good relationships with our suppliers, service providers and other third parties will be maintained; assumptions relating to the burn rate of our cash for operations; assumptions relating to the capital required to fund operations for the next few years; assumptions relating to the progress of our pre-clinical activities that our third party service providers will comply with their contractual obligations. Even though management believes that the assumptions made, and the expectations represented by such statements or information are reasonable, there can be no assurance that the forward-looking information will prove to be accurate. We discuss many of these risks, uncertainties and other factors in greater detail under the heading “Risk Factors” in Part I, Item 1A of our ~~2021~~2022 Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission on February 28, ~~2022~~2023 and with applicable Canadian securities regulatory authorities. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this discussion completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update our forward-looking statements publicly, or to update the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations ~~that are impacted by serious diseases~~ with a high unmet medical ~~need.~~need that are impacted by autoimmune, kidney and other rare diseases. In January 2021, we introduced LUPKYNIS® (voclosporin), the first ~~FDA-approved~~U.S. Food and Drug, (the FDA), approved oral therapy for the treatment of adult patients with active ~~LN.~~lupus nephritis (LN). We continue to conduct pre-clinical, clinical, and regulatory activities to support the LUPKYNIS development program as well as our other assets. We engaged with Otsuka as a collaboration partner for development and commercialization of LUPKYNIS in the European Union (EU), Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the Otsuka ~~Territories.~~Territories).

LUPKYNIS is an orally administered ~~CNI~~calcineurin inhibitor (CNI) immunosuppressant that has been demonstrated to improve near and long-term outcomes in LN when used in combination with mycophenolate mofetil (MMF) (although MMF is not currently approved as such) and steroids. By inhibiting calcineurin, LUPKYNIS reduces cytokine activation and blocks interleukin IL-2 expression and T-cell mediated immune responses. LUPKYNIS also potentially stabilizes podocytes, which can protect against proteinuria.

Voclosporin, the active ingredient in LUPKYNIS, is made by a modification of a single amino acid of the cyclosporine molecule. The mechanism of action of LUPKYNIS has been validated with certain earlier generation CNIs for the prevention of rejection in patients undergoing solid organ transplants and in several autoimmune indications, including uveitis,

keratoconjunctivitis sicca, psoriasis, rheumatoid arthritis, and for LN in Japan. We believe that LUPKYNIS possesses pharmacologic properties with the potential to demonstrate best-in-class differentiation.

Aurinia announced during the fourth quarter of 2021 the initiation of ENLIGHT-LN, a U.S. based prospective, observational registry of adult patients with LN treated with LUPKYNIS. The registry is intended to support the interests of patients, clinicians, regulatory bodies, payers and industry by obtaining longitudinal data on LUPKYNIS. During the first quarter of 2022, we began actively enrolling patients.

On August 17, 2021, ~~the Company~~we announced the addition of two novel assets, AUR200 and AUR300. AUR200 and AUR300 are currently undergoing pre-clinical development with projected submission of ~~Investigational New Drug Applications (INDs)~~INDs to the FDA (or their equivalent) for AUR200 in ~~2023.~~2023 and for AUR300 in 2024.

On September 15, 2022, the EC granted marketing authorization of LUPKYNIS. The centralized marketing authorization is valid in all EU member states as well as in Iceland, Liechtenstein, Norway and Northern Ireland. The approval triggered a $30.0 million milestone payment to ~~the Company,~~us, which was recognized as collaboration revenue for the year ended December 31, 2022. On November 29, 2022 the Medicines and Healthcare products Regulatory Agency (MHRA) had granted marketing authorization of LUPKYNIS in ~~the three and nine months period ended September 30, 2022.~~Great Britain. On April 24, 2023, LUPKYNIS received regulatory approval in Switzerland. We continue to progress with regulatory approval with Otsuka on the other Otsuka Territories.

~~Critical Accounting~~ Recent Developments

On April 5, 2023, we announced promising results from the AURORA Renal Biopsy Sub-Study. LUPKYNIS is a novel agent approved for the treatment of adults with active LN. The addition of LUPKYNIS on top of the then current standard of care MMF and low-dose steroids in our Phase 3 AURORA 1 and AURORA 2 studies led to significantly earlier and greater reductions in proteinuria while maintaining stable renal function, as evidenced by a stable eGFR slope over time. To further characterize the long-term impact of LUPKYNIS on the kidney at the histologic level, repeat biopsies were collected from selected patients in both treatment arms (the active control arm with patients treated with only MMF and steroids, and the study arm of voclosporin in combination with MMF and steroids). The patients in the voclosporin treatment arm demonstrated histologic activity improvement with stable chronicity scores similar to the active control arm of MMF and low dose steroids alone over the 18-months average treatment period at the time of repeat biopsy.

On April 11, 2023, we announced that the United States Patent and Trademark Office (USPTO) has issued a new and refined method of use patent titled IMPROVED PROTOCOL FOR TREATMENT OF LUPUS NEPHRITIS. Our newly issued U.S. Patent (No. 11,622,991) reflects the unique and proprietary dosing regimen of its currently marketed product, LUPKYNIS. Specifically, this patent further refines the method of using LUPKYNIS in combination with MMF and corticosteroids using eGFR as a method of pharmacodynamically dosing the product in patients with lupus nephritis. The newly issued patent provides coverage that supplements Aurinia’s existing U.S. Patent No. 10,286,036, which is listed in the Orange Book and claims an FDA-approved method of using LUPKYNIS. The claims in this additional patent add further specificity on dosing consistent with the FDA approved product label. This patent has the potential to provide an additional layer of patent protection for LUPKYNIS up to 2037. U.S. Patent No. 11,622,991 is listed in the Orange Book.

On June 29, 2023, we announced that our Board of Directors has initiated an exploration of strategic alternatives.

Policies and Significant Judgments and Estimates

~~Except as described below, there~~There have been no material changes to ~~the Company’s~~our critical accounting policies and significant judgments and estimates as described in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Product Revenues

In the United States (and territories), ~~the Company sells~~we sell LUPKYNIS primarily to specialty pharmacies and specialty distributors. These customers subsequently ~~resell the Company's~~distribute our products to patients and health care ~~providers and patients.~~providers. Revenues from product sales are recognized when the customer obtains control of our product, which typically occurs upon delivery to the customer.

Reserves for discounts and allowances: Product sales are recorded at the net sales price, ~~(transaction price),~~ which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer).

~~The Company's~~Our estimates of reserves established for variable consideration are calculated based upon utilizing the expected value method. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.

Significant judgment is required in estimating variable consideration. In making these estimates, we consider historical data, including patient mix ~~and~~to accrue for variable consideration related to inventory sold to our customers that has not yet been dispensed. We use a data aggregator and historical claims to estimate variable consideration for inventory sold to our customers, including specialty pharmacies, ~~and specialty distributors,~~ that has not yet been dispensed. Actual amounts may ultimately differ from ~~the Company's~~our estimates. If actual results vary, ~~the Company~~we adjust these estimates, which could have an effect on earnings in the period of adjustment. As of ~~September~~June 30, ~~2022,~~2023, we did not have any material adjustments to variable consideration estimates based on actual results. These specific adjustments are detailed further in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

~~Milestone Payments:~~ At the inception of each arrangement that includes development or commercial sales milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration and other revenues and earnings in the period of adjustment. Any consideration related to sales-based

royalties (and sales-based milestones) will be recognized when the related sales occur. As of September 30, 2022, we recognized $30.0 million for the regulatory milestone related to the EC marketing authorization of LUPKYNIS.

2022.

Results of Operations

Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2022~~2023 compared to Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2021~~2022

The following table sets forth our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021.~~2022.


		Three months ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2022		2021		Change		2022		2021		Change
		(in thousands)						(in thousands)
(in thousands)														(in thousands)	2023		2022		Change		2023		2022		Change
Revenue	Revenue													Revenue
Product revenue, net	Product revenue, net	$	25,502	$	14,638	$	10,864	$	75,142	$	22,113	$	53,029	Product revenue, net	$	41,100	$	28,148	$	12,952	$	75,437	$	49,640	$	25,797
License and collaboration revenue		30,277		29		30,248		30,453		88		30,365
License, royalty and collaboration revenue														License, royalty and collaboration revenue	394		43		351		466		176		290
Total revenue, net	Total revenue, net	55,779		14,667		41,112		105,595		22,201		83,394		Total revenue, net	41,494		28,191		13,303		75,903		49,816		26,087
Operating expenses	Operating expenses													Operating expenses
Cost of sales	Cost of sales	2,447		254		2,193		4,302		610		3,692		Cost of sales	1,563		1,599		(36)		1,984		1,855		129
Selling, general and administrative	Selling, general and administrative	52,169		44,645		7,524		148,898		128,772		20,126		Selling, general and administrative	47,081		51,532		(4,451)		97,205		96,729		476
Research and development	Research and development	10,973		20,066		(9,093)		35,118		39,990		(4,872)		Research and development	12,650		11,525		1,125		25,808		24,145		1,663

Other (income) expense, net	Other (income) expense, net	(311)		55		(366)		647		859		(212)		Other (income) expense, net	(3,630)		(476)		(3,154)		(3,340)		958		(4,298)
Total cost of sales and operating expenses	Total cost of sales and operating expenses	65,278		65,020		258		188,965		170,231		18,734		Total cost of sales and operating expenses	57,664		64,180		(6,516)		121,657		123,687		(2,030)
Loss from operations	Loss from operations	(9,499)		(50,353)		40,854		(83,370)		(148,030)		64,660		Loss from operations	(16,170)		(35,989)		19,819		(45,754)		(73,871)		28,117
Interest expense														Interest expense	(65)		—		(65)		(65)		—		(65)
Interest income	Interest income	1,464		106		1,358		2,209		420		1,789		Interest income	4,101		483		3,618		7,915		745		7,170
Net loss before income taxes	Net loss before income taxes	(8,035)		(50,247)		42,212		(81,161)		(147,610)		66,449		Net loss before income taxes	(12,134)		(35,506)		23,372		(37,904)		(73,126)		35,222
Income tax expense		954		8		946		973		34		939
Income tax (benefit) expense														Income tax (benefit) expense	(642)		9		(651)		(206)		19		(225)
Net loss	Net loss	$	(8,989)	$	(50,255)	$	41,266	$	(82,134)	$	(147,644)	$	65,510	Net loss	$	(11,492)	$	(35,515)	$	24,023	$	(37,698)	$	(73,145)	$	35,447

Revenues

Total net revenue was ~~$55.8~~$41.5 million and ~~$14.7~~$28.2 million for the three months ended ~~September~~June 30, 2023 and June 30, 2022, ~~and September 30, 2021,~~ respectively. Total net revenue was ~~$105.6~~$75.9 million and ~~$22.2~~$49.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, respectively.

The increase ~~in both periods~~ is primarily due to ~~the recognition of a $30.0 million regulatory milestone from Otsuka following the EC marketing authorization of LUPKYNIS in September 2022, coupled with~~ an increase in net product ~~sales to~~revenue from our two main customers for LUPKYNIS driven predominantly by further penetration of the LN market. This penetration can be demonstrated, in part, by 451 and 917

additional patient start forms (PSFs) (our equivalent to a prescription) received during the three and six months ended June 30, 2023, compared to 409 and 870 PSFs received during the three and six months ended June 30, 2022; as well as a total of approximately 1,911 patients on therapy as of June 30, 2023, compared to approximately 1,274 patients on therapy as of June 30, 2022.

Revenues from our two main customers in the ~~lupus nephritis market.~~U.S. accounted for approximately 98% of the Company's total revenues for the three and six months ended June 30, 2023. Revenues from the two main customers in the U.S. accounted for approximately 99%, of the Company's total revenues for the three and six months ended June 30, 2022.

Cost of Sales

Cost of sales were ~~$2.4~~$1.6 million and ~~$0.3~~$1.6 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, respectively. Cost of sales were ~~$4.3~~$2.0 million and ~~$0.6~~$1.9 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022, ~~and September 30, 2021,~~ respectively. ~~The increase~~Cost of sales for both periods ~~was primarily~~ended June 30, 2023 and June 30, 2022 remained consistent due to an increase ~~in product related revenue, coupled with an increase in our safety stock inventory reserves.~~of revenues, offset by a write down of FDA process validation batches that occurred during the second quarter of 2022.

Gross margin for the three months ended ~~September~~June 30, 2023 and June 30, 2022 ~~and September 30, 2021 was~~were approximately 96% and ~~98%~~94%, respectively. Gross margin for the ~~nine~~six months ended ~~September~~June 30, 2023 and June 30, 2022 were approximately 97% and ~~September 30, 2021 was approximately~~ 96% ~~and 97%~~ respectively.

Selling, General and Administrative Expenses

SG&A expenses ~~increased~~decreased to ~~$52.2~~$47.1 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$44.6~~$51.5 million for the three months ended ~~September~~June 30, ~~2021.~~2022. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, SG&A expenses were ~~$148.9~~$97.2 million and ~~$128.8~~$96.7 million, respectively. SG&A expenses consisted of the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
Salaries, incentive pay and employee benefits	Salaries, incentive pay and employee benefits	$	20,422	$	19,981	$	62,487	$	58,723	Salaries, incentive pay and employee benefits	$	19,990	$	19,542	$	42,288	$	42,065
Professional fees and services	Professional fees and services	17,920		13,110		44,487		34,536		Professional fees and services	11,228		15,669		24,486		26,567
Share-based compensation expense	Share-based compensation expense	6,625		6,000		21,480		19,189		Share-based compensation expense	9,820		8,883		17,409		14,855
Other corporate costs	Other corporate costs	4,093		3,821		12,091		11,155		Other corporate costs	3,440		4,370		7,262		7,998
Travel, trade shows and sponsorships	Travel, trade shows and sponsorships	3,109		1,733		8,353		5,169		Travel, trade shows and sponsorships	2,603		3,068		5,760		5,244
		$	52,169	$	44,645	$	148,898	$	128,772		$	47,081	$	51,532	$	97,205	$	96,729

The primary drivers for the ~~increase~~decrease in SG&A ~~expense~~expenses for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022 as~~2023 compared to the same ~~periods~~period ended ~~September~~June 30, ~~2021 were an increase~~2022 was a decrease in professional fees and services ~~related~~including legal fees incurred during the respective quarters, with respect to ~~corporate legal~~litigation matters ~~and travel and sponsorships to support~~that were taking place in the ~~commercialization of LUPKYNIS.~~three months ended June 30, 2022. For the ~~nine~~six months ended ~~September~~June 30, 2023 compared to the same period ended June 30, 2022, ~~salaries, incentive pay and employee benefits also increased~~the increase was due to ~~employee related~~an increase in share-based compensation expense and marketing expenses ~~such as increased headcount, promotions~~offset by a decrease in professional fees and ~~inflation.~~services including legal fees.

Research and Development Expenses

R&D expenses were ~~$11.0~~$12.7 million and ~~$20.1~~$11.5 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, R&D expenses were ~~$35.1~~$25.8 million and ~~$40.0~~$24.1 million, respectively. R&D expenses consisted of the following:

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2022 2021 2022 2021
Contract research organizations (CRO) and developmental expenses $ 3,075 $ 15,873 $ 15,460 $ 25,579
Clinical supply and distribution 3,077 872 6,173 3,242
Salaries, incentive pay and employee benefits 3,159 2,070 9,429 7,807
Share-based compensation expense 1,489 1,038 3,531 3,201
Other costs 173 213 525 161
$ 10,973 $ 20,066 $ 35,118 $ 39,990


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Contract research organizations (CRO) and developmental expenses	$	4,065	$	5,658	$	8,295	$	12,385
Clinical supply and distribution	2,874		1,534		6,147		3,096
Salaries, incentive pay and employee benefits	3,435		2,997		7,260		6,270
Share-based compensation expense	2,114		1,066		3,704		2,042
Other costs	162		270		402		352
	$	12,650	$	11,525	$	25,808	$	24,145

The primary ~~driver~~drivers for the ~~decrease~~increase for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to the same periods ended ~~September~~June 30, ~~2021~~2022 were an increase in salaries and related employee benefit costs, share-based compensation expense and clinical supply and distribution as the Company advances its AUR200 and AUR300 programs and fulfills the post approval FDA commitments related to LUPKYNIS. The increase was partially offset by a decrease in contract research organization costs related to the completion of the AURORA 2 continuation study and drug interaction study, which were substantially completed in 2022.

Other (Income) Expense, net

Other (income) expense, net was $(3.6) million and $(0.5) million for the three months ended June 30, 2023 and June 30, 2022, respectively. Other (income) expense, net was $(3.3) million and $1.0 million for the six months ended June 30, 2023 and June 30, 2022, respectively. The increase in other income is primarily related to change in fair value assumptions driven predominantly by rising interest rates related to our deferred compensation liability coupled with the foreign exchange gain related to the revaluation of the monoplant finance liability.

Interest Expense

Interest expense was $0.1 million for the three and six months ended June 30, 2023 due to the ~~upfront license and accrued milestone~~commencement of the monoplant finance lease during the second quarter of 2023. We did not incur interest expense for ~~AUR300 from~~ the ~~periods~~three and six months ended ~~September 30, 2021 offset year to date by additional developmental expenses related to AUR200 and AUR300 for the periods ended September~~June 30, 2022. ~~In accordance with U.S. GAAP, AUR300 was recorded as an asset acquisition during the period ended September 30, 2021.~~

Interest Income

Interest income was ~~$1.5~~$4.1 million and ~~$0.1~~$0.5 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, respectively. Interest income was ~~$2.2~~$7.9 million and ~~$0.4~~$0.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021,~~2022, respectively. The increase ~~in both~~between periods is due to higher yields on our investments as a result of ~~increasing~~increased interest rates.

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2022,~~2023, we had cash, cash equivalents and restricted cash of $81.7 million and short-term investments of ~~$376.6~~$269.0 million compared to cash, cash equivalents and restricted cash of $94.2 million and short-term investments of ~~$466.1~~$295.2 million at December 31, ~~2021.~~2022. The decrease in cash, cash equivalents and restricted cash and investments is primarily related to the continued investment in commercialization activities and post approval commitments of our approved drug, LUPKYNIS, inventory purchases, advancement of our pipeline and athe second monoplant capital expenditure payment ~~for the achievement of a one-time milestone,~~ partially offset by an increase in cash receipts from sales of LUPKYNIS. Cash, cash equivalents and restricted cash and investments are primarily held in U.S. dollars. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had working capital of ~~$417.9~~$354.2 million and ~~$472.7~~$396.4 million, respectively.

We are devoting the majority of our operational efforts and financial resources towards the commercialization and ~~post~~post- approval commitments of our approved drug, LUPKYNIS. We are also expending efforts towards the development of our AUR200 and AUR300 assets. Taking into consideration the cash and cash equivalents and short-term investments as of ~~September~~June 30, ~~2022,~~2023, we believe that our cash position is sufficient to fund our current plans which include funding commercial activities, ~~including~~such as our FDA related post approval commitments, manufacturing and packaging commercial drug supply, funding

our supporting commercial infrastructure, advancing our R&D programs and funding our working capital obligations for at least the next few years.

Cash Flow Summary

The following table summarizes our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~September~~June 30, ~~2021:~~2022:


		Nine Months Ended September 30,					Six Months Ended June 30,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Net cash (used in) provided by:	Net cash (used in) provided by:					Net cash (used in) provided by:
Operating activities	Operating activities	$	(89,979)	$	(131,770)	Operating activities	$	(34,496)	$	(74,617)
Investing activities	Investing activities	(57,614)		(98,383)		Investing activities	19,252		(7,396)
Financing activities	Financing activities	1,745		15,390		Financing activities	2,779		1,745
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	(145,848)	$	(214,763)	Net decrease in cash and cash equivalents	$	(12,465)	$	(80,268)

Net cash used in operating activities was ~~$90.0~~$34.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$131.8~~$74.6 million for the ~~nine~~six months ended ~~September~~June 30, 2021. Net cash used in both periods was primarily related to the continued investment in commercialization activities, payments made for our ongoing post approval obligations, advancement of our pipeline, and inventory purchases partially offset by cash receipts from sales of LUPKYNIS.2022. The decrease in net cash used in operating activities is primarily due to an increase in cash receipts from sales of LUPKYNIS. See "Revenues" above for further discussion regarding our increased sales of LUPKYNIS.

Cash ~~used in~~provided by investing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$57.6~~$19.3 million compared to cash used in investing activities of ~~$98.4~~$7.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~increase in cash provided by investing activities was primarily related to the timing of purchases of investments offset by proceeds of maturities of investments and ~~a nonrecurring upfront lease and license~~the second capital expenditure payment ~~made during~~for the ~~nine months ended 2021.~~monoplant.

Cash provided by financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~$1.7~~$2.8 million compared to cash provided by financing activities of ~~$15.4~~$1.7 million during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~change was primarily due to ~~less~~increased proceeds from the exercise of stock options.

Off‑Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off‑balance sheet arrangements as such term is defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Act.

Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

Our activities can expose us to market risks which include interest rate risk, foreign currency risk, inflation risk and credit risk. Risk management is carried out by management under policies approved by our Board of Directors, with oversight provided by the Audit Committee of our Board of Directors. Our overall risk management program seeks to minimize adverse effects on our financial performance.

Interest Rate Risk

Financial assets and financial liabilities with variable interest rates expose us to cash flow interest rate risk. We manage our interest rate risk by maximizing the interest income earned on excess funds while maintaining the liquidity necessary to conduct

operations on a day-to-day basis. As of ~~September~~June 30, ~~2022,~~2023, our investment portfolio includes cash, cash equivalents, restricted cash and investments of ~~$376.6~~$350.7 million that earn interest at ~~market~~various rates. Our investment portfolio is maintained in accordance with our investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. Our investments held during the year were comprised of highly rated instruments such as certificates of deposits, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities. As of ~~September~~June 30, ~~2022,~~2023, these instruments have a maturity of less than a year.

As of ~~September~~June 30, ~~2022,~~2023, a hypothetical decrease of 100 basis points on the interest rates of our investments would result annually in ~~$2.9~~$2.7 million less interest in our portfolio.

Accounts receivable, accounts payable and accrued liabilities bear no interest. We do not believe that ~~the~~our results of operations or cash flows would be affected to ~~any~~a significant degree by a sudden change in market interest rates relative to our investment portfolio.

Foreign Currency Risk

We are exposed to financial risk related to the fluctuation of foreign currency exchange rates. Foreign currency risk for the Company is the risk variations in exchange rates between the U.S. dollar and foreign currencies, primarily with the Canadian dollar, Swiss Franc, Euro and Great British Pound, which could affect our operating and financial results. ~~The majority of our cash is held in U.S. dollars and a Canadian denominated bank account.~~

As of ~~September~~June 30, ~~2022,~~2023, we had a ~~10% increase of~~$93.4 million finance lease liability on our balance sheet related to the ~~Canadian dollar would have increased the net loss by $0.1 million assuming all other variables remained constant.~~monoplant. An assumed 10% ~~weakening~~fluctuation in the Swiss Franc would have an approximate $9.3 million fluctuation in the valuation of the ~~Canadian dollar~~lease liability.

As of June 30, 2023, we had approximately $4.1 million of foreign denominated third-party payables included in our accounts payable and accrued liabilities. An assumed 10% fluctuation in the exchange rates associated with those payables would have ~~had~~ an ~~equal but opposite effect to~~approximate $0.4 million fluctuation in the amounts ~~shown above, on the basis all other variables remain constant.~~ due.

There were no other foreign currency fluctuations that would have had a material impact on our financial condition or results of operations as of ~~September~~June 30, ~~2022.~~2023.

Inflation Risk

Inflation has ~~increased during the~~been increasing in recent periods ~~covered by this Quarterly Report~~ and is expected to continue to ~~increase for~~be volatile in the ~~near~~ future. Inflation generally affects us by increasing our cost of labor, commercial support, manufacturing and clinical trial expenditures. In addition, ~~due~~inflation also impacts our government rebates as it pertains to the ~~increasing interest rates and market volatility, our~~consumer price index (CPI) penalty. Our investment portfolio may ~~have higher yields with short-term maturities of nine months or less which could in turn increase~~experience the risk of realized losses on our short-term investments if we were to sell before ~~maturity.~~maturity due to the market volatility caused by increased interest rates.

Credit Risk

Our exposure to credit risk generally consists of cash and cash equivalents, short-term investments and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions and invest the excess cash in highly rated investments. Our investment policy limits investments to certain types of debt and money market instruments issued by institutions primarily with investment grade credit ratings and places restriction on maturities and concentrations by asset class and issuer. We do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio, due to the short-term nature of the investments and our current ability to hold these investments to maturity. We actively monitor our cash and portfolio of investments and in particular have validated that we at no point held any deposits or securities or maintained any accounts at any banks that were subject to action from the Federal Deposit Insurance Corporation (FDIC).

We are subject to credit risk in connection with our accounts receivable due from our two customers ~~and our collaboration partner~~ which accounted for ~~99%~~approximately 98% of our net trade accounts receivable balances as of ~~September~~June 30, ~~2022.~~2023. We monitor economic conditions, including the creditworthiness of our customers and ~~government regulations and funding, both domestically and abroad.~~collaboration partner. We regularly communicate with our customers regarding the status of receivable ~~balances.~~balances and have not experienced and issues with collectability. The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Our standard credit terms range from 30 to 45 days. During the quarter ended ~~September~~June 30, ~~2022,~~2023, we did not recognize any allowance for doubtful accounts receivable related to credit risk for our ~~customers.~~customers or write any amounts off.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of ~~September~~June 30, ~~2022,~~2023, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time

periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended ~~September~~June 30, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2426

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

~~There~~Other than as set out below, there are no material developments to report in respect of the litigation described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021 or~~2022.

On April 15, 2022, a purported shareholder class action complaint, Ortmann v. Aurinia Pharmaceuticals, Inc. et al., case no. 1:22-cv-02185, was filed in the ~~Company's Quarterly Report on Form 10-Q~~United States District Court for the ~~quarter ended~~Eastern District of New York (Eastern District of New York), naming us and certain of our officers as defendants. The lawsuit alleges that we made materially false and misleading statements regarding our financial guidance and commercial prospects in violation of certain federal securities laws. The plaintiff seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys’ fees. On June ~~30, 2022.~~2, 2022, the case was transferred from the Eastern District of New York to the United States District Court for the District of Maryland. On February 20, 2023, the Court appointed a lead plaintiff and approved the lead plaintiff’s selection of lead counsel. On May 22, 2023 the lead plaintiff filed their amended complaint. We intend to continue vigorously defending ourselves in this action, including, among other things, filing a motion to dismiss the amended complaint once the Court authorizes us to do so.

Item 1A. Risk Factors.

Under Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 we identified important factors that could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Quarterly Report. There has been no material change in our risk factors subsequent to the filing of our prior reports referenced above except as mentioned below. However, the risks described in our reports are not the only risks we face. Additional risks and uncertainties that we currently deem to be immaterial or not currently known to us, as well as other risks reported from time to time in our reports to the SEC, also could cause our actual results to differ materially from our anticipated results or other expectations.

In response to the ongoing armed conflict in Ukraine, the U.S. government, numerous state governments, the EU and other countries in which we conduct business have imposed a wide range of economic sanctions that restrict commerce and business dealings with Russia, certain regions of Ukraine and certain entities. This conflict may also precipitate or amplify the other risks described herein and in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, Part I. Item A. Risk Factors including risks relating to cyber security, global economic conditions and supply chains which could adversely affect our business, operations and financial condition and results.

We report on various metrics relating to LUPKYNIS activity, and none of these metrics, in and of themselves, is indicative of current or future financial performance

We report on various metrics relating to LUPKYNIS activity, including the number of PSFs, conversion rates (being the proportion of PSFs that convert into patients on therapy), persistency rates (being how long patients on therapy remain on therapy), and numbers of patients on therapy. None of these metrics, in and of themselves, is indicative of current or future financial performance. There is no guarantee that a patient for whom we receive a PSF will become a patient on therapy. Converting a patient from a PSF into a patient on therapy includes multiple steps, many of which are outside of our control, such as patients and doctors needing to coordinate applications relating to insurance coverage for LUPKYNIS, and potentially one or more appeals if coverage is denied initially. We refer to patients for whom we receive a PSF but that never convert into a patient on therapy as a cancellation. Cancellations result in zero revenue. Even when a patient becomes a patient on therapy, there is no guarantee that they will be a patient for which we receive revenue (as certain patients are eligible for our free drug program), or that they will remain on drug for any period of time (whether due to a reduction in LN activity, an actual (or perceived) drug-related adverse event, or from a lack of taking medication, or otherwise). Patients on therapy may also not take their prescribed dose of LUPKYNIS in the manner and at the times prescribed by their doctor, which could result in reduced orders of LUPKYNIS in respect of that patient on therapy versus a patient that is prescribed a higher dose of LUPKYNIS and follows their prescription exactly as prescribed. We refer to patients who have converted from a PSF into a patient on therapy, but who subsequently cease treatment (for any reason), as discontinuations. A patient on therapy who discontinues treatment

results in zero future revenue, and discontinuations can occur at any time once a patient commences therapy. Accordingly, our PSF activity, and related metrics, are not in and of themselves directly indicative of our current or future financial performance.

Our revenue to date is primarily the result of our two main customers in the United States (our two specialty pharmacies) who order LUPKYNIS for dispensing to patients (see further under "Critical Accounting Policies and Significant Judgments and Estimates - Product Revenue" earlier in this Quarterly Report for further discussion). The orders for product from our two main customers do not necessarily correlate to our PSF numbers. Our revenue could therefore fluctuate in a manner contrary to our PSF trends, both where revenue could be greater than a PSF trend would indicate, or where revenue could be lesser than a PSF trend would indicate. Therefore, while we report on PSFs and related figures to provide an indication of potential prescription activity for LUPKYNIS, there is no single metric that is directly correlated to, or indicative of, our future financial performance.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of this report:



Exhibit Number						Description

3.1						Articles of Amalgamation, as amended, as currently in effect (filed as Exhibit 3.1 to the Company's Annual Report on Form 10-K with the SEC on February 24, 2021 and incorporated herein by reference)

3.2						Amended and Restated By-Law No. 2 amended as of April 23, 2021 (filed as Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on April 27, 2021 and incorporated herein by reference)

~~10.22~~+#						~~Employment Agreement between Aurinia Pharma U.S. Inc., and Volker Knappertz, M.D., dated July 11, 2022~~

~~10.23~~+#						~~Employment Agreement between Aurinia Pharma U.S. Inc., and Scott Habig dated June 27, 2022~~

~~10.24~~+#*						~~Separation Agreement between Aurinia Pharma U.S. Inc. and Max Colao dated~~ ~~August 12,~~ ~~2022~~

~~10.25~~+#*						~~Separation Agreement between Aurinia Pharmaceuticals Inc. and Neil Solomons dated October 20, 2022~~

~~10.26~~+#*						~~Separation Agreement between Aurinia Pharmaceuticals Inc. and Rob Huizinga dated October 20, 2022~~

~~10.46~~#						~~Supply Agreement by and between Aurinia Pharmaceuticals Inc. and Otsuka Pharmaceutical Co. Ltd. dated August 1, 2022~~

31.1*						Certification of Principal Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*						Certification of Principal Financial Officer pursuant to Rules 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**						Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH*						Inline XBRL Taxonomy Extension Schema Document

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


*						Filed herewith.
**						Furnished herewith. Exhibits 32.1 and 32.2 are being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing.
+						~~Indicates a management contract of compensatory plan.~~
#						~~Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because they are not material and are the type that Aurinia treats as private or confidential.~~

2629

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	AURINIA PHARMACEUTICALS INC.

~~November~~August 2, ~~2022~~2023	By:	/s/ Peter Greenleaf
		Peter Greenleaf
		Chief Executive Officer, Director (Principal Executive Officer)

~~November~~August 2, ~~2022~~2023	By:	/s/ Joseph Miller
		Joseph Miller
		Chief Financial Officer (Principal Financial and Accounting Officer)

2730


	Common Shares
Three Months Ended September 30, 2022	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at June 30, 2022	141,892	$	1,180,884	$	74,004	$	(1,853)	$	(829,267)	$	423,768
Shares issued on exercise of stock options and vesting of performance awards and restricted stock units	218	3,136		(3,136)		—		—		—

Share-based compensation	—	—		8,320		—		—		8,320
Unrealized gain on available-for-sale securities, net	—	—		—		326		—		326
Net loss	—	—		—		—		(8,989)		(8,989)
Balance at September 30, 2022	142,110	$	1,184,020	$	79,188	$	(1,527)	$	(838,256)	$	423,425

	Common Shares
Three Months Ended September 30, 2021	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at June 30, 2021	128,396	954,572		51,022		(792)		(672,545)		332,257
Shares issued on exercise of stock options	1,172	12,579		(3,505)		—		—		9,074
Exercise of warrants	2	8		(2)		—		—		6
Shared-based compensation	—	—		7,092		—		—		7,092
Unrealized loss on available-for-sale securities, net	—	—		—		(2)		—		(2)
Net loss	—	—		—		—		(50,255)		(50,255)
Balance at September 30, 2021	129,570	$	967,159	$	54,607	$	(794)	$	(722,800)	$	298,172

	Common Shares
Nine Months Ended September 30, 2022	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at December 31, 2021	141,600	$	1,177,051	$	59,014	$	(852)	$	(756,122)	$	479,091
Shares issued on exercise of stock options and vesting of performance awards and restricted stock units	383	5,064		(4,542)		—		—		522
Issuance of common shares in conjunction with ESPP program	127	1,905		(682)		—		—		1,223
Share-based compensation	—	—		25,398		—		—		25,398
Unrealized loss on available-for-sale securities, net	—	—		—		(675)		—		(675)
Net loss	—	—		—		—		(82,134)		(82,134)
Balance at September 30, 2022	142,110	$	1,184,020	$	79,188	$	(1,527)	$	(838,256)	$	423,425

	Common Shares
Nine Months Ended September 30, 2021	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at December 31, 2020	126,725	$	944,328	$	39,383	$	(805)	$	(575,156)	$	407,750
Shares issued on exercise of stock options	2,324	22,097		(6,745)		—		—		15,352
Exercise of warrants	521	734		(697)		—		—		37
Shared-based compensation	—	—		22,666		—		—		22,666
Unrealized gain on available-for-sale securities, net	—	—		—		11		—		11
Net loss	—	—		—		—		(147,644)		(147,644)
Balance at September 30, 2021	129,570	$	967,159	$	54,607	$	(794)	$	(722,800)	$	298,172


(in thousands)	Operating Lease Payments
Remainder of 2022	$	263
2023	1,061
2024	1,085
2025	1,110
2026	1,135
Thereafter	5,638
Total future minimum lease payments	10,292
Less: lease imputed interest	(2,104)
Total future minimum lease payments	$	8,188