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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________________________________
FORM 10-Q
_____________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________ to ________________
Commission file number: 001-36421
__________________________________________
Aurinia Pharmaceuticals Inc.
(Exact Name of Registrant as Specified in its Charter)
__________________________________________
Alberta, Canada
(State or other jurisdiction of
incorporation or organization)
#1203-4464 Markham Street
Victoria, British Columbia V8Z 7X8
98-1231763
(Address of principal executive offices)(I.R.S. Employer
Identification Number)
(250) 708-4272
Registrant’s telephone number, including area code
_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x 
Indicate the number of shares outstanding of each of the registrant's classes of common shares, as of the latest predictable date. As of August 3, 2022, the registrant had 141,892,181 of common shares outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common shares, no par valueAUPHThe Nasdaq Global Market LLC



AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2022December 31, 2021
(unaudited)
ASSETS
Current assets
Cash, cash equivalents and restricted cash$151,632 $231,900 
Short-term investments240,104 234,178 
Accounts receivable, net18,173 15,414 
Inventories, net25,863 19,326 
Prepaid expenses and other current assets17,421 12,506 
Total current assets453,193 513,324 
Non-current assets
Other non-current assets12,355 11,838 
Property and equipment, net4,183 4,418 
Acquired intellectual property and other intangible assets, net7,338 8,404 
Right-of-use assets, net5,079 5,383 
Total assets482,148 543,367 
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities32,380 34,947 
Other current liabilities1,293 4,640 
Operating lease liabilities953 1,059 
Total current liabilities34,626 40,646 
Non-current liabilities
Deferred compensation and other non-current liabilities16,323 15,950 
Operating lease liabilities7,431 7,680 
Total liabilities58,380 64,276 
Commitments and contingencies (Note 17)
SHAREHOLDER’S EQUITY
Common shares - no par value, unlimited shares authorized, 141,892 and 141,600 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively
1,180,884 1,177,051 
Additional paid-in capital74,004 59,014 
Accumulated other comprehensive loss(1,853)(852)
Accumulated deficit(829,267)(756,122)
Total shareholders' equity423,768 479,091 
Total liabilities and shareholders’ equity$482,148 $543,367 
The accompanying notes are an integral part of these condensed consolidated financial statements.
1


AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
Three months endedSix months ended
June 30,June 30,
2022202120222021
(unaudited)
Revenue
Product revenue, net$28,148 $6,591 $49,640 $7,475 
License and collaboration revenue43 29 176 59 
Total revenue, net28,191 6,620 49,816 7,534 
Operating expenses
Cost of sales1,599 308 1,855 356 
Selling, general and administrative51,532 44,322 96,729 84,127 
Research and development11,525 10,091 24,145 19,924 
Other (income) expense, net(476)(967)958 804 
Total cost of sales and operating expenses64,180 53,754 123,687 105,211 
Loss from operations(35,989)(47,134)(73,871)(97,677)
Interest income483 142 745 314 
Net loss before income taxes(35,506)(46,992)(73,126)(97,363)
Income tax expense9 18 19 26 
Net loss(35,515)(47,010)(73,145)(97,389)
Other comprehensive loss:
Unrealized (loss) gain on available-for-sale securities, net of tax of nil
(235)7 (1,001)13 
Comprehensive loss$(35,750)$(47,003)$(74,146)$(97,376)
Basic and diluted loss per share$(0.25)$(0.37)$(0.52)$(0.76)
Weighted-average common shares outstanding used in computation of basic and diluted loss per share141,726 128,222 141,734 127,814 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
(unaudited)
Common Shares
Three Months Ended June 30, 2022SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at March 31, 2022141,742 $1,178,807 $64,686 $(1,618)$(793,752)$448,123 
Shares issued on exercise of stock options and vesting of performance awards23 172 (55)— — 117 
Issuance of common shares in conjunction with ESPP program127 1,905 (682)— — 1,223 
Share-based compensation— — 10,055 — — 10,055 
Unrealized loss on available-for-sale securities— — — (235) (235)
Net loss— — — — (35,515)(35,515)
Balance at June 30, 2022141,892 $1,180,884 $74,004 $(1,853)$(829,267)$423,768 
Common Shares
Three Months Ended June 30, 2021SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at March 31, 2021128,121 $952,673 $43,889 $(799)$(625,535)$370,228 
Shares issued on exercise of stock options275 1,899 (620)— — 1,279 
Shared-based compensation— — 7,753 — — 7,753 
Unrealized gain on available-for-sale securities— — — 7 — 7 
Net loss— — — (47,010)(47,010)
Balance at June 30, 2021128,396 $954,572 $51,022 $(792)$(672,545)$332,257 
Common Shares
Six Months Ended June 30, 2022SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2021141,600 $1,177,051 $59,014 $(852)$(756,122)$479,091 
Shares issued on exercise of stock options and vesting of performance awards165 1,928 (1,406)— — 522 
Issuance of common shares in conjunction with ESPP program127 1,905 (682)— — 1,223 
Share-based compensation— — 17,078 — — 17,078 
Unrealized loss on available-for-sale securities— — — (1,001)— (1,001)
Net loss— — — — (73,145)(73,145)
Balance at June 30, 2022141,892 $1,180,884 $74,004 $(1,853)$(829,267)$423,768 
Common Shares
Six Months Ended June 30, 2021SharesAmountAdditional
paid in
capital
Accumulated
Other
Comprehensive
(Loss) Income
Accumulated
Deficit
Total
Shareholders'
Equity
Balance at December 31, 2020126,725 $944,328 $39,383 $(805)$(575,156)$407,750 
Shares issued on exercise of stock options1,152 9,518 (3,240)— — 6,278 
Exercise of warrants519 726 (695)— — 31 
Shared-based compensation— — 15,574 — — 15,574 
Unrealized gain on available-for-sale securities— — — 13 — 13 
Net loss— — — — (97,389)(97,389)
Balance at June 30, 2021128,396 $954,572 $51,022 $(792)$(672,545)$332,257 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


AURINIA PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
20222021
(in thousands)(unaudited)
Cash flows used in operating activities:
Net loss$(73,145)$(97,389)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization1,678 1,264 
Share-based compensation expense17,078 15,574 
Other, net2,511 (2,904)
Net changes in operating assets and liabilities
Accounts receivable(2,758)(4,418)
Inventories, net(7,953)(3,449)
Prepaid expenses and other current assets(4,914)(1,987)
Non-current assets(517)229 
Accounts payable, accrued and other liabilities(6,242)1,031 
Lease liabilities(355)529 
Net cash used in operating activities (74,617)(91,520)
Cash flows used in investing activities:
Purchase of investments(232,955)(216,987)
Proceeds from investments225,677 164,651 
Upfront lease payment (11,838)
Purchase of non-current assets(118)(364)
Additions to internal use-software implementation costs (1,039)
Net cash used in investing activities (7,396)(65,577)
Cash flows from financing activities
Proceeds from exercise of stock options and employee share purchase plan1,745 6,278 
Proceeds from exercise of warrants 30 
Cash provided by financing activities 1,745 6,308 
Net decrease in cash, cash equivalents and restricted cash(80,268)(150,789)
Cash, cash equivalents and restricted cash, beginning of period231,900 272,350 
Cash, cash equivalents and restricted cash, end of period$151,632 $121,561 
Supplemental cash flow information
Cash received for interest$528 $376 
Cash paid for taxes$(779)$(236)
Cash paid for amounts included in the measurement of lease liabilities$(572)$(128)
Supplemental disclosure of noncash transactions
Initial recognition of operating lease right-of-use asset$ $419 
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash, cash equivalents$151,408 $121,561 
Restricted cash224  
Total cash, cash equivalents and restricted cash$151,632 $121,561 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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. In January 2021, the Company introduced LUPKYNIS™ (voclosporin), the first U.S. Food and Drug Administration (FDA) approved oral therapy for the treatment of adult patients with active lupus nephritis (LN) and continue to conduct pre-clinical, clinical, and regulatory activities to support the voclosporin development program as well as our other assets.
On August 17, 2021, the Company announced the addition of two novel assets AUR200 and AUR300. AUR200 is currently undergoing pre-clinical development with projected submission of an Investigational New Drug Application (IND) to the FDA in 2023. The Company anticipates that an IND for AUR300 will also be submitted during 2023.
Aurinia's head office is located at #1203-4464 Markham Street, Victoria, British Columbia, Canada and its registered office is located at #201, 17873-106 A Avenue, Edmonton, Alberta. Aurinia also has a U.S. commercial office located at 77 Upper Rock Circle Suite 700, Rockville, Maryland, 20850 United States.
Aurinia is incorporated pursuant to the Business Corporations Act (Alberta). The Company’s common shares are traded on the Nasdaq Global Market (Nasdaq) under the symbol AUPH.
2.Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments considered necessary for fair presentation in accordance with U.S. GAAP. The condensed consolidated balance sheet as of December 31, 2021 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. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year or any other future periods.
These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Aurinia Pharma U.S., Inc. (Delaware incorporated) and Aurinia Pharma Limited (UK incorporated). All intercompany balances and transactions have been eliminated in consolidation and operate in one segment.
These unaudited condensed consolidated financial statements are presented in U.S. dollars which is the Company's functional currency therefore there is no currency translation adjustment upon consolidation as the remeasurement of gains or losses are recorded in the condensed consolidated statements of operations. All assets and liabilities denominated in a foreign currency are remeasured into U.S. dollars at the exchange rate on the balance sheet date. Revenues and expenses are remeasured at the average exchange rate during the period. Foreign exchange gains and losses arising on translation or settlement of a foreign currency denominated monetary item are included in the condensed consolidated statements of operations.
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 assets AUR200 and AUR300. Taking into consideration the Company's cash, cash equivalents, restricted cash and investments of $391.7 million as of June 30, 2022, 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.
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Significant Accounting Policies
Other than as described below, the Company's significant accounting policies have not changed from those previously described in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
Restricted cash: Restricted cash consists of the 2021 Employee Share Purchase Plan (2021 ESPP) deposits of $0.2 million and $0.3 million as of June 30, 2022 and December 31, 2021, respectively.
Major Customers: The Company currently has two main customers for U.S. commercial sales of LUPKYNIS and one customer for sales of voclosporin in the European Union, Japan, as well as the United Kingdom, Russia, Switzerland, Norway, Belarus, Iceland, Liechtenstein and Ukraine. Revenues from the two main customers in the U.S. accounted for approximately 54% and 45% respectively of the Company's total revenues for the three and six months ended June 30, 2022. In late March 2022, we provided a nominal additional discount to both of our two main customers, applicable for the remainder of the 2022 calendar year, in connection with holding additional amounts of LUPKYNIS on hand due to supply chain concerns. The Company monitors economic conditions, the creditworthiness of customers and government regulations and funding, both domestically and abroad. The Company regularly communicates with its customers regarding the status of receivable balances. Global economic conditions and customer specific factors may require the Company to periodically re-evaluate the collectability of its receivables and based on this evaluation the Company could potentially incur credit losses.
Accounts receivable, net: Accounts receivable are stated at their net realizable value. As of June 30, 2022 and December 31, 2021, accounts receivable, net are $18.2 million and $15.4 million. The timing between the recognition of revenue for product sales and the receipt of payment is not significant. Our standard credit terms, range from 30 to 45 days. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between the transfer of the promised good to the customer and receipt of payment will be one year or less. We estimate the 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 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 June 30, 2022 and as of December 31, 2021.
Share-Based Compensation: The Company follows ASC Topic 718, Compensation - Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense, based on estimated fair values, for all share-based awards made to employees and directors. The Company records compensation expense based on the fair value on the grant date using the graded accelerated vesting method for all share-based payments related to stock options, performance awards (PAs), restricted stock units (RSUs) and purchases under the Company's 2021 ESPP. For stock options, forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. For RSUs and PAs, forfeitures are accounted for as they occur.
Recently adopted accounting pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which clarifies and simplifies certain aspects of the accounting for income taxes such as eliminating the exception to the general intraperiod tax allocation principle. The standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2020. The Company adopted the ASU effective January 1, 2021, with no material impact on the condensed consolidated financial statements.
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities to make annual disclosures about transactions with a government (including government assistance) by analogizing to a grant or contribution accounting model. The required disclosures include the nature of the transaction, the entity's related accounting policy, the financial statement line items affected and the amounts reflected in the current period financial statements, as well as any significant terms and conditions. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. The Company adopted the ASU effective January 1, 2022, with no material impact on the condensed consolidated financial statements.
3.    Fair Value Measurements
The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities. The carrying value of accounts receivable, accounts payable and accrued
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liabilities approximate their fair value because of their short-term nature. Estimated fair value of available-for-sale securities are generally based on prices obtained from commercial pricing services.
In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 - Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the financial assets (cash, cash equivalents, restricted cash and short-term investments) measured at fair value on a recurring basis:
June 30, 2022
(in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash, cash equivalents and restricted cash$151,632 $ $ $151,632 
Certificates of deposit 3,132  3,132 
Corporate bond 80,852  80,852 
Commercial paper93,041   93,041 
Treasury bill 11,002  11,002 
Treasury bond 49,744  49,744 
Yankee bond 2,333  2,333 
Total financial assets$244,673 $147,063 $ $391,736 
December 31, 2021
(in thousands)Level 1Level 2Level 3Total
Financial assets:
Cash, cash equivalents and restricted cash$231,900 $ $ $231,900 
Certificates of deposit 3,140  3,140 
Corporate bond 21,820  21,820 
Commercial paper206,724   206,724 
Treasury bill 2,494  2,494 
Total financial assets$438,624 $27,454 $ $466,078 
The Company's Level 1 instruments include cash, cash equivalents, restricted cash and commercial paper that are valued using quoted market prices. We estimate 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 June 30, 2022, and December 31, 2021, the weighted average remaining contractual maturities of our Level 1 and 2 investments were 8 months for both periods. These investments are rated A-1, or higher, by Moody’s and Standard & Poor’s.
There were no sales of available-for-sale securities. No credit loss allowance was recorded as of June 30, 2022, as we do 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.
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Refer to Note 4, “Cash, Cash Equivalents, Restricted Cash and Short-Term Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.
4.    Cash, Cash Equivalents, Restricted Cash and Short-Term Investments
As of June 30, 2022 and December 31, 2021, the Company had $391.7 million and $466.1 million, respectively of cash, cash equivalents, restricted cash and short-term investments summarized below. As of June 30, 2022, $3.4 million are held to maturity debt securities which are carried at amortized cost which is approximately equal to their fair market value. As of June 30, 2022, $388.4 million are available-for-sale debt securities which are carried at fair market value. As of December 31, 2021, $446.9 million were classified as available-for-sale and $19.2 million were held-to-maturity.
June 30, 2022
(in thousands)Amortized CostUnrealized GainsUnrealized (Losses)Estimated Fair Value
Cash, cash equivalents and restricted cash$151,632 $ $ $151,632 
Certificates of deposit3,144  (11)3,133 
Corporate bond78,001  (511)77,490 
Commercial paper93,357  (316)93,041 
Treasury bill11,045  (44)11,001 
Treasury bond49,901  (157)49,744 
Yankee bond2,342  (9)2,333 
Total$389,422 $ $(1,048)$388,374 
Total held to maturity securities at amortized cost3,362 
Total cash, cash equivalents, restricted cash and short-term investments$391,736 
December 31, 2021
(in thousands)Amortized CostUnrealized GainsUnrealized (Losses)Estimated Fair Value
Cash, cash equivalents and restricted cash$231,900 $ $ $231,900 
Certificates of deposit3,144  (4)3,140 
Corporate bond2,592  (1)2,591 
Commercial paper206,764  (40)206,724 
Treasury bill2,497  (2)2,495 
Total$446,897 $ $(47)$446,850 
Total held to maturity securities at amortized cost19,228 
Total cash, cash equivalents, restricted cash and short-term investments$466,078 

As of June 30, 2022 and December 31, 2021, accrued interest receivable from the investments were $0.9 million and $0.1 million, respectively. During the three and six months ended June 30, 2022, the Company had $235 thousand and $1.0 million 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. 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. We have determined that the gross unrealized losses on our investments at June 30, 2022, were temporary in nature. The Company's investments as of June 30, 2022 mature at various dates through February 2023.

5.    Inventories, net

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

The Company assesses recoverability of inventory each reporting period to determine any write down to net realizable value resulting from excess or obsolete inventories. During the quarter ended June 30, 2022, we recorded a write down of finished goods inventories of approximately $1.4 million, which was related to safety stock inventory that the Company carried to mitigate supply chain disruptions.

The components of inventory, net are as follows:
(in thousands)June 30, 2022December 31, 2021
Raw materials$2,217 $2,217 
Work in process19,418 12,566 
Finished goods4,228 4,543 
Total inventories$25,863 $19,326 


6.Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets are as follows:

(in thousands)June 30, 2022December 31, 2021
Prepaid assets$8,320 $5,316 
Prepaid deposits4,109 4,762 
Prepaid insurance3,904 1,632 
Other current assets1,088 796 
Total prepaid expenses and other current assets$17,421 $12,506 

7.Intangible Assets
The following table summarizes the carrying amount of intangible assets, net of accumulated amortization.
June 30, 2022
(in thousands)Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
Patents$1,450 $(1,225)$225 
Acquired intellectual property and reacquired rights15,126 (9,321)5,805 
Internal-use software implementation costs2,873 (1,565)1,308 
$19,449 $(12,111)$7,338 
December 31, 2021
(in thousands)Gross Carrying
Value
Accumulated
Amortization
Net Carrying
Amount
Patents$1,471 $(1,176)$295 
Acquired intellectual property and reacquired rights15,126 (8,804)6,322 
Internal-use software implementation costs2,873 (1,086)1,787 
$19,470 $(11,066)$8,404 
Amortization expense for the three months ended June 30, 2022 and 2021 was $0.5 million for both periods and for the six months ended June 30, 2022 and 2021 was $1.0 million and $1.1 million, respectively.
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8.    Property and Equipment, net
Property and equipment, net are as follows:
(in thousands)June 30, 2022December 31, 2021
Construction in progress$488 $393 
Leasehold improvements2,978 2,978 
Office equipment645 645 
Furniture976 976 
Computer equipment257 262 
5,3445,254
Less accumulated depreciation(1,161)(836)
Property and equipment, net$4,183 $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 June 30, 2022, the Company had $43 thousand right-of-use assets (ROU assets) and $43 thousand 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 $2.2 million. As of June 30, 2022, the lease has not commenced and as a result, there has been no accounting recognition associated with the lease. On August 3, 2022, we provided notice of termination of the lease for commercial office space in Victoria on the basis that the landlord's work was not completed by the time required under 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 two five-year periods after the initial term of 11 years has elapsed and has an option to terminate after seven years. As of June 30, 2022, the Company had a right-of-use asset of $5.0 million and lease liability of $8.3 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.
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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 lease costs are not material to the Company's financial position.
The operating lease costs for the three and six months ended June 30, 2022 and June 30, 2021 are $0.3 million and $0.5 million for both periods respectively.
The following table represents the weighted-average remaining lease term and discount rate as of June 30, 2022:
As of June 30, 2022
Weighted Average Remaining Lease Term (years)Weighted Average Discount Rate
Operating leases9.15.22%
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$566 
20231,061 
20241,085 
20251,110 
20261,135 
Thereafter5,638 
Total future minimum lease payments 10,595 
Less: lease imputed interest(2,211)
Total future minimum lease payments$8,384 
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 (CHF 10.5 million) and was treated as an upfront lease payment and recorded under other non-current assets on the condensed consolidated balance sheets. The second payment is not due until the facility fulfills the required operational qualifications which is estimated to be during the first half of 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 $74.0 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 payments of approximately $885 thousand prior to lease commencement and the future value of minimum lease payments will total approximately $119 thousand.
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10.Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities are as follows:
(in thousands)June 30, 2022December 31, 2021
Employee accruals$12,449 $18,278 
Commercial accruals8,880 5,916 
Accrued R&D projects5,731 6,412 
Other accrued liabilities4,499 3,527 
Income taxes payable821 814 
Total accounts payable and accrued liabilities$32,380 $34,947 


11.Deferred Compensation and Other Non-current Liabilities

The Company recorded other non-current liabilities of $16.3 million and $16.0 million as of June 30, 2022 and December 31, 2021, respectively. The balance as of June 30, 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.License and Collaboration Agreements
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 (collectively, the "Otsuka Territories").

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 related 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 and product sales are provided to Otsuka on a cost-plus basis.

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.

For three and six months ended June 30, 2022, the Company recorded $13 thousand and $117 thousand, respectively, of collaboration revenue related to manufacturing services provided under the Otsuka contract.

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 of its obligations to supply LUPKYNIS to Otsuka in the Otsuka Territories, on a cost-plus basis.

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
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consolidated statements of operations. During the first quarter of 2022, Aurinia paid $4.0 million for the achievement of a one-time milestone. Additional payments are due upon certain development, clinical and regulatory milestones, and royalties will be payable upon commercialization. It is anticipated that clinical development for AUR300 will commence during 2023.
13.Net Loss per Common Share
Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share. The numerator and denominator used in the calculation of basic and diluted net loss per common share are as follows:
Three months ended
June 30,
Six Months Ended
June 30,
(in thousands, except per share data)2022202120222021
Net loss$(35,515)$(47,010)$(73,145)$(97,389)
Weighted average common shares outstanding141,726 128,222 141,734 127,814 
Net loss per common share (expressed in $ per share)$(0.25)$(0.37)
(0.52)
(0.76)
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:
Six months ended
June 30,
(in thousands)20222021
Stock options14,355 14,339 
Unvested performance awards 439 
Unvested restricted units2,008  
Warrants 1,014 
16,363 15,792 

14.Share-based Compensation
The Company's Amended and Restated Equity Incentive Plan (the Plan), which was adopted and approved by the Company's shareholders in June 2021, allows for an issuance of up to an aggregate of 23.8 million shares (inclusive of then outstanding awards) and provides for grants of stock options, performance awards, restricted stock and restricted stock units (RSUs) that may be settled in cash and common shares. Also in June 2021, the Company's shareholders adopted and approved the Company's 2021 ESPP, which allows for the issuance of up to 2.5 million shares. The 2021 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code (the “Code”) but also permits the Company to include the employees, including non-United States employees, in offerings not intended to qualify under Section 423. The purpose of the 2021 ESPP is to provide eligible employees with opportunities to purchase the Company’s common shares at a discounted price.
During the second quarter of 2022, the Company modified the 2021 ESPP for the current and future offerings. The new ESPP terms shortened the plan from four (4) purchases over a 24 month Offering Period to two (2) 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.

As a result of the modification, $475 thousand of incremental expense was added to the estimated expense for the November 2022 and May 2023 purchase dates (to be amortized over the new 12 month offering period). Additionally, the originally scheduled purchase date in November 2023 is no longer planned given the new 12 month offering period; therefore, the modification also resulted in a “repurchase for no consideration” under ASC 718. The Company recognized an additional $651 thousand of unamortized expense for the cancelled November 2023 purchase, which was recorded during the second quarter of 2022.
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Inducements
The Company’s Compensation Committee granted 11 new employees inducement stock options to purchase an aggregate of 93,200 common shares, at a per share exercise price of $11.38, the closing price of Aurinia's common stock on June 3, 2022, and an aggregate of 54,300 inducement RSUs. The inducement RSUs have a grant date and vesting commencement date of June 6, 2022. The stock options and RSUs were granted as inducements material to the new employees entering employment with Aurinia in accordance with Nasdaq Listing Rule 5635(c)(4).
Stock Options

The Plan requires the exercise price of each option not to be less than the closing market price of the Company’s common shares on the day immediately prior to the date of grant. The board of directors approves the vesting criteria and periods at its discretion. The options issued under the plan are accounted for as equity-settled share-based payments.
The Company used the Black-Scholes option pricing model to estimate the fair value of the options granted. The Company considers historical volatility of its common shares in estimating its future stock price volatility. The risk-free interest rate for the expected life of the options was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of the grant. The expected life is based upon the contractual term, taking into account expected employee exercise and expected post-vesting employment termination behavior.
The following weighted average assumptions were used to estimate the fair value of the options granted during the six months ended June 30, 2022 and June 30, 2021:
20222021
Annualized volatility70 %66 %
Risk-free interest rate1.83 %0.35 %
Expected life of options in years5.0 years4.0 years
Estimated forfeiture rate11.7 %8.8 %
Dividend rate0.0 %0.0%
Fair value per common share option$7.00 $6.59 

The following table summarizes the option award activity during the six months ended June 30, 2022:

June 30, 2022
Number of shares (in thousands)Weighted average exercise price $
Outstanding - Beginning of Period12,074 $12.84 
Granted3,061 11.96 
Exercised(77)6.75 
Forfeited(703)15.73 
Outstanding - End of Period14,355 $12.54 
Performance Awards and Restricted Stock Units
On October 23, 2020, the Company issued 439,000 PAs to executive management of the Company whose vesting was contingent upon meeting specific performance metrics based on the results for the year ended December 31, 2021. Each PA which vested entitled the participant to receive common shares on the basis of the performance metrics set. On March 18, 2021 performance metrics were set and formally communicated. Therefore, March 18, 2021 was the grant date and the fair value on the grant date was $13.56. As of June 30, 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 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
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performance metrics and will vest on the one year anniversary of the grant.
During the quarter, the Company has granted RSUs and intends to grant RSUs throughout the year under the Plan, as well as inducements for certain new hires. The RSUs are fair valued based on the market price of our common shares on the date of the grant.
The following table summarizes the PAs and RSU activity for the six months ended June 30, 2022:
June 30, 2022
Number of shares (in thousands)Weighted average exercise price $
Outstanding - Beginning of Period347 $13.33