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 June 30, 2021March 31, 2022
OR
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
Victoria, British Columbia V8Z 7X8
46-412907898-1231763
(Address of principal executive offices)(I.R.S. Employer
Identification Number)
(250) 708-4272
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 filerAccelerated filer
Non-accelerated filerSmaller 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 August 4, 2021,May 9, 2022, the registrant had 128,395,927141,741,580 of common shares outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common shares, no par valueAUPHThe Nasdaq Global Market LLC



AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30,
2021
December 31, 2020March 31, 2022December 31, 2021
(unaudited)(unaudited)
ASSETSASSETSASSETS
Current assetsCurrent assetsCurrent assets
Cash and cash equivalents$121,561 $272,350 
Cash, cash equivalents and restricted cashCash, cash equivalents and restricted cash$132,542 $231,900 
Short-term investmentsShort-term investments197,176 125,979 Short-term investments286,210 234,178 
Accounts receivable, netAccounts receivable, net4,418 Accounts receivable, net20,401 15,414 
Inventories, netInventories, net17,376 13,927 Inventories, net26,266 19,326 
Prepaid expenses and other current assetsPrepaid expenses and other current assets9,158 7,171 Prepaid expenses and other current assets12,199 12,506 
Total current assetsTotal current assets349,689 419,427 Total current assets477,618 513,324 
Non-current assetsNon-current assetsNon-current assets
Long-term investments5,004 24,380 
Other non-current assetsOther non-current assets11,856 247 Other non-current assets11,838 11,838 
Property and equipment, netProperty and equipment, net4,813 4,786 Property and equipment, net4,332 4,418 
Acquired intellectual property and other intangible assets, netAcquired intellectual property and other intangible assets, net9,291 9,332 Acquired intellectual property and other intangible assets, net7,882 8,404 
Right-of-use assetsRight-of-use assets5,615 5,489 Right-of-use assets5,232 5,383 
Total assetsTotal assets386,268 463,661 Total assets506,902 543,367 
LIABILITIESLIABILITIESLIABILITIES
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payable and accrued liabilitiesAccounts payable and accrued liabilities25,831 24,797 Accounts payable and accrued liabilities32,327 34,947 
Other current liabilities (of which $2,000 and $6,000, due to related party in 2021 and 2020, respectively)2,372 6,412 
Other current liabilitiesOther current liabilities502 4,640 
Operating lease liabilitiesOperating lease liabilities1,112 788 Operating lease liabilities1,009 1,059 
Total current liabilitiesTotal current liabilities29,315 31,997 Total current liabilities33,838 40,646 
Non-current liabilitiesNon-current liabilitiesNon-current liabilities
Other non-current liabilities16,872 16,295 
Deferred compensation and other non-current liabilitiesDeferred compensation and other non-current liabilities17,379 15,950 
Operating lease liabilitiesOperating lease liabilities7,824 7,619 Operating lease liabilities7,562 7,680 
Total liabilitiesTotal liabilities54,011 55,911 Total liabilities58,779 64,276 
Commitments and contingencies (Note 18)Commitments and contingencies (Note 18)00Commitments and contingencies (Note 18)00
SHAREHOLDER’S EQUITYSHAREHOLDER’S EQUITYSHAREHOLDER’S EQUITY
Common shares - no par value, unlimited shares authorized, 128,396 and 126,725 shares issued and outstanding as at June 30, 2021 and December 31, 2020, respectively954,572 944,328 
Common shares - no par value, unlimited shares authorized, 141,742 and 141,600 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectivelyCommon shares - no par value, unlimited shares authorized, 141,742 and 141,600 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively1,178,807 1,177,051 
Additional paid-in capitalAdditional paid-in capital51,022 39,383 Additional paid-in capital64,686 59,014 
Accumulated other comprehensive lossAccumulated other comprehensive loss(792)(805)Accumulated other comprehensive loss(1,618)(852)
Accumulated deficitAccumulated deficit(672,545)(575,156)Accumulated deficit(793,752)(756,122)
Total shareholder’s equity332,257 407,750 
Total shareholders' equityTotal shareholders' equity448,123 479,091 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$386,268 $463,661 Total liabilities and shareholders’ equity$506,902 $543,367 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1


AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
Three months endedSix months endedThree months ended
June 30,June 30,March 31,
202120202021202020222021
(unaudited)(unaudited)(unaudited)
RevenueRevenueRevenue
Product revenue, netProduct revenue, net$6,591 $$7,475 $Product revenue, net$21,492 $884 
License revenue29 29 59 59 
Total revenue6,620 29 7,534 59 
Operating expenses:
License and collaboration revenueLicense and collaboration revenue133 30 
Total revenue, netTotal revenue, net21,625 914 
Operating expensesOperating expenses
Cost of salesCost of sales308 356 Cost of sales256 48 
Selling, general and administrativeSelling, general and administrative43,786 15,449 83,068 26,502 Selling, general and administrative45,197 39,805 
Research and developmentResearch and development10,091 11,076 19,924 24,911 Research and development12,620 9,833 
Amortization of intangible assets536 300 1,059 586 
Other (income) expense, net(967)67 804 1,983 
Total cost and operating expenses53,754 26,892 105,211 53,982 
Other expense, netOther expense, net1,434 1,771 
Total cost of sales and operating expensesTotal cost of sales and operating expenses59,507 51,457 
Loss from operationsLoss from operations(47,134)(26,863)(97,677)(53,923)Loss from operations(37,882)(50,543)
Interest incomeInterest income142 321 314 1,211 Interest income262 172 
Net loss before income taxesNet loss before income taxes(46,992)(26,542)(97,363)(52,712)Net loss before income taxes(37,620)(50,371)
Income tax expense (benefit)18 26 (236)
Income tax expenseIncome tax expense10 
Net lossNet loss(47,010)(26,544)(97,389)(52,476)Net loss(37,630)(50,379)
Other comprehensive loss:Other comprehensive loss:Other comprehensive loss:
Unrealized gain on available-for-sale securities, net of tax of $NaN7 13 
Unrealized (loss) gain on available-for-sale securities, net of tax of nilUnrealized (loss) gain on available-for-sale securities, net of tax of nil(766)
Comprehensive lossComprehensive loss$(47,003)$(26,544)$(97,376)$(52,476)Comprehensive loss$(38,396)$(50,373)
Basic and diluted loss per shareBasic and diluted loss per share$(0.37)$(0.24)$(0.76)$(0.47)Basic and diluted loss per share$(0.27)$(0.40)
Weighted-average common shares outstanding used in computation of basic and diluted loss per shareWeighted-average common shares outstanding used in computation of basic and diluted loss per share128,222 112,576 127,814 112,392 Weighted-average common shares outstanding used in computation of basic and diluted loss per share141,675 127,401 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
Common SharesCommon Shares
Three months ended
June 30, 2021
SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at March 31, 2021128,121 $952,673 $43,889 $(799)$(625,535)$370,228 
Shares issued on exercise of stock options275 1,899 (620)  1,279 
Exercise of warrants     0 
Three Months Ended March 31, 2022Three Months Ended March 31, 2022SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2021Balance at December 31, 2021141,600 $1,177,051 $59,014 $(852)$(756,122)$479,091 
Shares issued on exercise of stock options and vesting of performance awardsShares issued on exercise of stock options and vesting of performance awards142 1,756 (1,351)— — 405 
Share-based compensationShare-based compensation  7,753   7,753 Share-based compensation— 7,023 — — 7,023 
Other comprehensive income— — — 7 — 7 
Unrealized loss on available-for-sale securitiesUnrealized loss on available-for-sale securities— — — (766)$— (766)
Net lossNet loss    (47,010)(47,010)Net loss— — — — $(37,630)(37,630)
Balance at June 30, 2021128,396 $954,572 $51,022 $(792)$(672,545)$332,257 
Balance at March 31, 2022Balance at March 31, 2022141,742 $1,178,807 $64,686 $(1,618)$(793,752)$448,123 
Common SharesCommon Shares
Three months ended
June 30, 2020
SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at March 31, 2020112,487 $750,940 $27,359 $(805)$(498,408)$279,086 
Three Months Ended March 31, 2021Three Months Ended March 31, 2021SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2020Balance at December 31, 2020126,725 944,328 39,383 (805)(575,156)407,750 
Shares issued on exercise of stock optionsShares issued on exercise of stock options218 1,418 (463)— — 955 Shares issued on exercise of stock options877 7,619 (2,620)— — 4,999 
Exercise of warrantsExercise of warrants— (1)— — — (1)Exercise of warrants519 726 (695)— — 31 
Shared-based compensationShared-based compensation— — 4,202 — — 4,202 Shared-based compensation— — 7,821 — — 7,821 
Net loss and comprehensive loss for the period— — — (26,544)(26,544)
Balance at June 30, 2020112,705 $752,357 $31,098 $(805)$(524,952)$257,698 
Unrealized gain on available-for-sale securitiesUnrealized gain on available-for-sale securities— — — — 
Net lossNet loss— — — — (50,379)(50,379)
Balance at March 31, 2021Balance at March 31, 2021128,121 $952,673 $43,889 $(799)$(625,535)$370,228 
Common Shares
Six months ended
June 30, 2021
SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2020126,725 $944,328 $39,383 $(805)$(575,156)$407,750 
Shares issued on exercise of stock options1,152 9,518 (3,240)  6,278 
Exercise of warrants519 726 (695)  31 
Share-based compensation  15,574   15,574 
Other comprehensive income   13  13 
Net loss    (97,389)(97,389)
Balance at June 30, 2021128,396 $954,572 $51,022 $(792)$(672,545)$332,257 
Common Shares
Six months ended
June 30, 2020
SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2019111,798 $746,487 $25,394 $(805)$(472,476)$298,600 
Shares issued on exercise of stock options906 5,868 (1,993)— — 3,875 
Exercise of warrants(1)— — 
Shared-based compensation— — 7,698 — — 7,698 
Net loss and comprehensive loss for the period— — — (52,476)(52,476)
Balance at June 30, 2020112,705 $752,357 $31,098 $(805)$(524,952)$257,698 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Six Months EndedThree Months Ended March 31,
June 30,20222021
20212020
(unaudited)
(in thousands)(in thousands)(unaudited)
Cash flows used in operating activities:Cash flows used in operating activities:Cash flows used in operating activities:
Net lossNet loss$(97,389)$(52,476)Net loss$(37,630)$(50,379)
Adjustments to reconcile net loss to net cash used in operating activitiesAdjustments to reconcile net loss to net cash used in operating activitiesAdjustments to reconcile net loss to net cash used in operating activities
Depreciation of property and equipment331 31 
Amortization of intangible assets1,059 586 
Depreciation and amortizationDepreciation and amortization687 688 
Amortization of operating lease right-of-use assetsAmortization of operating lease right-of-use assets151 (272)
Share-based compensation expenseShare-based compensation expense15,574 7,698 Share-based compensation expense7,023 7,821 
Other, netOther, net(2,904)1,071 Other, net1,514 (2,111)
Net changes in operating assets and liabilitiesNet changes in operating assets and liabilitiesNet changes in operating assets and liabilities
Accounts receivableAccounts receivable(4,418)(162)Accounts receivable(4,986)(1,187)
InventoriesInventories(3,449)Inventories(6,940)(2,009)
Prepaid expenses and other current assetsPrepaid expenses and other current assets(1,987)(4,411)Prepaid expenses and other current assets307 308 
Non-current assetsNon-current assets229 Non-current assets 229 
Right of use assets(126)(5,649)
Accounts payable and accrued liabilities1,031 2,464 
Accounts payable, accrued and other liabilitiesAccounts payable, accrued and other liabilities(6,704)(7,103)
Lease liabilitiesLease liabilities529 6,202 Lease liabilities(168)474 
Net cash used in operating activitiesNet cash used in operating activities(91,520)(44,646)Net cash used in operating activities(46,746)(53,541)
Cash flows used in investing activities:Cash flows used in investing activities:Cash flows used in investing activities:
Purchase of investmentsPurchase of investments(216,987)(31,954)Purchase of investments(163,504)(115,168)
Proceeds from investmentsProceeds from investments164,651 0Proceeds from investments110,566 60,940 
Purchases of equipment(358)(427)
Upfront lease paymentUpfront lease payment(11,838)Upfront lease payment (11,838)
Purchase of long-lived assetsPurchase of long-lived assets(79)(136)
Additions to internal use-software implementation costsAdditions to internal use-software implementation costs(1,039)(375)Additions to internal use-software implementation costs (1,039)
Capitalized patent costsCapitalized patent costs(6)(79)Capitalized patent costs (6)
Net cash used in investing activitiesNet cash used in investing activities(65,577)(32,835)Net cash used in investing activities(53,017)(67,247)
Cash flows from financing activitiesCash flows from financing activitiesCash flows from financing activities
Proceeds from exercise of stock optionsProceeds from exercise of stock options6,278 3,875 Proceeds from exercise of stock options405 4,999 
Proceeds from exercise of warrantsProceeds from exercise of warrants30 Proceeds from exercise of warrants 30 
Cash provided by financing activitiesCash provided by financing activities6,308 3,876 Cash provided by financing activities405 5,029 
Net decrease in cash and cash equivalents(150,789)(73,605)
Cash and cash equivalents, beginning of period272,350 306,019 
Cash and cash equivalents, end of period$121,561 $232,414 
Net decrease in cash, cash equivalents and restricted cashNet decrease in cash, cash equivalents and restricted cash(99,358)(115,759)
Cash, cash equivalents and restricted cash, beginning of periodCash, cash equivalents and restricted cash, beginning of period231,900 272,350 
Cash, cash equivalents and restricted cash, end of periodCash, cash equivalents and restricted cash, end of period$132,542 $156,591 
Supplemental cash flow informationSupplemental cash flow informationSupplemental cash flow information
Cash received for interestCash received for interest$376 $1,211 Cash received for interest$13 $425 
Cash paid for taxes$(236)$(51)
Cash paid for amounts included in the measurement of lease liabilitiesCash paid for amounts included in the measurement of lease liabilities$(128)$Cash paid for amounts included in the measurement of lease liabilities$(281)$(63)
Supplemental disclosure of noncash transactionsSupplemental disclosure of noncash transactionsSupplemental disclosure of noncash transactions
Initial recognition of operating lease right-of-use assetInitial recognition of operating lease right-of-use asset$419 $5,804 Initial recognition of operating lease right-of-use asset$ $5,804 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheetsReconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash, cash equivalentsCash, cash equivalents$131,636 $156,591 
Restricted cashRestricted cash906 — 
Total cash, cash equivalents and restricted cashTotal cash, cash equivalents and restricted cash$132,542 $156,591 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4



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 commercial-stagefully integrated biopharmaceutical company focused on developing and commercializingdelivering therapies to treat targeted patient populations that are suffering fromimpacted by serious diseases with a high unmet medical need. TheIn January 2021, the Company has developed LUPKYNISTMintroduced 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)LN and continues to conduct pre-clinical, clinical, and regulatory advancement to support the voclosporin development program.
On January 22,August 17, 2021, the U.S. FoodCompany announced the addition of two novel assets AUR200 and AUR300. AUR200 is currently undergoing pre-clinical development with projected submission of an Investigational New Drug Administration (FDA) approved LUPKYNISApplication (IND) to the FDA in combination with a background immunosuppressive therapy regimen to treat adult patients with active LN.2023. The Company anticipates that an IND for AUR300 will also be submitted during 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 Avenue, Edmonton, Alberta. 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 both the Nasdaq Global Market (Nasdaq) under the symbol AUPH and on the Toronto Stock Exchange (TSX) under the symbol AUP. As of July 30, 2021, the Company's common shares will solely trade on the Nasdaq following the voluntary delisting by the Company from the TSX. Refer to Note 19 "Subsequent Event" for further discussion.AUPH.
2.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, 20202021 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 ourthe Company's Annual Report on Form 10-K for the year ended December 31, 2020.2021. The results of operations for the sixthree months ended June 30, 2021March 31, 2022 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.
The Company operates as 1 operating segment in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 280, Segment Reporting. The Company operatesconsolidation and operate in 1 operating segment engaged in the research, development and commercialization of therapeutic drugs in which revenues are derived from license, contract and product revenues. The Company's chief executive officer makes decisions for the Company and its subsidiaries as a whole. Accordingly, the Company operates and makes decisions as 1 reporting unit.segment.
These unaudited condensed consolidated financial statements are presented in U.S. dollars which is the Company's functional currency therefore there is no currency translation adjustment upon consolidation as the remeasurement of gains or losses are recorded in the condensed consolidated statementstatements of operations. All assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are remeasured at the average exchange rate during the 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.
We areThe Company is devoting the majority of our operational efforts and financial resources towards the commercialization and post approval commitments of our approved drug, LUPKYNIS. The Company is also expending efforts towards our newly acquired assets AUR200 and AUR300. Taking into consideration the Company's cash, and cash equivalents, restricted cash and investments of $323.7$418.8 million as of June 30, 2021,March 31, 2022, the Company believes that it has sufficient resources to fund its operations for at least one yearthe next few years beyond the date that the unaudited condensed consolidated financial statements are issued.
5


3.Summary of 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, 2020.2021.
Critical Accounting Estimates: The preparation of our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP, requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We believe the most complex judgments result primarily from the need to make estimates about the effects of matters that are inherently uncertain and are significant to our condensed consolidated financial statements. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We evaluate our estimates, judgments and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions or conditions and such differences may be material.
5

The most significant areas involving estimates, judgments and assumptions used in the preparation of our condensed consolidated financial statements are as follows:
Revenue recognition;
Cost of sales;
Inventory;
Royalty obligation;
Contingent accruals;
Clinical trial liabilities;
Share-based compensation;
Intangible assets;
Leases; and
Income taxes.
Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents, investments and accounts receivable. The Company attempts to minimize the risks related to cash and cash equivalents and investments by investing in a broad and diverse range of financial instruments. The Company established guidelines related to credit ratings and maturities intended to safeguard principal balances, earn a return on investments and to maintain liquidity. The Company's investment portfolio is maintained in accordance with its investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. The Company does not enter into any investment transaction for trading or speculative purposes.

The Company’s investment policy limits investments to certain typesRestricted cash: Restricted cash consists of instruments suchthe 2021 Employee Share Purchase Plan (2021 ESPP) deposits of $0.9 million and $0.3 million as certificates of deposit, money market instruments, obligations issued by the U.S. governmentMarch 31, 2022 and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. The Company may at times maintain cash balances in excess of amounts insured by the Federal Deposit Insurance Corporation and Canada Deposit Insurance Corporation and concentrated within a limited number of financial institutions. The accounts are monitored by management to mitigate the risk. The Company is exposed to financial risk related to the fluctuation of foreign currency exchange rates which could have a material effect on its future operating results or cash flows. Foreign currency risk is the risk that variations in exchange rates between the United States dollar and foreign currencies, primarily with the Canadian dollar, will affect the Company's operating and financial results. The Company holds the majority of its cash and cash equivalents in U.S. dollars and the majority of its expenses are also denominated in U.S. dollars, which limits the risk of material foreign exchange fluctuations.December 31, 2021, respectively.

Major Customers:
The Company currently has threetwo main customers for U.S. commercial sales of LUPKYNIS and one customer for sales of voclosporin in the European Union, Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine. Revenues from two specialty pharmaciescustomers accounted for approximately 61%54% and 36%45% respectively of the Company's total revenues for the three and six months ended June 30, 2021.March 31, 2022. 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, including their payment plans and obtains positive confirmation of the validity of the receivables. An allowance against accounts receivable is established, if needed, using an expected credit loss model. Global economic conditions and customer specific factors may require the Company to periodically re-evaluate the collectability of its receivables and the Company could potentially incur credit losses.
6


Investments: The Company classifies its debt securities at acquisition as either held to maturity or available-for-sale in accordance with the FASB ASC Topic 320, Investments — Debt Securities. Investments classified as held to maturity are carried at amortized cost when management has the positive intent and ability to hold them to maturity. Investments classified as available-for-sale are carried at fair value with unrealized gains and losses reported in other comprehensive income/loss within shareholders’ equity. Realized gains and losses on held to maturity and available-for-sale securities are recorded in other income (expense), net. Interest income is recorded separately on the consolidated statements of operations.The cost of securities sold is based on the specific-identification method.
Revenue Recognition: Pursuant to ASC Topic 606, Revenue from Contracts with Customers (ASC 606), the Company recognizes revenue when a customer obtains control of promised goods or services. The Company records the amount of revenue that reflects the consideration that it expects to receive in exchange for those goods or services. Revenue is recognized through a five-step process: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) a performance obligation is satisfied. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. Revenue is recognized for the applicable performance element when each distinct performance obligation is satisfied.
Product Revenues
In the United States (and territories), the Company sells LUPKYNIS primarily to two specialty pharmacies and a specialty distributor. These customers subsequently resell the Company's products to health care providers and patients. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically 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 estimates of reserves established for variable consideration are generally 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. Actual amounts may ultimately differ from the Company's estimates. If actual results vary, the Company adjusts these estimates, which could have an effect on earnings in the period of adjustment.
More specifically, these adjustments include the following:
Prompt pay discounts: The Company generally provides invoice discounts on product sales to its customers for prompt payment. The Company estimates that its customers will earn these discounts and fees, and deducts the full amount of these discounts and fees from its gross product revenues and accounts receivable at the time such revenues are recognized.
Customer fees: The Company pays certain customer fees, such as fees for certain data that customers provide to the Company. The Company records fees paid to its customers as a reduction of revenue, unless the payment is for a distinct good or service from the customer and the Company can reasonably estimate the fair value of the goods or services received. If both conditions are met, the Company records the consideration paid to the customer as a selling, general and administrative (SG&A) expense.
Government rebates: The Company estimates its government rebates, primarily Medicaid and Medicare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included in accrued expenses on the consolidated balance sheet.
Medicaid rebates relate to the Company's estimated obligations to states under established reimbursement arrangements. Rebate accruals are recorded in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability, which is included in other current liabilities. The Company's liability for Medicaid rebates consists of estimates for claims that a state will make for the current quarter, claims for prior quarters that have been estimated for which an invoice has not been received, invoices received for claims from the prior quarters that have not been paid and an estimate of potential future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.
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For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated potential future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.
Co-payment assistance: Co-payment assistance represents financial assistance to qualified patients, assisting them with prescription drug co-payments required by insurance. The program is administered by the specialty pharmacies. The calculation of the accrual adjustment for co-payment assistance is based on the co-payments made on the Company's behalf by the specialty pharmacies; and estimated potential future claims that will be made for product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.
License, Collaboration and Other Revenues
The Company enters into out-licensing agreements that are within the scope of ASC 606, under which it licenses certain rights to its product candidates to third parties. The terms of these arrangements typically include payment to the Company of one or more of the following: non-refundable, up-front license fees, development, regulatory and commercial milestone payments, payments for manufacturing supply services that the Company provides through its contract manufacturers, and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.
Licenses of intellectual property: If the license to the Company’s intellectual property (IP) is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Manufacturing supply services: Arrangements that include a promise for future supply of drug substance or drug product for either clinical development or commercial supply at the licensee’s discretion are generally considered as options. The Company assesses if these options provide a material right to the licensee and if so, they are accounted for as separate performance obligations.
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.
Research, Development and/or Manufacturing Services. The Company’s agreements may include research and development (R&D) or manufacturing services to be performed by the Company on behalf of the counterparty. If these services are determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company
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recognizes the transaction price allocated to these services as revenue over time based on an appropriate measure of progress when the performance by the Company does not create an asset with an alternative use and the Company has an enforceable right to payment for the performance completed to date. If these services are determined not to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes the transaction price allocated to the combined performance obligation as the related performance obligations are satisfied.
Cost of sales: Cost of sales consist primarily of cost of inventories for LUPKYNIS, which mainly includes third party manufacturing costs, transportation, storage, insurance and allocated internal labor and depreciation.
Research and development expenses: R&D expenses are accounted for in accordance with ASC Topic 730, Research and Development, and are expensed as incurred. R&D costs consist primarily of the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for R&D activities, including nonclinical studies, clinical trials, clinical manufacturing costs and professional services. The costs of services performed by others in connection with the R&D activities of the Company, including R&D conducted by others on behalf of the Company, shall be included in R&D costs and expensed as the contracted work is performed. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or project and the invoices received from its external service providers.
Selling, general and administrative expenses: The Company's SG&A expenses include commercial and allocated administrative personnel, corporate facility and external costs required to support the marketing and sales of LUPKYNIS. These SG&A costs include: corporate facility operating expenses and allocated depreciation; commercial, marketing, pharmacovigilance, publications, tradeshows, advisory boards and operations in support of LUPKYINIS; patient assistance program costs; human resources; finance, legal, information technology and support personnel expenses; and other corporate costs such as telecommunications, insurance, audit and government affairs. We expense SG&A expenses as they are incurred.
The Company uses a third-party logistics provider to perform a full order to cash service, which includes warehousing and shipping directly to specialty pharmacies, and receiving orders from a specialty distributor for shipping to hospitals, on our behalf. As such, since these costs are not integral to bringing the inventories to a salable condition, we elected not to treat shipping and handling costs as a fulfillment activity. Shipping and handling costs related to order fulfillment are recorded in SG&A expenses.
Accounts receivable, net: Accounts receivable are stated at their net realizable value. As of June 30,March 31, 2022 and December 31, 2021, accounts receivable, net are $4.4$20.4 million and $15.4 million. Estimates ofWe estimate the Company's allowance for doubtful accounts are determinedusing current expected credit loss model, or CECL model. Under the CECL model, the allowance for doubtful accounts reflects the net amount expected to be collected from the account receivables. We evaluate the collectability of these cash flows based on existingthe asset’s amortized cost, the risk of loss even when that risk is remote, losses over an asset’s contractual payment terms, historical payment patterns of our customerslife, and individual customer circumstances.other relevant information available to us. Accounts receivable balances are written off against the allowance when it is probable that
the receivable will not be collected. The allowance for doubtful accounts was NaN$nil as of June 30, 2021March 31, 2022 and as of December 31, 2020.2021.
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, forfeitures are estimated based on historical experience at the time of grant and revised 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
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requiresthat credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishesadditional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require allowances tobe recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized foravailable-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized creditlosses if fair value increases. The adoption of the standard as of January 1, 2020 did not have a material impact on the Company’s consolidated financialstatements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirement for Fair Value Measurement. Topic 820 requires to disclose transfers into and out of Level 3 of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities. For investments in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s assets and the date when the restrictions from redemptions might lapse only if the investee has communicated the timing to the entity or announced the timing publicly. The new standard also amends that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. The new standard is effective for fiscal years beginning after December 15, 2019. The standard should be applied retrospectively to the date of initial application of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The Company elected to adopt the amendment as of January 1, 2020, which did not have a material impact on the consolidated financial statements.
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In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the accounting for implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software under ASC 350-40, in order to determine which costs to capitalize and recognize as an asset and which costs to expense. ASU 2018-15 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, and can be applied either prospectively to implementation costs incurred after the date of adoption or retrospectively to all arrangements. The Company adopted ASU 2018-15 effective January 1, 2020.
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangement (Topic 808): Clarifying the Integration between Topic 808 and Topic 606. The new standard clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. Further, the new standard adds unit-of-account guidance to Topic 808 to align with the guidance in Topic 606 when an entity is assessing whether the collaborative arrangement or part of the arrangement is within the scope of Topic 606. The new standard requires that in transactions with a collaborative arrangement participant that is not directly related to sales to third parties, presenting under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The new standard is effective for fiscal years beginning after December 15, 2019. The standard should be applied retrospectively to the date of initial application of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company elected to adopt the amendment as of January 1, 2020, which did not have a material impact on the consolidated financial statements.
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. The standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2020. The Company elected to adoptadopted the amendment as ofASU effective January 1, 2021, which did not have awith 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.
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4.    Investments
As of June 30, 2021At March 31, 2022 and December 31, 2020,2021, the Company had $197.2$286.2 million and $5.0 million and $126.0 million and $24.4$234.2 million of short and long-termshort-term investments, respectively, mainly consisting of commercial paper and bonds as summarized below. As of June 30, 2021, the Company classifies its investments as debt securities of which $48.5March 31, 2022, $8.8 million are held to maturity debt securities which are carried at amortized cost and approximateare approximately equal to fair market value. As of June 30, 2021, $153.6March 31, 2022, $277.4 million are available-for-sale debt securities which are carried at fair market value. As of December 31, 2020, $150.42021, $215.0 million were classified as held to maturityavailable-for-sale and $NaN$19.2 million were available-for-sale.held-to-maturity.
(in thousands)(in thousands)June 30, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Cashable Guaranteed Investment CertificateCashable Guaranteed Investment Certificate$2,502 $2,000 Cashable Guaranteed Investment Certificate$3,128 $3,140 
Corporate BondCorporate Bond35,048 40,372 Corporate Bond60,390 21,820 
Commercial PaperCommercial Paper152,923 67,747 Commercial Paper152,295 206,724 
Treasury BillTreasury Bill3,910 7,999 Treasury Bill19,530 2,494 
Treasury BondTreasury Bond0 5,045 Treasury Bond50,867 — 
Yankee Bond2,793 2,816 
Total short-term investmentsTotal short-term investments197,176 125,979 Total short-term investments$286,210 $234,178 
Corporate Bonds - total long-term investments5,004 24,380 
Total investments$202,180 $150,359 

Currently, the Company does not intend to sell investments that are classified as held-to-maturity and has the ability and intent to hold these investments until maturity in order to collect interest payments over the life of the investments. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, accrued interest receivable from the investments were $0.3$0.5 million and $0.5$0.1 million, respectively. During the three and six months ended June 30,March 31, 2022 and 2021, the Company had $7$766 thousand and $13$6 thousand unrealized gainslosses on available-for-sale securities, net of tax, respectively, which are included as a component of comprehensive loss respectively.on the consolidated statements of operations. The Company's investments as of June 30, 2021March 31, 2022 mature at various dates through August 2022.January 2023.

5.    Inventories

Inventories are valued under a standard costing methodology on a first-in, first-out basis and are stated at the lower of cost or
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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. For our product LUPKYNIS, the Company commenced capitalization of inventory once FDA approval was deemed to be probable, which occurred during the third quarter of 2020. Capitalized costs of inventories for LUPKYNIS mainly include third party manufacturing costs, transportation, storage, insurance, depreciation 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.

The components of inventory as of June 30, 2021 and December 31, 2020 are as follows:
(in thousands)(in thousands)June 30, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Raw materialsRaw materials$2,217 $2,217 
Work in processWork in process$13,791 $13,927 Work in process19,713 12,566 
Finished goodsFinished goods3,585 Finished goods4,336 4,543 
Total inventoriesTotal inventories$17,376 $13,927 Total inventories$26,266 $19,326 


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6.Prepaid Expenses and Other Current Assets

The following table summarizes prepaidPrepaid expenses and other current assets.assets are as follows:

(in thousands)(in thousands)June 30, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Prepaid assetsPrepaid assets$4,092 $3,701 Prepaid assets$6,351 $5,316 
Prepaid insurancePrepaid insurance87 2,054 Prepaid insurance682 1,632 
Other current assetsOther current assets886 1,018 Other current assets3,966 796 
Prepaid depositsPrepaid deposits4,093 398 Prepaid deposits1,200 4,762 
Total prepaid expenses and other current assetsTotal prepaid expenses and other current assets$9,158 $7,171 Total prepaid expenses and other current assets$12,199 $12,506 

7.Intangible Assets
The following table summarizes the carrying amount of intangible assets, net of accumulated amortization.
June 30, 2021March 31, 2022
(in thousands)(in thousands)Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
(in thousands)Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
PatentsPatents$1,500 $(1,150)$350 Patents$1,471 $(1,200)$271 
Acquired intellectual property and reacquired rightsAcquired intellectual property and reacquired rights15,125 (8,287)6,838 Acquired intellectual property and reacquired rights15,126 (9,063)6,063 
Internal-use software implementation costsInternal-use software implementation costs2,714 (611)2,103 Internal-use software implementation costs2,873 (1,325)1,548 
$19,339 $(10,048)$9,291 $19,470 $(11,588)$7,882 
December 31, 2020December 31, 2021
(in thousands)(in thousands)Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
(in thousands)Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
PatentsPatents$1,651 $(1,203)$448 Patents$1,471 $(1,176)$295 
Acquired intellectual property and reacquired rightsAcquired intellectual property and reacquired rights15,126 (7,770)7,356 Acquired intellectual property and reacquired rights15,126 (8,804)6,322 
Internal-use software implementation costsInternal-use software implementation costs1,675 (147)1,528 Internal-use software implementation costs2,873 (1,086)1,787 
$18,452 $(9,120)$9,332 $19,470 $(11,066)$8,404 
Amortization expense for the three months ended June 30,March 31, 2022 and 2021 and 2020 was $0.5 million and $0.3 million, respectively, and for the six months ended June 30, 2021 and 2020 was $1.1 million and $0.6 million, respectively.both periods.

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8.    Property and Equipment, net
Property and equipment, as of June 30, 2021 and December 31, 2020net are as follows:
(in thousands)(in thousands)June 30, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Construction in progressConstruction in progress$455 $4,467 Construction in progress$472 $393 
Leasehold improvementsLeasehold improvements2,978 34 Leasehold improvements2,978 2,978 
Office equipment and furniture1,621 83 
Office equipmentOffice equipment645 645 
FurnitureFurniture976 976 
Computer equipmentComputer equipment265 381 Computer equipment260 262 
5,3194,9655,3315,254
Less accumulated depreciationLess accumulated depreciation(506)(179)Less accumulated depreciation(999)(836)
Property and equipment, netProperty and equipment, net$4,813 $4,786 Property and equipment, net$4,332 $4,418 
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Depreciation expense for the three month period ended June 30, 2021 and June 30, 2020 was $0.2 million and NaN, respectively, and for the six months ended June 30, 2021 and 2020 was $0.3 million and NaN. which is included in SG&A expenses in the condensed consolidated statements of operations.
9.    Lease Obligations
The Company has the following lease obligations:
Victoria, British Columbia
During the fourth quarter of 2020, the Company entered into facility and furniture leases for its head office located in Victoria, British Columbia for a total space of 13,206 square feet of office space for the facility lease. The lease terms commenced on January 1, 2021 for the facility and furniture leases. As of June 30, 2021,March 31, 2022, the Company had $0.3$0.1 million right-of-use assets (ROU assets) and $0.3$0.1 million lease liabilities related to the leases. The Company recognized operating lease costs that are included in SG&A expenseexpenses in the condensed consolidated statementstatements of operations. The incremental borrowing rate applied to the lease liabilities on January 1, 2021 was 4.08% based on financial position of the Company, geographical region and terms of leases.lease.
During August 2020, the Company signed a lease for commercial office space in Victoria, British Columbia. The lease term is expected to begin in 2022. The present value of the expected minimum lease payments for this lease are $3.4$2.3 million. As of June 30, 2021,March 31, 2022, the lease has not commenced and as a result, there has been no accounting recognition associated with the lease.
Rockville, Maryland
During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland.Maryland for a total of 30,531 square feet of office space. The lease has a remaining term of approximately 119 years and has an option to extend for 2 five-year periods after the initial term of 11 years has elapsed and has an option to terminate after seven years. As of June 30, 2021,March 31, 2022, the Company had a right-of-use asset of $5.3$5.1 million and lease liability of $8.5 million included in the condensed consolidated balance sheets. As of December 31, 2021, the Company had a right of use asset of $5.2 million and lease liability of $8.6 million included in the condensed consolidated balance sheets. As of December 31, 2020, theThe Company had a right of use asset of $5.5 million and lease liability of $8.4 million included in the condensed consolidated balance sheets. During 2020, the Company received reimbursements for tenantrecorded leasehold improvements by the landlordimprovement incentives in the amount of $2.3 million for the Maryland lease. The Company recorded these leasehold improvement incentives 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
DuringThe Company recognized the fourth quarter of 2020, the Company entered into an agreement to lease premises in Edmonton, Alberta commencing on October 1, 2020 and ending September 30, 2021. The lease agreement is consideredas a short-term lease as the termin which expenses are incurred in SG&A. The lease is twelve months. The Company recognizes short-term leases on a straight-line basis and did not record a related lease asset or liability for the Edmonton lease. The Company recognized short-term rent expense for this lease, which is included in SG&A expense in the condensed consolidated statement of operations.
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The following table provides supplemental balance sheet information relatedmaterial to the operating lease ROU assets and lease liabilities:
(in thousands)Balance Sheet ClassificationJune 30, 2021December 31, 2020
Assets
Operating lease right of-use assetsRight-of-use assets$5,615 $5,489 
Liabilities
Current operating lease liabilitiesCurrent operating lease liabilities1,112 788 
Non-current operating lease liabilitiesNon-current operating lease liabilities7,824 7,619 
Total lease liabilities$8,936 $8,407 

Company's financial position.
Beginning January 1, 2021, the Company began to incur variable lease costs under the existing Victoria and Rockville leases. These costs include operation and maintenance costs included in SG&A and are expensed as incurred. The variable leases costs are not material to the Company's financial position.
The operating lease costs for the three months ended March 31, 2022 and six month periods ended June 30, 2021. March 31, 2021 are $0.3 million for both periods.
The following table provides a summary ofsupplemental balance sheet information related to the components of leasing costsoperating lease ROU assets and rent for the three and six month periods ended June 30, 2021 and June 30, 2020.lease liabilities:
Three months ended
June 30,
Six Months Ended
June 30,
(in thousands)Consolidated Statement of OperationsJune 30,
2021
June 30,
2020
June 30,
2021
June 30,
2020
Operating lease costs
Operating lease costsSelling, general and administrative$261 $195 $522 $260 
Short-term lease costs
Office BuildingSelling, general and administrative7 65 14 141 
Variable lease costs
Office buildingSelling, general and administrative39 80 
Total rent expense$307 $261 $616 $403 
(in thousands)Balance Sheet ClassificationMarch 31, 2022December 31, 2021
Assets
Operating lease right of-use assetsNon-current assets$5,232 $5,383 
Liabilities
Current operating lease liabilitiesCurrent operating lease liabilities1,009 1,059 
Non-current operating lease liabilitiesNon-current operating lease liabilities7,562 7,680 
Total lease liabilities$8,571 $8,739 
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The following table represents the weighted-average remaining lease term and discount rate as of June 30, 2021:March 31, 2022:
As of June 30, 2021
Weighted Average Remaining Lease Term (years)Weighted Average Discount Rate
Operating leases9.865.19%
As of March 31, 2022
Weighted Average Remaining Lease Term (years)Weighted Average Discount Rate
Operating leases9.305.20%
The following table provides a summary of operating lease liabilities maturitiespayments for the next five years and thereafter:
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(in thousands)Operating Lease Payments
Remainder of 2021$423 
20221,147 
20231,061 
20241,085 
20251,109 
Thereafter6,773 
Total future minimum lease payments11,598 
Less: lease imputed interest(2,662)
Total future minimum lease payments$8,936 
Finance Lease
(in thousands)Operating Lease Payments
Remainder of 2022$863 
20231,061 
20241,085 
20251,110 
20261,135 
Thereafter5,638 
Total future minimum lease payments10,892 
Less: lease imputed interest(2,321)
Total future minimum lease payments$8,571 
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 equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacture 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 Company has commenced 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 whichand 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 due until the facility fulfills the required operational qualifications which is estimated to be the beginning ofduring 2023. Upon completion of the monoplant, the Company will have the right to maintain unobstructedsole dedicated use of the monoplant by paying a quarterly fixed facility fee.
The Company expects to account for the arrangement as a finance lease under ASC 842. The present value of the minimum lease payments total approximately $96.0$78.0 million, beginning April 2023 and expiring in 2030, and are not included in the above table.
The Company has entered into an equipment and facility finance lease for a backup manufacturing encapsulation site that has not yet commenced and is therefore, not included in the above table. As part of the agreement, the Company expects to make approximately $885 thousand of payments prior to lease commencement and the future value of minimum lease payments will total approximately $120 thousand.
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10.Accounts Payable and Accrued Liabilities
The following table summarizes the Company's accountsAccounts payable and accrued liabilities.liabilities are as follows:

(in thousands)(in thousands)June 30, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Trade payables$2,535 $2,635 
Accounts payableAccounts payable$3,267 $3,879 
Other accrued liabilitiesOther accrued liabilities7,996 6,616 Other accrued liabilities7,289 3,428 
Accrued R&D projectsAccrued R&D projects4,483 4,185 Accrued R&D projects5,409 4,383 
Employee accrualsEmployee accruals10,817 11,361 Employee accruals9,609 18,242 
Commercial accrualsCommercial accruals6,753 5,015 
Total accounts payable and accrued liabilitiesTotal accounts payable and accrued liabilities$25,831 $24,797 Total accounts payable and accrued liabilities$32,327 $34,947 


11.Deferred Compensation and Other Non-current Liabilities

The Company recorded other non-current liabilities of $16.9$17.4 million and $16.3$16.0 million as of June 30, 2021March 31, 2022 and December 31, 2020,2021, respectively. The balance as of June 30, 2021March 31, 2022 and December 31, 20202021 primarily included obligations that are the result of a resolution of the board of directors of the Company dated March 8, 2012deferred compensation arrangements whereby certain executive officers at that timeas 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 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.
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12.Fair Value Measurements
The Company's financial instruments consist primarily of cash and cash equivalents, 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 values of held to maturity and 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 Company's Level 1 instruments include deposits held with banks and short-term investments that are valued using quoted market prices. Level 2 instruments include the Company's short and long-termshort-term investments that are valued through third-party pricing services that use verifiable observable market data. The Company has no Level 3 instruments as of June 30, 2021March 31, 2022 and December 31, 2020.2021.
There were no transfers between Level 1, Level 2 and Level 3 instruments in the periods presented.
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The following tables present the financial assets measured at fair value on a recurring basis:
June 30, 2021March 31, 2022
(in thousands)(in thousands)Level 1Level 2Level 3Total(in thousands)Level 1Level 2Level 3Total
Assets:Assets:Assets:
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
Deposits held with banksDeposits held with banks$72,686 $0 $0 $72,686 Deposits held with banks$113,268 $ $ $113,268 
Short-term highly liquid investmentsShort-term highly liquid investments48,875 35,601 0 84,476 Short-term highly liquid investments19,274   19,274 
InvestmentsInvestments152,923 13,656 166,579 Investments152,295 133,915 — 286,210 
TotalTotal$284,837 $133,915 $ $418,752 
$274,484 $49,257 $0 $323,741 
December 31, 2020December 31, 2021
(in thousands)(in thousands)Level 1Level 2Level 3Total(in thousands)Level 1Level 2Level 3Total
Assets:Assets:Assets:
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
Deposits held with banksDeposits held with banks$130,807 $$$130,807 Deposits held with banks$214,702 $— $— $214,702 
Short-term highly liquid investmentsShort-term highly liquid investments141,543 141,543 Short-term highly liquid investments17,198 — — 17,198 
InvestmentsInvestments69,746 80,613 150,359 Investments206,724 27,454 — 234,178 
TotalTotal$438,624 $27,454 $— $466,078 
$342,096 $80,613 $$422,709 

Refer to Note 4, “Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.
13.License and Collaboration Agreements
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. It is anticipated that clinical development for AUR300 will commence during 2023.
Otsuka Contract

On December 17, 2020, the Company entered into a collaboration and license agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka) for the development and commercialization of oral LUPKYNIS for the treatment of patients with active LN in the EU, Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine.

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As part of the agreement, Aurinia received an upfront cash payment of $50.0 million for the license agreement and has the potential to receive up to $50.0 million in regulatory milestones. Aurinia will receive tiered royalties on future sales ranging from 10 to 20 percent (dependent on achievement of sale thresholds) on net sales upon commercialization, along with additional milestone payments based on the attainment of certain annual sales by Otsuka. In addition, voclosporin will becertain manufacturing services are provided to Otsuka underon a cost-plus supply agreement.basis.

The Company evaluated the Otsuka Agreement under ASC 606. Based on that evaluation, the license transferred was determined to be functional IP that has significant standalone functionality. That is, the treatment of LN and other diseases provides significant benefit to Otsuka at the point of transfer, and it is not expected that the utility of the IP will substantively change as a result of any remaining clinical trials or ongoing activities of Aurinia. The Company determined the upfront fee of $50.0 million was fixed consideration for the transfer of the license and was recognized upon transfer of the license in December 2020.

The remaining forms of consideration are variable because they are dependent on achieving milestones or are based on aggregate future net sales for the regions. None of the regulatory milestones have been included in the transaction price, as all milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered numerous
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factors, including the magnitude of a potential reversal of revenue, uncertainty about if or when the milestone related performance obligations might be achieved, and that receipt of the milestones are outside the control of the Company since they are dependent on efforts to be undertaken by Otsuka and regulatory approval by various foreign government agencies. Any consideration related to sales-based royalties (and sales-based thresholds) will be recognized when the related sales occur.

As of June 30, 2021 there has been 0 additional consideration earned or received sinceMarch 31, 2022, the upfront paymentCompany recorded $104 thousand of $50.0 million duringcollaboration revenue related to manufacturing services provided under the fourth quarter of 2020.Otsuka contract.
14.Net Loss per Common Share
Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Common shares that could potentially diluteSince the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per common share in the future that could be issued from the exercise of stock options and warrants were not included in the computation of the diluted loss per common share for the six month periods ended June 30, 2021 and June 30, 2020 because to do so would be anti-dilutive.share. The numerator and denominator used in the calculation of basic and diluted net loss per common share are as follows:
Three months ended
June 30,
Six Months Ended
June 30,
Three months ended
March 31,
(in thousands, except per share data)(in thousands, except per share data)2021202020212020(in thousands, except per share data)20222021
Net lossNet loss$(47,010)$(26,544)$(97,389)$(52,476)Net loss$(37,630)$(50,379)
Weighted average common shares outstandingWeighted average common shares outstanding128,222 112,576 127,814 112,392 Weighted average common shares outstanding141,675 127,401 
Net loss per common share (expressed in $ per share)Net loss per common share (expressed in $ per share)$(0.37)$(0.24)$(0.76)$(0.47)Net loss per common share (expressed in $ per share)$(0.27)$(0.40)
The outstanding number and type ofCompany did not include the securities in the following table would potentially dilute basicin the computation of the net loss per common share inbecause the future and therefore, were not included in the computation of diluted loss per share, because to do soeffect would have reduced the loss per common share (anti-dilutive).
Six months ended
June 30,
(in thousands)20212020
Stock options14,778 10,961 
Warrants1,014 1,690 
15,792 12,651 
been anti-dilutive during each period:

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Three months ended
March 31,
(in thousands)20222021
Stock options14,649 14,332 
Unvested performance awards 439 
Unvested restricted units1,952 — 
Warrants 1,014 
16,601 15,785 


15.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 additional 11.5aggregate of 23.8 million shares.shares (inclusive of outstanding awards) and provides for grants of stock options, performance awards, restricted stock and restricted stock units that may be settled in cash and stock. Also in June 2021, the Company's shareholders adopted and approved the Company's Employee Stock Purchase Plan (2021 ESPP),2021 ESPP, which allows for the issuance of up to 2.5 million shares. AsThe 2021 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of June 30,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 and December 31, 2020, 128.4 million and 126.7 million,ESPP is to provide eligible employees with opportunities to purchase the Company’s common shares were issued and outstanding.

at a discounted price.
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 day immediately prior to the date of grant. The board of directors approves the vesting criteria and periods at its discretion. The options issued under the 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 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
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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 six month periodsthree months ended June 30, 2021March 31, 2022 and June 30, 2020:March 31, 2021:
June 30, 2021June 30, 202020222021
Annualized volatilityAnnualized volatility66 %43%Annualized volatility70 %66 %
Risk-free interest rateRisk-free interest rate0.35 %0.83 %Risk-free interest rate1.73 %0.28 %
Expected life of options in yearsExpected life of options in years4.0 years3.0 yearsExpected life of options in years5.0 years4.0 years
Estimated forfeiture rateEstimated forfeiture rate8.8 %13 %Estimated forfeiture rate11.6 %8.9 %
Dividend rateDividend rate0.0 %0.0%Dividend rate0.0 %0.0%
Fair value per common share optionFair value per common share option$6.59 $5.20 Fair value per common share option$7.02 $6.72 

The following table summarizes the option award activity during the three months ended March 31, 2022:

March 31, 2022
Number of shares (in thousands)Weighted average exercise price $
Outstanding - Beginning of Period12,074 12.84 
Granted2,800 12.00 
Exercised(54)7.57 
Forfeited(171)16.27 
Outstanding - End of Period14,649 12.66 
Performance Awards and Restricted Stock Units
On October 23, 2020, the Company issued 439,000 performance awards (PAs) to executive management of the Company whose vesting is contingent upon meeting specific performance metrics based on the results for the year ended December 31, 2021. Each performance awardPA which vests entitles 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. As of March 31, 2022, approximately 88,000 PAs vested based on performance metrics achieved and 351,000 were canceled as of December 31, 2021 as performance metrics were not met.
On August 6, 2021, the Company granted approximately 619,000 PAs and restricted stock units (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 vest on the employee's first anniversary of the grant date and the employee must achieve at least one of the performance metrics to obtain the portion of the award associated with the metric. The RSUs have no performance metrics and will vest on the one year anniversary of the grant. As of December 31, 2021, approximately 375,000 PAs and RSUs were canceled or forfeited.
During the quarter, the Company has granted RSUs and intends to grant RSUs throughout the year under the Plan. The RSUs are fair valued based on the market price of our common stock on the date of the grant.
The following table summarizes the PAs and RSU activity for the three months ended March 31, 2022:
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March 31, 2022
Number of shares (in thousands)Weighted average exercise price $
Outstanding - Beginning of Period347 13.33 
Granted1,708 12.01 
Vested(88)13.56 
Forfeited(15)13.85 
Outstanding - End of Period1,952 12.16 
The Company recorded approximately $0.2 million and $0.4$1.9 million of share-based compensation expense related to executive performance awardsPAs and RSUs during the three and six month periods ended June 30, 2021.

The following table summarizes the equity award activity during the six months ended June 30, 2021:

June 30, 2021
Number of shares (in thousands)Weighted average exercise price $
Outstanding - Beginning of Period14,486 11.35 
Granted1,816 13.34 
Exercised(1,152)5.55 
Cancelled/Forfeited(372)14.37 
Outstanding - End of Period14,778 13.56 
Vested and expected to vest - End of Period1,812 13.90 
Options exercisable - End of Period5,628 9.35 
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March 31, 2022.
Compensation Expense
The Company recognized share-based compensation expense for the three months ended March 31, 2022 and six month periods ended June 30,March 31, 2021 and June 30, 2020 as follows:
Three months ended
June 30,
Six Months Ended
June 30,
(in thousands)(in thousands)June 30, 2021June 30, 2020June 30, 2021June 30, 2020(in thousands)20222021
Research and developmentResearch and development$1,089 $1,080 $2,163 $2,297 Research and development$976 $1,074 
Selling, general and administrativeSelling, general and administrative6,548 3,122 13,189 5,401 Selling, general and administrative5,972 6,641 
Capitalized under inventoriesCapitalized under inventories116 222 Capitalized under inventories75 106 
Share-based compensation expenseShare-based compensation expense$7,753 $4,202 $15,574 $7,698 Share-based compensation expense$7,023 $7,821 
As of June 30, 2021,March 31, 2022, there was $38.2$48.3 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 1.21.6 years.

16.Income Taxes

The effective tax rates for the three and six months ended June 30,March 31, 2022 and March 31, 2021 and June 30, 2020 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 expense of $18$10 thousand and $26$8 thousand for the three and six months ended June 30,March 31, 2022 and 2021, and an income tax expense (benefit) of $2 thousand and $236 thousand for the three and six months ended June 30, 2020, respectively. The expense recognized for the three and six months ended June 30, 2021 and three months ended June 30, 2020 wasthese periods is a result of income in a certain jurisdiction.jurisdictions. This tax expense is not offset by a tax 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 the examination is now complete and there were no findings and as a result, there is no additional tax expense or benefit recognized forin regards to the six months ended June 30, 2020 was a result of a discreteaudit. There are no outstanding tax benefit recorded in the US pursuant to certain tax provisions provided under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted in the United States onaudits ongoing at March 27, 2020. The CARES Act permits the Company to carry back net operating losses to offset taxable income generated in the five preceding years, some of which were taxed at a federal income tax rate higher than the current enacted rate.31, 2022.
17.Related Party Transactions
ILJIN isSNT Co., Ltd (ILJIN) was considered to be a related party due to their equity ownership of over 5%. as per their public filing. The outstanding related party amount payable to ILJIN iswas the result of a settlement completed on September 20, 2013 between ILJIN and the Company. During the first quarter of 2021, Aurinia paid $4.0 million upon achievement of specific milestones. The final $2.0 million outstanding amount payable was paid during the fourth quarter 2021. The amount payable to ILJIN of $2.0 million and $6.0 millionis nil as of June 30, 2021March 31, 2022 and December 31, 2020 was recorded in other current liabilities, respectively.
Stephen P. Robertson was a partner at Borden Ladner Gervais LLP (BLG) and acted as our corporate secretary through October 2020. We incurred legal fees in the normal course of business to BLG of $0.1 million and $0.2 million for the three and six months ended June 30, 2020. We had no ongoing contractual or other commitments as a result of engaging Mr. Robertson to act as our corporate secretary and Mr. Robertson received no additional compensation for acting as the corporate secretary. On November 2, 2020 we announced the appointment of Stephen Robertson as our Executive Vice President, General Counsel, Corporate Secretary and Chief Compliance Officer.2021.
18.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
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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, 2020.2021 except as described below.
Manufacturing Commitments
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 United States District Court for the Eastern District of New York, naming Aurinia and certain of the Company's officers as defendants. The lawsuit alleges that Aurinia made materially false and misleading statements regarding the 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. The defendants intend to vigorously defend this lawsuit. The Company has variousnot, however, filed a response to the complaint and does not anticipate doing so until after the court appoints a lead plaintiff and that lead plaintiff files an operative complaint.
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 support our commercial and clinical product supply requirements.
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be provided to the Company.

We rely on Lonza, a third party manufacturer, to produce a portion of commercial and clinical quantities of our commercial and clinical drug substance requirements. We have firm orders with Lonza, with remaining total non-cancellable future commitments of approximately $25.4 million through 2023 of which $3.5 million was paid during the second quarter of 2021. If we terminate certain firm orders with Lonza without cause, we will be required to pay for drug substance scheduled for manufacture under our arrangement.
19.
Subsequent Event
On July 16, 2021, the Company announced it will voluntarily delist the common shares of the Company from the TSX effective as of the close of trading on July 30, 2021. The Company’s common shares will no longer be traded on the TSX but will continue to trade on the Nasdaq under the symbol AUPH.
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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. 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 Securities Act, and Section 21E of 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 12 months;few years; and our potential to receive certain payments and royalties under our agreement with Otsuka .Otsuka; and that an IND is expected to be submitted for AUR200 and AUR300 in 2023. 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. 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 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 12 months; 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 20202021 Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission on February 24, 202128, 2022 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 commercial-stagefully integrated biopharmaceutical company focused on developing and commercializingdelivering therapies to treat targeted patient populations that are suffering fromimpacted by serious diseases with a high unmet medical need. We have commercially launched LUPKYNIS inIn January 2021, we introduced LUPKYNIS™ (voclosporin), the United Statesfirst FDA-approved oral therapy for the treatment of adult patients with active LN and continue to conduct pre-clinical, clinical, and regulatory advancement to support the voclosporin development program.program as well as our other assets.
LUPKYNIS is a calcineurin inhibitor (CNI)an orally administered CNI immunosuppressant that has the potential to improve near and long-term outcomes in LN when used in combination with mycophenolate mofetil and steroids, the current standard of care for LN(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.
Earlier generation CNIs have demonstrated efficacy forAurinia announced during the fourth quarter of 2021 the initiation of ENLIGHT-LN, a number of conditions, including transplant and other autoimmune diseases; however, side effects exist which can limit their long-term use and tolerability. Some clinical complications of earlier generation CNIs include hypertension, hyperlipidemia, diabetes, and both acute and chronic nephrotoxicity.
Based on published data, we believe the key potential benefits of LUPKYNIS in the treatmentU.S. based prospective, observational registry of adult patients with active LN versus marketed CNIs include: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.
increased potency compared to cyclosporine A, allowing for lower dosing requirements and potentially fewer off
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target effects;
limited inter and intra patient variability, allowing for easier dosing without the need for monitoring blood levels for therapeutic drug monitoring;
less cholesterolemia and triglyceridemia than cyclosporine A; and
limited incidence of glucose intolerance and diabetes at therapeutic doses compared to tacrolimus.

Developments

On January 22, 2021, the FDA approved LUPKYNIS in combination with a background immunosuppressive therapy regimen to treat adult patients with active LN. As a condition of approval, we are required and are on track to conduct two pediatric studies (with reports due in 2025 and 2031), a milk only lactation study (with a report due in 2026), a drug-drug interaction study (with a report due in 2023) and submit a final study report on our AURORA-2 continuation study (by March 2022).
On May 10, 2021, The Lancet. an international, peer-reviewed medical journal, published the results of the Company’s Phase 3 AURORA 1 study evaluating LUPKYNIS (voclosporin) in adults with LN.
On May 20, 2021, we announced that the interim analysis of the AURORA 2 continuation study showed that subjects in the LUPKYNIS treatment arm sustained meaningful reductions in proteinuria, with no change in mean estimated glomerular filtration rate (eGFR) at 104 weeks of treatment.
On June 7, 2021, our shareholders adopted and approved the Plan, which allows for the issuance of up to an additional 11.5 million shares. The purpose of the Plan is to advance the interests of the Company by encouraging equity participation in the Company through the acquisition of common shares. Also in June 2021, our shareholders adopted and approved the 2021 ESPP, which allows for the issuance of up to 2.5 million shares. The purpose of the 2021 ESPP is to provide eligible employees with opportunities to purchase the Company’s common shares at a discounted price.
On June 14, 2021, we appointed Dr. Brinda Balakrishnan, M.D., Ph.D., to our Board of Directors effective June 14, 2021. Dr. Balakrishnan is Group Vice President, Corporate and Business Development of BioMarin Pharmaceutical Inc.
On June 25, 2021, our licensing partner, Otsuka, filed an initial marketing authorization application with the European Medicines Agency seeking approval for the use of voclosporinfor the treatment of adult patients with active LN in the European Union, as well as Norway, Iceland and Liechtenstein. Upon approval we would be eligible for up to an additional $30 million USD in approval related milestones, low double-digit royalties on sales, and additional revenues for the supply of product to Otsuka under a cost-plus arrangement.
On July 16, 2021, we announced we will voluntarily delist the common shares from the TSX effective as of the close of trading on July 30, 2021. Our common shares will no longer be traded on the TSX but will continue to trade on the Nasdaq under the symbol AUPH.

Impact of COVID-19 Pandemic

In the event of a prolonged disruption related to the COVID-19 pandemic, there could be detrimental impact to our ongoing and future clinical trials, our ongoing commercial launch and future commercialization activities for LUPKYNIS, and our ability to access capital markets. For further information, refer to Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our unaudited condensed consolidated financial statements requires usThere have been no material changes to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the revenues and expenses incurred during the reported periods. We base our estimates on historical experience and on various other factors that we believe are relevant under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We discussedCompany’s critical accounting policies and assumptions that involve a higher degree of judgmentsignificant judgments and complexity in Note 2 to our consolidated financial statementsestimates as described in our Annual Report on Form 10-K for the year ended December 31, 2020 and any updates in Item 1. Note 3 from our Summary of Significant Accounting Policies.
There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our Annual Report.
We believe that of our critical accounting policies, the most significant areas involving critical estimates, judgments and assumptions used in the preparation of our consolidated financial statements are as follows:
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Revenue recognition;
Cost of sales;
Inventory;
Royalty obligation;
Contingent accruals;
Clinical trial liabilities;
Share-based compensation;
Intangible assets;
Leases; and
Income taxes.2021.
Results of Operations
Three and Six Month PeriodsMonths ended June 30, 2021March 31, 2022 compared to Three and Six Month PeriodsMonths ended June 30, 2020March 31, 2021
The following table sets forth our results of operations for the three months ended March 31, 2022 and six month periods ended June 30, 2021 and June 30, 2020.March 31, 2021.
Three months ended June 30,Six Months Ended June 30,Three months ended March 31,
20212020Change20212020Change20222021Change
(in thousands)(in thousands)(in thousands)
RevenueRevenueRevenue
Product revenue, netProduct revenue, net$6,591 $— $6,591 $7,475 $— $7,475 Product revenue, net$21,492 $884 $20,608 
License revenue29 29 — 59 59 — 
Total revenue6,620 29 6,591 7,534 59 7,475 
Operating expenses:— — 
License and collaboration revenueLicense and collaboration revenue133 30 103 
Total revenue, netTotal revenue, net21,625 914 20,711 
Operating expensesOperating expenses— 
Cost of salesCost of sales308 — 308 356 — 356 Cost of sales256 48 208 
Selling, general and administrativeSelling, general and administrative43,786 15,449 28,337 83,068 26,502 56,566 Selling, general and administrative45,197 39,805 5,392 
Research and developmentResearch and development10,091 11,076 (985)19,924 24,911 (4,987)Research and development12,620 9,833 2,787 
Amortization of intangible assets536 300 236 1,059 586 473 
Other (income) expense, net(967)67 (1,034)804 1,983 (1,179)
Total cost and operating expenses53,754 26,892 26,862 105,211 53,982 51,229 
Other expense, netOther expense, net1,434 1,771 (337)
Total cost of sales and operating expensesTotal cost of sales and operating expenses59,507 51,457 8,050 
Loss from operationsLoss from operations(47,134)(26,863)(20,271)(97,677)(53,923)(43,754)Loss from operations(37,882)(50,543)12,661 
Interest incomeInterest income142 321 (179)314 1,211 (897)Interest income262 172 90 
Net loss before income taxesNet loss before income taxes(46,992)(26,542)(20,450)(97,363)(52,712)(44,651)Net loss before income taxes(37,620)(50,371)12,751 
Income tax expense (benefit)18 16 26 (236)262 
Income tax expenseIncome tax expense10 
Net lossNet loss$(47,010)$(26,544)$(20,466)$(97,389)$(52,476)$(44,913)Net loss$(37,630)$(50,379)$12,749 
Revenues
Total net revenue was $6.6$21.6 million and $29$914 thousand for the three months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively. Total revenue was $7.5 million and $59 thousand for the six months ended June 30, 2021 and June 30, 2020, respectively. Our net revenues primarily consisted of license revenue and product revenue, net of adjustments, for LUPKYNIS following FDA approval in late January 2021. Quarter over quarter revenue growth is attributed to further progress in the launch of LUPKYNIS, driven predominantly by further penetration in the lupus nephritis market. No product sales commenced and no product marketing was permitted prior to January 22, 2021.
Cost of Sales
Cost of sales were $308$256 thousand and $nil$48 thousand for the three months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively. Cost of sales were $356 thousand and $nil for the six months ended June 30, 2021 and June 30, 2020, respectively. The increase was primarily due to the resultgrowth of commercialLUPKYNIS sales of LUPKYNIS. as no product sales commenced prior to January 22, 2021 and gross margin remains reasonably consistent with prior periods.
Gross margin for the three and six months ended June 30,March 31, 2022 and March 31, 2021 was approximately 99% and 95%. respectively. The fluctuation in gross margin is driven primarily by fixed specialty pharmacy costs in the first quarter of 2021, as a percentage of overall cost of sales.
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Selling, General and Administrative Expenses
SG&A expenses increased to $43.8$45.2 million for the three months ended June 30, 2021March 31, 2022 compared to $15.4$39.8 million for the three months ended June 30, 2020. For the six months ended June 30, 2021 and June 30, 2020, SG&A expenses were $83.1 million and $26.5 million, respectively.March 31, 2021. SG&A expenses consisted of the following:
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
March 31,
(in thousands)(in thousands)2021202020212020(in thousands)20222021
Salaries, incentive pay and employee benefitsSalaries, incentive pay and employee benefits$19,548 $5,002 $38,742 $8,580 Salaries, incentive pay and employee benefits$22,523 $19,194 
Professional fees and servicesProfessional fees and services12,709 5,702 21,426 9,561 Professional fees and services10,898 8,717 
Share-based compensation expenseShare-based compensation expense6,548 3,122 13,189 5,401 Share-based compensation expense5,972 6,641 
Other public company costs, facility costs, insurance, information technology, amortization of property and equipment2,993 1,476 6,275 2,518 
Other corporate costsOther corporate costs3,628 3,805 
Travel, trade shows and sponsorshipsTravel, trade shows and sponsorships1,988 147 3,436 442 Travel, trade shows and sponsorships2,176 1,448 
$43,786 $15,449 $83,068 $26,502 $45,197 $39,805 
The primary drivers for the increase for the three and six months ended June 30, 2021March 31, 2022 as compared to the same periods ended June 30, 20202021 were an increase in salaries, incentive pay and employee benefits and share-based compensation expenserelated expenses, professional fees related to various corporate matters, pharmacovigilance costs and consulting related expenses tied to the expansion of the commercial and administrative functionsincreased investment in back office infrastructure to support the launchcommercialization of LUPKYNIS following FDA approval in January 2021. In addition to the increase of professional fees for activities such as patient assistance programs, consulting, recruiting, legal, market research and marketing.LUPKYNIS.
Research and Development Expenses
R&D expenses were $10.1$12.6 million and $11.1$9.8 million for the three months ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively. For the six months ended June 30, 2021 and June 30, 2020, R&D expenses were $19.9 million and $24.9 million, respectively. R&D expenses consisted of the following:
Three Months Ended June 30,Six Months Ended
June 30,
Three Months Ended
March 31,
(in thousands)(in thousands)2021202020212020(in thousands)20222021
Contract research organizations (CRO) and third party clinical trial expenses$5,074 $5,335 $9,706 $13,347 
Contract research organizations (CRO) and developmental expensesContract research organizations (CRO) and developmental expenses$6,727 $4,632 
Clinical supply and distributionClinical supply and distribution1,138 1,971 2,370 4,380 Clinical supply and distribution1,562 1,232 
Salaries, incentive pay and employee benefitsSalaries, incentive pay and employee benefits2,713 2,447 5,737 4,375 Salaries, incentive pay and employee benefits3,273 3,024 
Share-based compensation expenseShare-based compensation expense1,089 1,080 2,163 2,297 Share-based compensation expense976 1,074 
Travel, insurance, patent annuity fees, legal fees and otherTravel, insurance, patent annuity fees, legal fees and other77 243 (52)512 Travel, insurance, patent annuity fees, legal fees and other82 (129)
$10,091 $11,076 $19,924 $24,911 $12,620 $9,833 

The primary driversdriver for the decreaseincrease for the three and six months ended June 30, 2021March 31, 2022 as compared to the same periodsperiod of June 30, 20202021 were lowerwas due to an increase in CRO and developmental expenses related to AUR200 and other third party clinical trial expenses together withAUR300 partially offset by a decrease in clinical supply and distribution costs followingexpenses related to the approval of LUPKYNIS, including a reduction in new drug application preparation costs, capitalization of supply costs following approval, and termination of the dry eye trialAURORA 2 continuation study, which was completed during the fourth quarter of 2020. The decrease was partially offset by an increase2021 but had wind down activities ongoing in salaries, incentive pay and employee benefits.the quarter ended March 31, 2022.
Liquidity and Capital Resources
As of June 30, 2021,March 31, 2022, we had cash, and cash equivalents and restricted cash and investments of $323.7$418.8 million compared to cash, and cash equivalents and restricted cash and investments of $422.7$466.1 million at December 31, 2020.2021. The decrease in cash, cash equivalents and restricted cash and investments is primarily related to the commercial infrastructure spendcontinued investment in commercialization activities, payments made for our ongoing post approval obligations and advancement of our pipeline, payments associated with inventory purchases to supportensure adequate supply to meet forecasted demand and a payment for the launch of LUPKYNIS, payments for inventory and an upfront payment made as partachievement of a collaborative agreement with Lonza to build a dedicated manufacturing capability (or monoplant).one-time milestone, partially offset by an increase in cash receipts from sales of LUPKYNIS. Cash, and cash equivalents and restricted cash and investments are primarily held in U.S. dollars. As of June 30, 2021March 31, 2022 and December 31, 2020,2021, we had working capital of $320.4$443.8 million and $387.4$472.7 million, respectively.
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We are devoting the majority of our operational efforts and financial resources towards the commercialization and post approval commitments of our approved drug, LUPKYNIS. We are also expending efforts towards our AUR200 and AUR300 assets. Taking into consideration the cash and cash equivalents and investments as of June 30, 2021,March 31, 2022, we believe that our cash
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position is sufficient to fund our current plans which include funding commercial activities, including our FDA related post approval commitments, manufacturing commercial drug supply, funding our supporting commercial infrastructure, conducting our planned R&D programs, investing in our pipeline and funding our supporting corporate and working capital for at least the next 12 months.few years.

Cash Flow Summary
The following table summarizes our cash flows for the sixthree months ended June 30, 2021March 31, 2022 and June 30, 2020:March 31, 2021:
Six months ended June 30,Three Months Ended March 31,
(in thousands)(in thousands)20212020(in thousands)20222021
Net cash (used in) provided by:Net cash (used in) provided by:Net cash (used in) provided by:
Operating activitiesOperating activities$(91,520)$(44,646)Operating activities$(46,746)$(53,541)
Investing activitiesInvesting activities(65,577)(32,835)Investing activities(53,017)(67,247)
Financing activitiesFinancing activities6,308 3,876 Financing activities405 5,029 
Net decrease in cash and cash equivalentsNet decrease in cash and cash equivalents$(150,789)$(73,605)Net decrease in cash and cash equivalents$(99,358)$(115,759)

Net cash used in operating activities was $91.5$46.7 million for the sixthree months ended June 30, 2021March 31, 2022 compared to $44.6$53.5 million for the sixthree months ended June 30, 2020. TheMarch 31, 2021. For the three months ended March 31, 2022, cash used in operating activities was primarily related to the continued investment in commercialization activities, payments made for our ongoing post approval obligations and advancement of our pipeline, payments associated with inventory purchases to ensure adequate supply to meet forecasted demand and a payment for the achievement of a one-time milestone, partially offset by an increase is primarilyin cash receipts from sales of LUPKYNIS. For the three months ended March 31, 2021 cash used in operating activities of $53.5 million was due to the commercial infrastructure spendcontinued support of commercialization efforts in addition to support the launch of LUPKYNIS, payments for inventory and a one-time payment to a related party upon achievement of specific milestones. In the prior year, the Company was still in the development phase of LUPKYNIS and as a result, did not incur any material related selling expenses.
Cash used in investing activities during the sixthree months ended June 30, 2021March 31, 2022 was $65.6$53.0 million compared to cash used in investing activities of $32.8$67.2 million during the sixthree months ended June 30, 2020.March 31, 2021. Investing activities during the sixthree months ended June 30, 2021March 31, 2022 consisted primarily of $217.0$163.5 million for purchases of investments and an $11.8 million for an upfront lease payment which was offset by $164.7$110.6 million of proceeds of maturities of investments. Cash used in investing activities of $32.8$67.2 million for the sixthree months ended June 30, 2020March 31, 2021 was primarily attributable to $115.2 million for purchases of short-term investments and $11.8 million for an upfront lease payment offset by $60.9 million of proceeds of maturities of investments.
Cash provided by financing activities during the sixthree months ended June 30, 2021March 31, 2022 was $6.3$0.4 million compared to cash provided by financing activities of $3.9$5.0 million during the sixthree months ended June 30, 2020.March 31, 2021. The increasedecrease was primarily due to less proceeds from the proceedsexercise of stock options exercised.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, 2020.
24
2021.


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 boardBoard of directors.Directors, with oversight provided by
20


the Audit Committee of our Board of Directors. Our overall risk management program seeks to minimize adverse effects on our financial performance.
Interest rate riskRate 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. OurAs of March 31, 2022 our investment portfolio includes cash, and cash equivalents, restricted cash and investments of $418.8 million that earn interest at market 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 instruments such as certificates of deposit,deposits, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. Thesesecurities. As of March 31, 2022, these instruments have a maturity of less than two years. a year.

As of March 31, 2022 a decrease of 100 basis points on our interest rates of our investments would result in a $1.2 million loss on the fair market value of our portfolio and would be realized at the maturity of our investments.

Accounts receivable, accounts payable and accrued liabilities bear no interest. 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.

Foreign currency riskCurrency 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 and Swiss franc,Great British Pound, which could affect our operating and financial results. AAs of March 31, 2022, a 10% increase or decrease of the U.S.Canadian dollar would have no material effectincreased the net loss by $0.5 million assuming all other variables remained constant. An assumed 10% weakening of the Canadian dollar would have had an equal but opposite effect to the amounts shown above, on the basis all other variables remain constant. There were no other foreign currency fluctuations that would have had a material impact on our financial condition or results of operations as of March 31, 2022.

Inflation Risk

Inflation may generally affect us by increasing our cost of labor, commercial support, manufacturing and clinical trial costs.expenditures. Inflation has not had a material effect on our business, financial condition or results of operations during the three and six months ended June 30, 2021 and 2020.as of March 31, 2022.

Credit riskRisk
Financial instruments, which potentially subject the Company
Our exposure to significant concentrations of credit risk consist primarilygenerally consists of cash and cash equivalents, investments and accounts receivable. The Company attempts to minimize the risks related toWe place our cash and cash equivalents with what we believe to be 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 investinginstitutions primarily with investment grade credit ratings and places restriction on maturities and concentrations by asset class and issuer.

We are subject to credit risk in a broadconnection with our accounts receivable due from our two customers which accounted for 99% of our net trade accounts receivable balances as of March 31, 2022. We monitor economic conditions, the creditworthiness of our customers and diverse rangegovernment regulations and funding, both domestically and abroad. We regularly communicate with our customers regarding the status of financial instruments. The Company established guidelinesreceivable balances, including their payment plans and obtain positive confirmation of the validity of the receivables. During the quarter ended March 31, 2022, we did not recognize any allowance for doubtful accounts receivable related to credit ratings and maturities intended to safeguard principal balances, earn a return on investments and to maintain liquidity. The Company's investment portfolio is maintained in accordance with its investment policy, which defines allowable investments, specifies credit quality standards and limits the credit exposure of any single issuer. The Company does not enter into any investment transactionrisk for trading or speculative purposes.our customers.
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 June 30, 2021,March 31, 2022, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be
21


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 June 30, 2021March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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 outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Our management believes that there are currently no claims or actions pending against us, the ultimate dispositions of which could have a material adverse effect on our results of operations, financial condition or cash flows.
There are no material developments to report in respect of previously disclosedthe litigation described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
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 United States District Court for the 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. The defendants intend to report.vigorously defend this lawsuit. We have not, however, filed a response to the complaint and does not anticipate doing so until after the court appoints a lead plaintiff and that lead plaintiff files an operative complaint.
Item 1A. Risk Factors.
Under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20202021 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. 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.
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:
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Exhibit
Number
Description
3.1
3.2
3.3
31.1*
31.2*
32.1**
32.2**
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
104Cover 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.

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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.
August 5, 2021May 9, 2022By:/s/ Peter Greenleaf
Peter Greenleaf
Chief Executive Officer, Director
(Principal Executive Officer)
August 5, 2021May 9, 2022By:/s/ Joseph Miller
Joseph Miller
Chief Financial Officer
(Principal Financial and Accounting Officer)
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