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 March 31, ~~2022~~2023


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

For the transition period from_____________ to ________________

Commission file number: 001-36421

Aurinia Pharmaceuticals Inc.

(Exact Name of Registrant as Specified in its Charter)


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

(250) ~~708-4272~~744-2487

Registrant’s telephone number, including area code

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Indicate the number of shares outstanding of each of the registrant's classes of common shares, as of the latest predictable date. As of May ~~9, 2022,~~3, 2023, the registrant had ~~141,741,580~~143,034,009 of common shares outstanding.

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


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

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

TABLE OF CONTENTS

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of March 31, ~~2022~~2023 (unaudited) and December 31, 202 ~~2021~~2

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three months ~~months~~ ended March 31, ~~2022~~2023 and ~~March~~M arch 31, ~~2021~~2022

Condensed Consolidated Statements of Shareholders’ Equity (unaudited) for the three months ended March 31, ~~2022~~2023 and March ~~31, 2021~~ 3 1 , 202 2

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, ~~2022~~2023 and ~~March~~M arch 31, ~~2021~~2022

Notes to Unaudited Condensed Consolidated Financial Statements (unaudited)

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2022

Item 4.

Controls and Procedures

Unregistered Sales of Equity Securities and Use of Proceeds

2324

Item 3.

Defaults Upon Senior Securities

2325

Item 4.

Mine Safety Disclosures

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	132,542	$	231,900	Cash, cash equivalents and restricted cash	$	89,001	$	94,172
Short-term investments	Short-term investments	286,210		234,178		Short-term investments	272,533		295,218
Accounts receivable, net	Accounts receivable, net	20,401		15,414		Accounts receivable, net	19,046		13,483
Inventories, net	Inventories, net	26,266		19,326		Inventories, net	31,745		24,752
Prepaid expenses and other current assets		12,199		12,506
Prepaid expenses						Prepaid expenses	10,096		13,580
Other current assets						Other current assets	1,227		1,334
Total current assets	Total current assets	477,618		513,324		Total current assets	423,648		442,539

Non-current assets	Non-current assets					Non-current assets

Other non-current assets	Other non-current assets	11,838		11,838		Other non-current assets	13,357		13,339
Property and equipment, net	Property and equipment, net	4,332		4,418		Property and equipment, net	3,842		3,650
Acquired intellectual property and other intangible assets, net	Acquired intellectual property and other intangible assets, net	7,882		8,404		Acquired intellectual property and other intangible assets, net	6,101		6,425
Right-of-use assets		5,232		5,383
Right-of-use assets, net						Right-of-use assets, net	4,813		4,907

Total assets	Total assets	506,902		543,367		Total assets	$	451,761	$	470,860

LIABILITIES	LIABILITIES					LIABILITIES
Current liabilities	Current liabilities					Current liabilities
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	32,327		34,947		Accounts payable and accrued liabilities	35,965		39,990
Deferred revenue						Deferred revenue	3,157		3,148
Other current liabilities	Other current liabilities	502		4,640		Other current liabilities	1,979		2,033
Operating lease liabilities	Operating lease liabilities	1,009		1,059		Operating lease liabilities	945		936
Total current liabilities	Total current liabilities	33,838		40,646		Total current liabilities	42,046		46,107

Non-current liabilities	Non-current liabilities					Non-current liabilities
Deferred compensation and other non-current liabilities	Deferred compensation and other non-current liabilities	17,379		15,950		Deferred compensation and other non-current liabilities	12,321		12,166
Operating lease liabilities	Operating lease liabilities	7,562		7,680		Operating lease liabilities	6,986		7,152
Total liabilities	Total liabilities	58,779		64,276		Total liabilities	61,353		65,425
Commitments and contingencies (Note 18)		0		0
Commitments and contingencies (Note 17)						Commitments and contingencies (Note 17)
SHAREHOLDER’S EQUITY	SHAREHOLDER’S EQUITY					SHAREHOLDER’S EQUITY
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, respectively		1,178,807		1,177,051
Common shares - no par value, unlimited shares authorized, 143,029 and 142,268 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively						Common shares - no par value, unlimited shares authorized, 143,029 and 142,268 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	1,193,019		1,185,309
Additional paid-in capital	Additional paid-in capital	64,686		59,014		Additional paid-in capital	88,885		85,489
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(1,618)		(852)		Accumulated other comprehensive loss	(988)		(1,061)
Accumulated deficit	Accumulated deficit	(793,752)		(756,122)		Accumulated deficit	(890,508)		(864,302)
Total shareholders' equity	Total shareholders' equity	448,123		479,091		Total shareholders' equity	390,408		405,435
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	506,902	$	543,367	Total liabilities and shareholders’ equity	$	451,761	$	470,860

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

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except per share data)


		Three months ended				Three months ended
		March 31,				March 31,
		2022		2021				2023		2022
		(unaudited)				(unaudited)
Revenue	Revenue						Revenue
Product revenue, net	Product revenue, net	$	21,492	$	884		Product revenue, net	$	34,337	$	21,492
License and collaboration revenue		133		30
License, royalty and collaboration revenue							License, royalty and collaboration revenue	72		133
Total revenue, net	Total revenue, net	21,625		914			Total revenue, net	34,409		21,625
Operating expenses	Operating expenses						Operating expenses
Cost of sales	Cost of sales	256		48			Cost of sales	421		256
Selling, general and administrative	Selling, general and administrative	45,197		39,805			Selling, general and administrative	50,124		45,197
Research and development	Research and development	12,620		9,833			Research and development	13,158		12,620

Other expense, net	Other expense, net	1,434		1,771			Other expense, net	290		1,434
Total cost of sales and operating expenses	Total cost of sales and operating expenses	59,507		51,457			Total cost of sales and operating expenses	63,993		59,507
Loss from operations	Loss from operations	(37,882)		(50,543)			Loss from operations	(29,584)		(37,882)
Interest income	Interest income	262		172			Interest income	3,814		262
Net loss before income taxes	Net loss before income taxes	(37,620)		(50,371)			Net loss before income taxes	(25,770)		(37,620)
Income tax expense	Income tax expense	10		8			Income tax expense	436		10
Net loss	Net loss	(37,630)		(50,379)			Net loss	(26,206)		(37,630)
Other comprehensive loss:	Other comprehensive loss:						Other comprehensive loss:
Unrealized (loss) gain on available-for-sale securities, net of tax of nil		(766)		6
Unrealized gain (loss) on available-for-sale securities, net of tax of nil							Unrealized gain (loss) on available-for-sale securities, net of tax of nil	73		(766)

Comprehensive loss	Comprehensive loss	$	(38,396)	$	(50,373)		Comprehensive loss	$	(26,133)	$	(38,396)
Basic and diluted loss per share	Basic and diluted loss per share	$	(0.27)	$	(0.40)		Basic and diluted loss per share	$	(0.18)	$	(0.27)
Weighted-average common shares outstanding used in computation of basic and diluted loss per share	Weighted-average common shares outstanding used in computation of basic and diluted loss per share	141,675		127,401			Weighted-average common shares outstanding used in computation of basic and diluted loss per share	142,641		141,675

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

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands)

(unaudited)


	Common Shares
Three Months Ended March 31, 2023	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at December 31, 2022	142,268	$	1,185,309	$	85,489	$	(1,061)	$	(864,302)	$	405,435
Shares issued on exercise of stock options and vesting of restricted stock units	761	7,710		(6,071)		—		—		1,639

Share-based compensation	—	—		9,467		—		—		9,467
Unrealized gain on available-for-sale securities, net	—	—		—		73		—		73
Net loss	—	—		—		—		(26,206)		(26,206)
Balance at March 31, 2023	143,029	$	1,193,019	$	88,885	$	(988)	$	(890,508)	$	390,408

	Common Shares
Three Months Ended March 31, 2022	Shares	Amount		Additional paid in capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total Shareholders' Equity
Balance at December 31, 2021	141,600	$	1,177,051	$	59,014	$	(852)	$	(756,122)	$	479,091
Shares issued on exercise of stock options and vesting of performance awards	142	1,756		(1,351)		—		—		405
Shared-based compensation	—	—		7,023		—		—		7,023
Unrealized loss on available-for-sale securities, net	—	—		—		(766)		—		(766)
Net loss	—	—		—		—		(37,630)		(37,630)
Balance at March 31, 2022	141,742	$	1,178,807	$	64,686	$	(1,618)	$	(793,752)	$	448,123

Common Shares
Three Months Ended March 31, 2022 Shares Amount Additional
paid in
capital Accumulated
Other
Comprehensive
(Loss) Income Accumulated
Deficit Total
Shareholders'
Equity
Balance at December 31, 2021 141,600 $ 1,177,051 $ 59,014 $ (852) $ (756,122) $ 479,091
Shares issued on exercise of stock options and vesting of performance awards 142 1,756 (1,351) — — 405
Share-based compensation — 7,023 — — 7,023
Unrealized loss on available-for-sale securities — — — (766) $ — (766)
Net loss — — — — $ (37,630) (37,630)
Balance at March 31, 2022 141,742 $ 1,178,807 $ 64,686 $ (1,618) $ (793,752) $ 448,123
Common Shares
Three Months Ended March 31, 2021 Shares Amount Additional
paid in
capital Accumulated
Other
Comprehensive
(Loss) Income Accumulated
Deficit Total
Shareholders'
Equity
Balance at December 31, 2020 126,725 944,328 39,383 (805) (575,156) 407,750
Shares issued on exercise of stock options 877 7,619 (2,620) — — 4,999
Exercise of warrants 519 726 (695) — — 31
Shared-based compensation — — 7,821 — — 7,821
Unrealized gain on available-for-sale securities — — — 6 — 6
Net loss — — — — (50,379) (50,379)
Balance at March 31, 2021 128,121 $ 952,673 $ 43,889 $ (799) $ (625,535) $ 370,228

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

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
(in thousands)	(in thousands)	(unaudited)				(in thousands)	(unaudited)
Cash flows used in operating activities:	Cash flows used in operating activities:					Cash flows used in operating activities:
Net loss	Net loss	$	(37,630)	$	(50,379)	Net loss	$	(26,206)	$	(37,630)
Adjustments to reconcile net loss to net cash used in operating activities	Adjustments to reconcile net loss to net cash used in operating activities					Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	Depreciation and amortization	687		688		Depreciation and amortization	623		687
Amortization of operating lease right-of-use assets		151		(272)
Amortization of right-of-use assets						Amortization of right-of-use assets	94		151
Net amortization of premiums and discounts on short-term investments						Net amortization of premiums and discounts on short-term investments	(2,611)		140
Share-based compensation expense						Share-based compensation expense	9,467		7,023

Share-based compensation expense		7,023		7,821
Other, net	Other, net	1,514		(2,111)		Other, net	217		1,374
Net changes in operating assets and liabilities	Net changes in operating assets and liabilities					Net changes in operating assets and liabilities
Accounts receivable		(4,986)		(1,187)
Inventories		(6,940)		(2,009)
Accounts receivable, net						Accounts receivable, net	(5,559)		(4,986)
Inventories, net						Inventories, net	(6,993)		(6,940)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	307		308		Prepaid expenses and other current assets	3,588		307
Non-current assets	Non-current assets	—		229		Non-current assets	(17)		—
Accounts payable, accrued and other liabilities	Accounts payable, accrued and other liabilities	(6,704)		(7,103)		Accounts payable, accrued and other liabilities	(4,117)		(6,704)

Lease liabilities	Lease liabilities	(168)		474		Lease liabilities	(156)		(168)
Net cash used in operating activities	Net cash used in operating activities	(46,746)		(53,541)		Net cash used in operating activities	(31,670)		(46,746)
Cash flows used in investing activities:	Cash flows used in investing activities:					Cash flows used in investing activities:
Purchase of investments	Purchase of investments	(163,504)		(115,168)		Purchase of investments	(142,397)		(163,504)
Proceeds from investments	Proceeds from investments	110,566		60,940		Proceeds from investments	167,766		110,566
Upfront lease payment		—		(11,838)

Purchase of long-lived assets	Purchase of long-lived assets	(79)		(136)		Purchase of long-lived assets	(347)		(79)
Additions to internal use-software implementation costs		—		(1,039)

Capitalized patent costs	Capitalized patent costs	—		(6)		Capitalized patent costs	(162)		—
Net cash used in investing activities		(53,017)		(67,247)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	24,860		(53,017)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from exercise of stock options	Proceeds from exercise of stock options	405		4,999		Proceeds from exercise of stock options	1,639		405
Proceeds from exercise of warrants		—		30

Cash provided by financing activities	Cash provided by financing activities	405		5,029		Cash provided by financing activities	1,639		405
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(99,358)		(115,759)		Net decrease in cash, cash equivalents and restricted cash	(5,171)		(99,358)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	231,900		272,350		Cash, cash equivalents and restricted cash, beginning of period	94,172		231,900
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	132,542	$	156,591	Cash, cash equivalents and restricted cash, end of period	$	89,001	$	132,542

Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Cash received for interest	Cash received for interest	$	13	$	425	Cash received for interest	$	1,595	$	13

Cash paid for income taxes						Cash paid for income taxes	$	(1)	$	—
Cash paid for amounts included in the measurement of lease liabilities	Cash paid for amounts included in the measurement of lease liabilities	$	(281)	$	(63)	Cash paid for amounts included in the measurement of lease liabilities	$	(263)	$	(281)
Supplemental disclosure of noncash transactions	Supplemental disclosure of noncash transactions					Supplemental disclosure of noncash transactions
Initial recognition of operating lease right-of-use asset	Initial recognition of operating lease right-of-use asset	$	—	$	5,804	Initial recognition of operating lease right-of-use asset	$	—	$	—

Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets	Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets					Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash, cash equivalents	Cash, cash equivalents	$	131,636	$	156,591	Cash, cash equivalents	$	88,327	$	131,636
Restricted cash	Restricted cash	906		—		Restricted cash	674		906
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	132,542	$	156,591	Total cash, cash equivalents and restricted cash	$	89,001	$	132,542

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

AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.Organization and Description of Business

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

On August 17, 2021, the Company announced the addition of two novel assets AUR200 and AUR300. AUR200 isand AUR300 are currently undergoing pre-clinical development with projected submission of an Investigational New Drug ~~Application (IND)~~Applications (INDs) to the FDA (or their equivalent) for AUR200 in ~~2023. The Company anticipates that an IND~~2023 and for AUR300 ~~will also be submitted during 2023.~~in 2024.

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

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

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

2.Summary of Significant Accounting Policies

Basis of Presentation

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

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

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aurinia Pharma U.S., Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated). All intercompany balances and transactions have been eliminated in consolidation and operate in 1one segment.

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

The Company is devoting the majority of our operational efforts and financial resources towards the commercialization and post approval commitments of our approved drug, LUPKYNIS. The Company is also expending efforts towards our ~~newly acquired~~pipeline assets AUR200 and AUR300. Taking into consideration the Company's cash, cash equivalents, restricted cash and investments of ~~$418.8~~$361.5 million as of March 31, ~~2022,~~2023, the Company believes that it has sufficient resources to fund its operations for at least the next few years beyond the date that the unaudited condensed consolidated financial statements are issued.

3.~~Summary of~~ Significant Accounting Policies

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

2022.

Restricted ~~cash~~Cash: Restricted cash consists of the 2021 Employee Share Purchase Plan (2021 ESPP) deposits of ~~$0.9~~$0.7 million and ~~$0.3~~$0.1 million as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Major Customers: The Company currently has two main customers for U.S. commercial sales of LUPKYNIS and ~~one customer~~a collaboration partnership with Otsuka for sales of ~~voclosporin~~semi-finished product in the ~~European Union, Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine.~~Otsuka Territories. Revenues from the two main customers in the U.S. accounted ~~for~~in total of approximately ~~54% and 45% respectively of the Company's total revenues~~99% for the three months ended March 31, 2023 and March 31, 2022.

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

Product Revenues

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

Reserves for discounts and allowances: Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our 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 calculated based upon utilizing the expected value method. The transaction price, which includes variable consideration reflecting the impact of discounts and allowances, may be subject to constraint and is included in the net sales price only to the extent that it is probable that a significant reversal of the amount of the cumulative revenues recognized will not occur in a future period. Amounts related to such items are estimated at contract inception and updated at the end of each reporting period as additional information becomes available.

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

Accounts ~~receivable, net:~~Receivable, Net: Accounts receivable are stated at their net realizable value. The Company's accounts receivable represents amounts due to the Company from product sales and from its Otsuka collaboration agreement (Note 12). As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, accounts receivable, net are ~~$20.4~~$19.0 million and ~~$15.4 million. We estimate~~$13.5 million, respectively. The Company's standard credit terms range from 30 to 45 days and does not assess whether a contract has a significant financing

component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less. The Company estimates the allowance for doubtful accounts using the 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~~Aurinia evaluates the collectability of these cash flows based on the asset’s amortized cost, the risk of loss even when that risk is remote, losses over an asset’s contractual life, and other relevant information available to us. Accounts receivable balances are written off against the allowance when it is probable that

the receivable will not be collected. The allowance for doubtful accounts was $nil as of March 31, ~~2022~~2023 and ~~as of~~ December 31, ~~2021.~~2022.

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

Recently ~~adopted accounting pronouncements~~Adopted Accounting Pronouncements

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

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

~~4. Investments~~

At March 31, 2022 and December 31, 2021, the Company had $286.2 million and $234.2 million of short-term investments, respectively, mainly consisting of commercial paper and bonds as summarized below. As of March 31, 2022, $8.8 million are held to maturity debt securities which are carried at amortized cost and are approximately equal to fair market value. As of March 31, 2022, $277.4 million are available-for-sale debt securities which are carried at fair market value. As of December 31, 2021, $215.0 million were classified as available-for-sale and $19.2 million were held-to-maturity.

(in thousands) March 31, 2022 December 31, 2021
Cashable Guaranteed Investment Certificate $ 3,128 $ 3,140
Corporate Bond 60,390 21,820
Commercial Paper 152,295 206,724
Treasury Bill 19,530 2,494
Treasury Bond 50,867 —
Total short-term investments $ 286,210 $ 234,178

Currently, the Company does not intend to sell investments 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 March 31, 2022 and December 31, 2021, accrued interest receivable from the investments were $0.5 million and $0.1 million, respectively. During the three months ended March 31, 2022 and 2021, the Company had $766 thousand and $6 thousand unrealized losses on available-for-sale securities, net of tax, respectively, which are included as a component of comprehensive loss on the consolidated statements of operations. The Company's investments as of March 31, 2022 mature at various dates through 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 net realizable value. The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. Capitalized costs of inventories for LUPKYNIS mainly include third party manufacturing costs, transportation, storage, insurance, 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 are as follows:~~

(in thousands) March 31, 2022 December 31, 2021
Raw materials $ 2,217 $ 2,217
Work in process 19,713 12,566
Finished goods 4,336 4,543
Total inventories $ 26,266 $ 19,326

6.~~Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses and other current assets are as follows:~~

(in thousands) March 31, 2022 December 31, 2021
Prepaid assets $ 6,351 $ 5,316
Prepaid insurance 682 1,632
Other current assets 3,966 796
Prepaid deposits 1,200 4,762
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.~~

March 31, 2022
(in thousands) Gross Carrying
Value Accumulated
Amortization Net Carrying
Amount
Patents $ 1,471 $ (1,200) $ 271
Acquired intellectual property and reacquired rights 15,126 (9,063) 6,063
Internal-use software implementation costs 2,873 (1,325) 1,548
$ 19,470 $ (11,588) $ 7,882

December 31, 2021
(in thousands) Gross Carrying
Value Accumulated
Amortization Net Carrying
Amount
Patents $ 1,471 $ (1,176) $ 295
Acquired intellectual property and reacquired rights 15,126 (8,804) 6,322
Internal-use software implementation costs 2,873 (1,086) 1,787
$ 19,470 $ (11,066) $ 8,404

~~Amortization expense for the three months ended March 31, 2022 and 2021 was $0.5 million for both periods.~~

~~8. Property and Equipment, net~~

~~Property and equipment, net are as follows:~~

(in thousands) March 31, 2022 December 31, 2021
Construction in progress $ 472 $ 393
Leasehold improvements 2,978 2,978
Office equipment 645 645
Furniture 976 976
Computer equipment 260 262
5,331 5,254
Less accumulated depreciation (999) (836)
Property and equipment, net $ 4,332 $ 4,418

~~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 March 31, 2022, the Company had $0.1 million right-of-use assets (ROU assets) and $0.1 million lease liabilities related to the leases. The Company recognized operating lease costs that are included in SG&A expenses in the condensed consolidated statements 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 lease.

During August 2020, the Company signed a lease for commercial office space in Victoria, British Columbia. The present value of the expected minimum lease payments for this lease are $2.3 million. As of 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 for a total of 30,531 square feet of office space. The lease has a remaining term of approximately 9 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 March 31, 2022, the Company had a right-of-use asset of $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. The Company recorded leasehold improvement incentives in the amount of $2.3 million as additions to the lease liability. The lease term commenced on March 12, 2020. When measuring the lease liability, the Company discounted lease payments using its incremental borrowing rate at March 12, 2020. The incremental borrowing rate applied to the lease liability on March 12, 2020 was 5.2% based on the financial position of the Company, geographical region and term of lease.

~~Edmonton, Alberta~~

~~The Company recognized the lease premises in Edmonton, Alberta as a short-term lease in which expenses are incurred in SG&A. The lease is not material to the 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 March 31, 2021 are $0.3 million for both periods.~~

~~The following table provides supplemental balance sheet information related to the operating lease ROU assets and lease liabilities:~~

(in thousands) Balance Sheet Classification March 31, 2022 December 31, 2021
Assets
Operating lease right of-use assets Non-current assets $ 5,232 $ 5,383
Liabilities
Current operating lease liabilities Current operating lease liabilities 1,009 1,059
Non-current operating lease liabilities Non-current operating lease liabilities 7,562 7,680
Total lease liabilities $ 8,571 $ 8,739

~~The following table represents the weighted-average remaining lease term and discount rate as of March 31, 2022:~~

As of March 31, 2022
Weighted Average Remaining Lease Term (years) Weighted Average Discount Rate
Operating leases 9.30 5.20%

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

(in thousands) Operating Lease Payments
Remainder of 2022 $ 863
2023 1,061
2024 1,085
2025 1,110
2026 1,135
Thereafter 5,638
Total future minimum lease payments 10,892
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 and was treated as an upfront lease payment and recorded under other non-current assets on the condensed consolidated balance sheets. The second payment is not due until the facility fulfills the required operational qualifications which is estimated to be during 2023. Upon completion of the monoplant, the Company will have the right to maintain sole 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 $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.

~~10.Accounts Payable and Accrued Liabilities~~

~~Accounts payable and accrued liabilities are as follows:~~

(in thousands) March 31, 2022 December 31, 2021
Accounts payable $ 3,267 $ 3,879
Other accrued liabilities 7,289 3,428
Accrued R&D projects 5,409 4,383
Employee accruals 9,609 18,242
Commercial accruals 6,753 5,015
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 $17.4 million and $16.0 million as of March 31, 2022 and December 31, 2021, respectively. The balance as of March 31, 2022 and December 31, 2021 primarily included deferred compensation arrangements whereby certain executive officers as of March 8, 2012 were provided with future potential employee benefit obligations for remaining with the Company, for a certain period of time. These obligations were also contingent on the occurrence of uncertain future events. Other non-current liabilities also include milestone payments deemed probable to be paid in the future.

~~12.~~3. Fair Value Measurements

The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The carrying value of accounts receivable, accounts payable and accrued liabilities approximate their fair value because of their short-term nature. Estimated fair ~~values~~value 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-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 March 31, 2022 and December 31, 2021.

117

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

March 31, 2022
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Cash and cash equivalents:
Deposits held with banks $ 113,268 $ — $ — $ 113,268
Short-term highly liquid investments 19,274 — — 19,274
Investments 152,295 133,915 — 286,210
Total $ 284,837 $ 133,915 $ — $ 418,752


	March 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash, cash equivalents and restricted cash	$	89,001	$	—	$	—	$	89,001

Corporate bond	—		62,053		—		62,053
Commercial paper	—		176,283		—		176,283
Treasury bill	—		7,103��		—		7,103
Treasury bond	—		26,527		—		26,527
Yankee bond	—		567		—		567
Total financial assets	$	89,001	$	272,533	$	—	$	361,534

December 31, 2021
(in thousands) Level 1 Level 2 Level 3 Total
Assets:
Cash and cash equivalents:
Deposits held with banks $ 214,702 $ — $ — $ 214,702
Short-term highly liquid investments 17,198 — — 17,198
Investments 206,724 27,454 — 234,178
Total $ 438,624 $ 27,454 $ — $ 466,078


	December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash, cash equivalents and restricted cash	$	94,172	$	—	$	—	$	94,172
U.S. agency security	—		4,948		—		4,948
Corporate bond	—		104,080		—		104,080
Commercial paper	—		125,187		—		125,187
Treasury bill	—		12,282		—		12,282
Treasury bond	—		42,220		—		42,220
Yankee bond	—		6,501		—		6,501
Total financial assets	$	94,172	$	295,218	$	—	$	389,390

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

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

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

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

As of March 31, 2023 and December 31, 2022, the Company had $361.5 million and $389.4 million, respectively of cash, cash equivalents, restricted cash and short-term investments summarized below. As of March 31, 2023 and December 31, 2022, $272.5 million and $295.2 million were available-for-sale debt securities which are carried at fair market value.

~~13.~~


	March 31, 2023
(in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Cash, cash equivalents and restricted cash	$	89,001	$	—	$	—	$	89,001

Corporate bond	62,115		—		(62)		62,053
Commercial paper	176,386		—		(103)		176,283
Treasury bill	7,102		1		—		7,103
Treasury bond	26,544		—		(17)		26,527
Yankee bond	568		—		(1)		567
Total cash, cash equivalents, restricted cash and short-term investments	$	361,716	$	1	$	(183)	$	361,534



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


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

As of March 31, 2023 and December 31, 2022, accrued interest receivable from the investments were $0.6 million and $1.1 million, respectively. During the three months ended March 31, 2023, the Company had $0.1 million unrealized gains on available-for-sale securities, net of tax, respectively, which are included as a component of comprehensive loss on the consolidated statements of operations. Currently, the Company does not intend to sell investments that are in an unrealized loss position, and it is unlikely we will be required to sell the investments before recovery of their amortized cost basis, which may be at maturity. The Company has determined that the gross unrealized losses on our investments at March 31, 2023, were temporary in nature. Realized gains or losses were immaterial during the three months ended March 31, 2023 and 2022.

The Company's short-term investments as of March 31, 2023 mature at various dates through December 2023.

5. Inventories, net

The Company assesses recoverability of inventory each reporting period to determine any write-down to net realizable value resulting from excess or obsolete inventories. As of March 31, 2023, Aurinia recorded reserves of finished goods inventories of

approximately $3.9 million which were primarily related to process validation batches used for FDA approval.

The components of inventory, net are as follows:


(in thousands)	March 31, 2023		December 31, 2022
Raw materials	$	1,115	$	2,217
Work in process	29,522		21,059
Finished goods	1,108		1,476
Total inventories	$	31,745	$	24,752

6.Prepaid Expenses

Prepaid expenses are as follows:


(in thousands)	March 31, 2023		December 31, 2022

Prepaid assets	$	6,043	$	5,451
Prepaid deposits	3,308		6,330
Prepaid insurance	745		1,799
Total prepaid expenses	$	10,096	$	13,580

7.Intangible Assets

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


	March 31, 2023
(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Patents	$	1,724	$	(1,268)	$	456
Acquired intellectual property and reacquired rights	15,126		(10,071)		5,055
Internal-use software implementation costs	2,873		(2,283)		590
	$	19,723	$	(13,622)	$	6,101


	December 31, 2022
(in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Amount
Patents	$	1,569	$	(1,262)	$	307
Acquired intellectual property and reacquired rights	15,126		(9,838)		5,288
Internal-use software implementation costs	2,873		(2,043)		830
	$	19,568	$	(13,143)	$	6,425

Amortization expense for the three months ended March 31, 2023 and 2022 was $0.5 million for both periods.

8. Property and Equipment, net

Property and equipment, net are as follows:


(in thousands)	March 31, 2023		December 31, 2022
Construction in progress	$	602	$	255
Leasehold improvements	2,856		2,978
Office equipment	621		645
Furniture	976		976
Computer equipment	235		251
	5,290		5,105
Less accumulated depreciation	(1,448)		(1,455)
Property and equipment, net	$	3,842	$	3,650

9. Lease Obligations

The Company has the following lease obligations:

Victoria, British Columbia

In December 2020, Aurinia entered into a lease for office space in Victoria, British Columbia. During September 2022, the fixed lease term ended on the Victoria lease and the Company exercised its right to enter into a short-term month to month lease, of which expenses are incurred in SG&A. On March 31, 2023, the Company terminated the Victoria lease.

Rockville, Maryland

During March 2020, the Company entered into a lease for its U.S. commercial office in Rockville, Maryland for a total of 30,531 square feet of office space. The lease has a remaining term of approximately eight years and has an option to extend for two five-year periods after the initial term of 11 years has elapsed and has an option to terminate after seven years. As of March 31, 2023, the Company had a right-of-use asset of $4.8 million and lease liability of $7.9 million included in the condensed consolidated balance sheets. As of December 31, 2022, the Company had a right of use asset of $4.9 million and lease liability of $8.0 million included in the condensed consolidated balance sheets. The Company recorded leasehold improvement incentives in the amount of $2.3 million as additions to the lease liability. The lease term commenced on March 12, 2020. When measuring the lease liability, the Company discounted lease payments using its incremental borrowing rate at March 12, 2020. The incremental borrowing rate applied to the lease liability on March 12, 2020 was 5.2% based on the financial position of the Company, geographical region and term of lease.

Edmonton, Alberta

During October 2022, the Company entered into a long term lease in Edmonton for a total of 4,375 square feet of office space. The lease is a six year lease and has an option to renew of five years at prevailing market rates. The lease commenced on November 1, 2022 and the Company recorded the lease as an operating lease. The lease is not material to the Company's financial position.

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

The operating lease costs for all leases for the three months ended March 31, 2023 and March 31, 2022 are $0.2 million and $0.3 million respectively.

The following table represents the weighted-average remaining lease term and discount rate as of March 31, 2023:

As of March 31, 2023

Weighted Average Remaining Lease Term (years)

Weighted Average Discount Rate

Operating leases

8.4

5.25%

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


(in thousands)	Operating Lease Payments
Remainder of 2023	$	718
2024	1,113
2025	1,141
2026	1,169
2027	1,198
Thereafter	4,532
Total future minimum lease payments	9,871
Less: lease imputed interest	(1,940)
Total future minimum lease payments	$	7,931

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 (CHF 10.5 million) and was treated as an upfront lease payment and recorded under other non-current assets on the condensed consolidated balance sheets. The second payment became due when the facility fulfilled the required operational qualifications in April 2023. Upon completion of the monoplant, the Company will have the right to maintain sole dedicated use of the monoplant by paying a quarterly fixed facility fee.

The Company will account for the arrangement as a finance lease under ASC 842. At lease inception, which is considered to be the operational qualification date that occurred in April 2023. The Company expects to record a right of use (ROU) asset of approximately $111.0 million and a corresponding lease liability of $88.0 million, which is the present value of the minimum lease payments beginning April 2023 and expiring in 2030, and not included in the above table. The incremental borrowing rate applied to the lease liability in April 2023 is 7.25% based on the financial position of the Company, geographical region and term of lease.

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

10.Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are as follows:


(in thousands)	March 31, 2023		December 31, 2022

Employee accruals	$	11,721	$	20,214
Commercial accruals	10,689		8,620
Accrued R&D projects	5,621		5,350
Trade payables	3,680		3,087
Other accrued liabilities	3,194		2,094
Income taxes payable	1,060		625
Total accounts payable and accrued liabilities	$	35,965	$	39,990

11.Deferred Compensation and Other Non-current Liabilities

The Company recorded other non-current liabilities of $12.3 million and $12.2 million as of March 31, 2023 and December 31, 2022, respectively. The balance as of March 31, 2023 and December 31, 2022 primarily included deferred compensation arrangements whereby certain executive officers as of March 8, 2012 were provided with future potential employee benefit obligations for remaining with the Company, for a certain period of time. These obligations were also contingent on the occurrence of uncertain future events.

12.License and Collaboration Agreements

Otsuka Contract

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

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

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

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

For the three months ended March 31, 2023 and March 31, 2022, the Company recognized $0.1 million, for both periods, of additional collaboration revenue from services provided under the agreement.

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~~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 in the EU, Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine.

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, certain manufacturing services are provided to Otsuka on a cost-plus 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

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 March 31, 2022, the Company recorded $104 thousand of collaboration revenue related to manufacturing services provided under the Otsuka contract.~~

~~14.~~13.Net Loss per Common Share

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


		Three months ended March 31,				Three months ended March 31,
(in thousands, except per share data)	(in thousands, except per share data)	2022		2021			(in thousands, except per share data)	2023		2022
Net loss	Net loss	$	(37,630)	$	(50,379)		Net loss	$	(26,206)	$	(37,630)
Weighted average common shares outstanding	Weighted average common shares outstanding	141,675		127,401			Weighted average common shares outstanding	142,641		141,675
Net loss per common share (expressed in $ per share)	Net loss per common share (expressed in $ per share)	$	(0.27)	$	(0.40)		Net loss per common share (expressed in $ per share)	$	(0.18)	$	(0.27)

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

Three months ended
March 31,
(in thousands) 2022 2021
Stock options 14,649 14,332
Unvested performance awards — 439
Unvested restricted units 1,952 —
Warrants — 1,014
16,601 15,785


	Three months ended March 31,
(in thousands)	2023	2022
Stock options	12,678	14,649

Unvested restricted stock units	7,904	1,952
	20,582	16,601

~~15.~~14.Share-based Compensation

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

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

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

Stock Options

The Plan requires the exercise price of each option not to be less than the closing market price of the Company’s common shares on the business day immediately prior to the date of grant. The board 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 assumptions used for the annual volatility and expected life of the options are reviewed and updated annually. The Company considers

historical volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the expected life of the options was based on the yield available on government benchmark bonds with an approximate

equivalent remaining term at the time of the grant. The expected life is based upon the contractual term, taking into account expected employee exercise and expected post-vesting employment termination behavior.

The following weighted average assumptions were used to estimate the fair value of the options granted during the three months ended March 31, ~~2022~~2023 and March 31, ~~2021:~~2022:


		2022			2021				2023			2022
Annualized volatility	Annualized volatility	70		%	66		%	Annualized volatility	71		%	70		%
Risk-free interest rate	Risk-free interest rate	1.73		%	0.28		%	Risk-free interest rate	4.08		%	1.73		%
Expected life of options in years	Expected life of options in years	5.0 years			4.0 years			Expected life of options in years	5.0 years			5.0 years
Estimated forfeiture rate	Estimated forfeiture rate	11.6		%	8.9		%	Estimated forfeiture rate	12.7		%	11.6		%
Dividend rate	Dividend rate	0.0		%	0.0%			Dividend rate	0.0		%	0.0%
Fair value per common share option	Fair value per common share option	$	7.02		$	6.72		Fair value per common share option	$	5.44		$	7.02

The increase of the risk-free interest rate during the three months ended March 31, 2023 was due to the increase of higher yields on government benchmark bonds.

The following table summarizes the option award activity ~~during~~for the three months ended March 31, ~~2022:~~2023:


		March 31, 2022			March 31, 2023
		Number of shares (in thousands)	Weighted average exercise price $		Number of shares (in thousands)	Weighted average exercise price $
Outstanding - Beginning of Period		12,074	12.84
Outstanding - December 31, 2022				Outstanding - December 31, 2022	13,295	$	12.09
Granted	Granted	2,800	12.00	Granted	232	8.84
Exercised	Exercised	(54)	7.57	Exercised	(319)	5.09
Forfeited	Forfeited	(171)	16.27	Forfeited	(530)	14.43
Outstanding - End of Period		14,649	12.66
Outstanding - March 31, 2023				Outstanding - March 31, 2023	12,678	$	12.11

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

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 PA 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~~PAs under the ~~Plan.~~Plan, as well as inducements for certain new hires as discussed above. The RSUs and PAs are fair valued based on the previous business days' market price of our common ~~stock~~shares on the date of the grant.

The following table summarizes the ~~PAs~~RSU and ~~RSU~~PA activity for the three months ended March 31, ~~2022:~~2023:


	March 31, 2023
	Number of shares (in thousands)	Weighted average fair value price $
Outstanding - December 31, 2022	1,980	$	10.84
Granted	6,468	8.99
Vested	(442)	12.01
Forfeited	(102)	9.73
Outstanding - March 31, 2023	7,904	$	9.27

1415

March 31, 2022
Number of shares (in thousands) Weighted average exercise price $
Outstanding - Beginning of Period 347 13.33
Granted 1,708 12.01
Vested (88) 13.56
Forfeited (15) 13.85
Outstanding - End of Period 1,952 12.16

~~The Company recorded approximately $1.9 million of share-based compensation expense related to PAs and RSUs during the three months ended March 31, 2022.~~

Compensation Expense

The Company recognized share-based compensation expense for the three ~~months~~month periods ended March 31, ~~2022~~2023 and March 31, ~~2021~~2022 as follows:


						Three months ended March 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2023		2022
Research and development	Research and development	$	976	$	1,074		Research and development	$	1,590	$	976
Selling, general and administrative	Selling, general and administrative	5,972		6,641			Selling, general and administrative	7,589		5,972
Capitalized under inventories	Capitalized under inventories	75		106			Capitalized under inventories	288		75
Share-based compensation expense	Share-based compensation expense	$	7,023	$	7,821		Share-based compensation expense	$	9,467	$	7,023

As of March 31, ~~2022,~~2023, there was ~~$48.3~~$50.9 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 1.6 years.

~~16.~~15.Income Taxes

The effective tax rates for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021~~2022 differed from the federal statutory rate applied to losses before income taxes primarily as a result of the mix of income, losses and valuation allowances. The Company recognized an income tax expense of ~~$10~~approximately $436 thousand and $8$10 thousand for the three months ended March 31, ~~2022~~2023 and ~~2021,~~March 31, 2022, respectively. The expense recognized for these periods is a result of income in certain ~~jurisdictions. This tax expense is~~jurisdictions that are not offset by a tax ~~benefit~~benefits as the Company has losses which are fully offset by a valuation allowance in its significant jurisdictions.

Uncertain Tax Positions

The Company was under examination by the Canadian Revenue Agency for years 2017 and 2018. In March 2022, the Company was notified by the Canadian Revenue Agency that the examination ~~is now~~was complete and there were no findings and as a result, there iswas no additional tax expense or benefit recognized in regards to the audit. There are no outstanding tax audits ongoing at March 31, ~~2022.~~2023. The Company is subject to examination in the U.S., U.K. and Canada. In the U.S. and U.K. tax periods remain open in 2015 through 2022 and 2020 through 2022, respectively. Canada's tax periods remain open from 2009 due to the tax attribute carryforwards.

~~17.~~16.Related Party Transactions

~~ILJIN SNT Co., Ltd (ILJIN) was considered to be a~~During the quarter ended March 31, 2023 and year ended December 31, 2022, the Company had no related party due to their equity ownership of over 5% as per their public filing. The outstanding related party amount payable to ILJIN was the result of a settlement completed on September 20, 2013 between ILJIN and the Company. During 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 is nil as of March 31, 2022 and December 31, 2021.transactions.

~~18.~~17.Commitments and Contingencies

The Company may, from time to time, be subject to claims and legal proceedings brought against it in the normal course of business. Such matters are subject to many uncertainties. Management believes the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position of the Company. The Company's material

commitments and contingencies have not changed in any material manner from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021 except as described below.~~

~~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~~and the ~~United States District Court~~quarterly report 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 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.quarter ended March 31, 2023.

Other Funding Commitments

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

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly ~~Report.~~Report on Form 10-Q. The information in this discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~or the~~(the Securities ~~Act,~~Act), and Section 21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act), which are subject to the “safe harbor” created by those sections, as well as “forward-looking information” as defined in applicable Canadian securities laws. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans; objectives of management; the key potential benefits of LUPKYNIS; our belief that we have sufficient financial resources to fund our current plans for at least the next few years; and our potential to receive certain payments and royalties under our agreement with Otsuka Pharmaceuticals Co. Ltd., or Otsuka; and that an ~~IND~~investigational new drug, (IND), application (or equivalent) is expected to be submitted for AUR200 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~~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;~~few years; the assumption that our current good relationships with our suppliers, service providers and other third parties will be maintained; assumptions relating to the burn rate of our cash for operations; assumptions relating to the capital required to fund operations for the next few years; assumptions relating to the progress of our pre-clinical activities that our third party service providers will comply with their contractual obligations. Even though management believes that the assumptions made, and the expectations represented by such statements or information are reasonable, there can be no assurance that the forward-looking information will prove to be accurate. We discuss many of these risks, uncertainties and other factors in greater detail under the heading “Risk Factors” in Part I, Item 1A of our ~~2021~~2022 Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission on February 28, ~~2022~~2023 and with applicable Canadian securities regulatory authorities. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this discussion completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by our cautionary statements. Except as required by law, we assume no obligation to update our forward-looking statements publicly, or to update the reasons that actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

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

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

Voclosporin, the active ingredient in LUPKYNIS, is made by a modification of a single amino acid of the cyclosporine molecule. The mechanism of action of LUPKYNIS has been validated with certain earlier generation CNIs for the prevention of rejection in patients undergoing solid organ transplants and in several autoimmune indications, including uveitis, keratoconjunctivitis sicca, psoriasis, rheumatoid arthritis, and for LN in Japan. We believe that LUPKYNIS possesses pharmacologic properties with the potential to demonstrate best-in-class differentiation.

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

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

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

Recent Developments

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

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

Policies and Significant Judgments and Estimates

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

Product Revenues

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

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

Significant judgment is required in estimating variable consideration. In making these estimates, we consider historical data, including patient mix and inventory sold to our customers that has not yet been dispensed. We use a data aggregator and

historical claims to estimate variable consideration for inventory sold to our customers, including specialty pharmacies, that has not yet been dispensed. Actual amounts may ultimately differ from our estimates. If actual results vary, we adjust these estimates, which could have an effect on earnings in the period of adjustment. As of March 31, 2023, we did not have any material adjustments to estimates based on actual results. These specific adjustments are detailed further in our Annual Report on Form 10-K for the year ended December 31, 2022.

Results of Operations

Three Months ended March 31, ~~2022~~2023 compared to Three Months ended March 31, ~~2021~~2022

The following table sets forth our results of operations for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021.~~2022.


		Three months ended March 31,						Three Months Ended March 31,
		2022		2021		Change				2023		2022		Change
		(in thousands)
(in thousands)									(in thousands)
Revenue	Revenue								Revenue
Product revenue, net	Product revenue, net	$	21,492	$	884	$	20,608		Product revenue, net	$	34,337	$	21,492	$	12,845
License and collaboration revenue		133		30		103
License, royalty and collaboration revenue									License, royalty and collaboration revenue	72		133		(61)
Total revenue, net	Total revenue, net	21,625		914		20,711			Total revenue, net	34,409		21,625		12,784
Operating expenses	Operating expenses					—			Operating expenses
Cost of sales	Cost of sales	256		48		208			Cost of sales	421		256		165
Selling, general and administrative	Selling, general and administrative	45,197		39,805		5,392			Selling, general and administrative	50,124		45,197		4,927
Research and development	Research and development	12,620		9,833		2,787			Research and development	13,158		12,620		538

Other expense, net	Other expense, net	1,434		1,771		(337)			Other expense, net	290		1,434		(1,144)
Total cost of sales and operating expenses	Total cost of sales and operating expenses	59,507		51,457		8,050			Total cost of sales and operating expenses	63,993		59,507		4,486
Loss from operations	Loss from operations	(37,882)		(50,543)		12,661			Loss from operations	(29,584)		(37,882)		8,298
Interest income	Interest income	262		172		90			Interest income	3,814		262		3,552
Net loss before income taxes	Net loss before income taxes	(37,620)		(50,371)		12,751			Net loss before income taxes	(25,770)		(37,620)		11,850
Income tax expense	Income tax expense	10		8		2			Income tax expense	436		10		426
Net loss	Net loss	$	(37,630)	$	(50,379)	$	12,749		Net loss	$	(26,206)	$	(37,630)	$	11,424

Revenues

Total net revenue was ~~$21.6~~$34.4 million and ~~$914 thousand~~$21.6 million for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively. ~~Our~~

The increase is primarily due to an increase in net ~~revenues primarily consisted of~~ product revenue ~~net of adjustments,~~from our two main customers 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~~LN market. ~~No product sales commenced~~This penetration can be demonstrated, in part, by 466 additional patient start forms (PSFs) (our equivalent to a prescription) received during the three months ended March 31, 2023 compared to 461 PSFs received during the three months ended March 31, 2022; as well as a total of 1,731 patients on therapy as of March 31, 2023, compared to 1,071 patients on therapy as of March 31, 2022.

Revenues from our two main customers in the United States accounted in total of approximately 99% for the three months ended March 31, 2023 and ~~no product marketing was permitted prior to January 22, 2021.~~March 31, 2022.

Cost of Sales

Cost of sales were ~~$256 thousand~~$0.4 million and ~~$48 thousand~~$0.3 million for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively. The increase year over year was primarily due to ~~the growth of LUPKYNIS sales~~an increase in product related revenue, as ~~no product sales commenced prior to January 22, 2021 and~~ gross margin ~~remains reasonably consistent with prior periods.~~

~~Gross margin~~was approximately 99% for ~~the three months~~both periods ended March 31, ~~2022~~2023 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.

2022.

Selling, General and Administrative Expenses

SG&A expenses ~~increased to~~were $50.1 million and $45.2 million for the three months ended March 31, 2023 and March 31, 2022, respectively. SG&A expenses consisted of the following:


	Three Months Ended March 31,
(in thousands)	2023		2022
Salaries, incentive pay and employee benefits	$	22,298	$	22,523
Professional fees and services	13,258		10,898
Share-based compensation expense	7,589		5,972
Other corporate costs	3,822		3,628
Travel, trade shows and sponsorships	3,157		2,176
	$	50,124	$	45,197

The primary drivers for the increase in SG&A expense for the three months ended March 31, 2023 as compared to ~~$39.8~~the same period ended March 31, 2022, were an increase in professional fees and services related to marketing and pharmacovigilance, share-based compensation expense and travel and related costs.

Research and Development Expenses

R&D expenses were $13.2 million and $12.6 million for the three months ended March 31, ~~2021. SG&A~~2023 and March 31, 2022, respectively. R&D expenses consisted of the following:


		Three Months Ended March 31,				Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021			(in thousands)	2023		2022
Contract research organizations (CRO) and developmental expenses							Contract research organizations (CRO) and developmental expenses	$	4,230	$	6,727
Clinical supply and distribution							Clinical supply and distribution	3,273		1,562
Salaries, incentive pay and employee benefits	Salaries, incentive pay and employee benefits	$	22,523	$	19,194		Salaries, incentive pay and employee benefits	3,825		3,273
Professional fees and services		10,898		8,717
Share-based compensation expense	Share-based compensation expense	5,972		6,641			Share-based compensation expense	1,590		976
Other corporate costs		3,628		3,805
Travel, trade shows and sponsorships		2,176		1,448
Other costs							Other costs	240		82
		$	45,197	$	39,805			$	13,158	$	12,620

The primary drivers for the increase for the three months ended March 31, ~~2022~~2023 as compared to the same ~~periods~~period ended ~~2021~~ March 31, 2022 were an increase in salaries and related employee ~~related expenses, professional fees~~benefit costs and share-based compensation expense as the Company advances its AUR200 and AUR300 programs and fulfills the post approval FDA commitments related to ~~various corporate matters, pharmacovigilance~~LUPKYNIS. The increase was partially offset by a decrease in contract research organization costs ~~and consulting~~ related ~~expenses tied~~ to the ~~increased investment~~completion of the AURORA 2 continuation study, which was completed in ~~back office infrastructure to support the commercialization of LUPKYNIS.~~2022.

~~Research and Development Expenses~~Interest Income

~~R&D expenses were $12.6~~

Interest income was $3.8 million and ~~$9.8~~$0.3 million for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively. ~~R&D expenses consisted~~The increase between periods is due to higher yields on our investments as a result of ~~the following:~~

Three Months Ended
March 31,
(in thousands) 2022 2021
Contract research organizations (CRO) and developmental expenses $ 6,727 $ 4,632
Clinical supply and distribution 1,562 1,232
Salaries, incentive pay and employee benefits 3,273 3,024
Share-based compensation expense 976 1,074
Travel, insurance, patent annuity fees, legal fees and other 82 (129)
$ 12,620 $ 9,833
increased interest rates.

~~The primary driver for the increase for the three months ended March 31, 2022 as compared to the same period of~~ ~~2021~~ was due to an increase in CRO and developmental expenses related to AUR200 and AUR300 partially offset by a decrease in expenses related to the AURORA 2 continuation study, which was completed during the fourth quarter of 2021 but had wind down activities ongoing in the quarter ended March 31, 2022.

Liquidity and Capital Resources

As of March 31, ~~2022,~~2023, we had cash, cash equivalents and restricted cash of $89.0 million and short-term investments of ~~$418.8~~$272.5 million compared to cash, cash equivalents and restricted cash of $94.2 million and short-term investments of ~~$466.1~~$295.2 million at December 31, ~~2021.~~2022. The decrease in cash, cash equivalents and restricted cash and investments is primarily related to the continued investment in commercialization activities ~~payments made for our ongoing~~and post approval ~~obligations~~commitments of our approved drug, LUPKYNIS, inventory purchases 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 in cash receipts from sales of LUPKYNIS. Cash, cash equivalents and restricted cash and investments are primarily held in U.S. dollars. As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, we had working capital of ~~$443.8~~$381.6 million and ~~$472.7~~$396.4 million, respectively.

We are devoting the majority of our operational efforts and financial resources towards the commercialization and post approval commitments of our approved drug, LUPKYNIS. We are also expending efforts towards the development of our AUR200 and AUR300 assets. Taking into consideration the cash and cash equivalents and short-term investments as of March 31, ~~2022,~~2023, we believe that our cash

position is sufficient to fund our current plans which include funding commercial activities, including our FDA related post approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, ~~conducting~~advancing our ~~planned~~ R&D programs ~~investing in our pipeline~~ and funding our ~~supporting corporate and~~ working capital obligations for at least the next few years.

Cash Flow Summary

The following table summarizes our cash flows for the three months ended March 31, ~~2022~~2023 and March 31, ~~2021:~~2022:


		Three Months Ended March 31,					Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		(in thousands)	2023		2022
Net cash (used in) provided by:	Net cash (used in) provided by:					Net cash (used in) provided by:
Operating activities	Operating activities	$	(46,746)	$	(53,541)	Operating activities	$	(31,670)	$	(46,746)
Investing activities	Investing activities	(53,017)		(67,247)		Investing activities	24,860		(53,017)
Financing activities	Financing activities	405		5,029		Financing activities	1,639		405
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	$	(99,358)	$	(115,759)	Net decrease in cash and cash equivalents	$	(5,171)	$	(99,358)

Net cash used in operating activities was $31.7 million for the three months ended March 31, 2023 compared to $46.7 million for the three months ended March 31, ~~2022 compared to $53.5 million for the three months ended March 31, 2021. For the three months ended March 31, 2022,~~2022. The decrease in net cash used in operating activities ~~was~~is primarily ~~related~~due 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 in cash receipts from sales of LUPKYNIS. ~~For the three months ended March 31, 2021 cash used in operating activities~~See "Revenues" above for further discussion regarding our increased sales of ~~$53.5 million was due to the continued support of commercialization efforts in addition to a one-time payment to a related party upon achievement of specific milestones.~~LUPKYNIS.

Cash ~~used in~~provided by investing activities during the three months ended March 31, ~~2022~~2023 was ~~$53.0~~$24.9 million compared to cash used in investing activities of ~~$67.2~~$53.0 million during the three months ended March 31, ~~2021. Investing~~2022. The increase in cash provided by investing activities ~~during~~was primarily related to the ~~three months ended March 31, 2022 consisted primarily~~timing of ~~$163.5 million for~~ purchases of investments offset by $110.6 million of proceeds of maturities of investments. Cash used in investing activities of $67.2 million for the three months ended March 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 three months ended March 31, ~~2022~~2023 was ~~$0.4~~$1.6 million compared to cash provided by financing activities of ~~$5.0~~$0.4 million during the three months ended March 31, ~~2021.~~2022. The ~~decrease~~change was ~~primarily~~ due to ~~less~~increased proceeds from the exercise of stock options.

Off‑Balance Sheet Arrangements

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

Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

Our activities can expose us to market risks which include interest rate risk, foreign currency risk, inflation risk and credit risk. Risk management is carried out by management under policies approved by our Board of Directors, with oversight provided by

the Audit Committee of our Board of Directors. Our overall risk management program seeks to minimize adverse effects on our financial performance.

Interest Rate Risk

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

operations on a day-to-day basis. As of March 31, ~~2022~~2023, our investment portfolio includes cash, cash equivalents, restricted cash and investments of ~~$418.8~~$361.5 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 highly rated instruments such as certificates of deposits, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities. As of March 31, ~~2022,~~2023, these instruments have a maturity of less than a year.

As of March 31, ~~2022~~2023, a hypothetical decrease of 100 basis points on ~~our~~the interest rates of our investments would result annually in ~~a $1.2~~$2.7 million ~~loss on the fair market value of~~less interest in our ~~portfolio and would be realized at the maturity of our investments.~~portfolio.

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~~a significant degree by a sudden change in market interest rates relative to our investment portfolio.

Foreign Currency Risk

We are exposed to financial risk related to the fluctuation of foreign currency exchange rates. Foreign currency risk for the Company is the risk variations in exchange rates between the U.S. dollar and foreign currencies, primarily with the Canadian dollar, Swiss Franc and Great British Pound, which could affect our operating and financial results.

As of March 31, ~~2022, a 10% increase~~2023, we had approximately $3.6 million of ~~the Canadian dollar would have increased the net loss by $0.5 million assuming all other variables remained constant.~~foreign denominated third-party payables included in our accounts payable and accrued liabilities balance. An assumed 10% ~~weakening of~~fluctuation in the ~~Canadian dollar~~exchange rates would have ~~had~~ an ~~equal but opposite effect to~~approximate $0.4 million fluctuation in the amounts ~~shown above, on the basis all other variables remain constant.~~due. There were no other foreign currency fluctuations that would have had a material impact on our financial condition or results of operations as of March 31, ~~2022.~~2023.

Inflation Risk

Inflation ~~may~~has been increasing in recent periods and is expected to continue to be volatile in the future. Inflation generally ~~affect~~affects us by increasing our cost of labor, commercial support, manufacturing and clinical trial expenditures. ~~Inflation has not had a material effect~~In addition, our investment portfolio may experience the risk of realized losses on our ~~business, financial condition or results of operations as of March 31, 2022.~~short-term investments if we were to sell before maturity due to the market volatility caused by increased interest rates.

Credit Risk

Our exposure to credit risk generally consists of cash and cash equivalents, short-term investments and accounts receivable. We place our cash and cash equivalents with ~~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 institutions primarily with investment grade credit ratings and places restriction on maturities and concentrations by asset class and issuer. We do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio, due to the short-term nature of the investments and our current ability to hold these investments to maturity. We actively monitor our cash and portfolio of investments and in particular have validated that we at no point held any deposits or securities or maintained any accounts at Silicon Valley Bank or any other banks that were subject to FDIC action.

We are subject to credit risk in connection 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.~~2023. We monitor economic conditions, including the creditworthiness of our customers and ~~government regulations and funding, both domestically and abroad.~~collaboration partner. We regularly communicate with our customers regarding the status of receivable balances ~~including their~~and have not experienced and issues with collectability. The timing between the recognition of revenue

for product sales and the receipt of payment ~~plans and obtain positive confirmation of the validity of the receivables.~~is not significant. Our standard credit terms range from 30 to 45 days. During the quarter ended March 31, ~~2022,~~2023, we did not recognize any allowance for doubtful accounts receivable related to credit risk for our ~~customers.~~customers or write any amounts off.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, ~~2022,~~2023, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be

disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the quarter ended March 31, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2223

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.

There are no material developments to report in respect of the litigation described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

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 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.2022.

Item 1A. Risk Factors.

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

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

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

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

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

The following exhibits are filed as part of this report:



Exhibit Number						Description

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

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

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

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

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

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

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

101.SCH*						Inline XBRL Taxonomy Extension Schema Document

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document

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


*						Filed herewith.
**						Furnished herewith. Exhibits 32.1 and 32.2 are being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liability of that section, nor shall such exhibit be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing.

2425

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.

May ~~9, 2022~~3, 2023	By:	/s/ Peter Greenleaf
		Peter Greenleaf
		Chief Executive Officer, Director (Principal Executive Officer)

May ~~9, 2022~~3, 2023	By:	/s/ Joseph Miller
		Joseph Miller
		Chief Financial Officer (Principal Financial and Accounting Officer)

2526


(in thousands)	Balance Sheet Classification	March 31, 2022		December 31, 2021
Assets
Operating lease right of-use assets	Non-current assets	$	5,232	$	5,383

Liabilities
Current operating lease liabilities	Current operating lease liabilities	1,009		1,059
Non-current operating lease liabilities	Non-current operating lease liabilities	7,562		7,680
Total lease liabilities		$	8,571	$	8,739


(in thousands)	Operating Lease Payments
Remainder of 2022	$	863
2023	1,061
2024	1,085
2025	1,110
2026	1,135
Thereafter	5,638
Total future minimum lease payments	10,892
Less: lease imputed interest	(2,321)
Total future minimum lease payments	$	8,571