Aurinia Pharmaceuticals Inc. (AUPH) FY 2025 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the notes thereto and other financial information included in this Annual Report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” set forth in this Annual Report for a discussion of important factors that could cause our actual results to differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis.

The following generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussion of 2023 and year-to-year comparisons between 2024 and 2023 that are not included in this discussion can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 27, 2025.

Overview

Aurinia is a biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, the Company introduced LUPKYNIS® (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active lupus nephritis (“LN”). Aurinia is also developing aritinercept, a dual inhibitor of B cell-activating factor (“BAFF”) and a proliferation-inducing ligand (“APRIL”) for the potential treatment of autoimmune diseases.

Results of Operations

Comparison of the Years Ended December 31, 2025 and 2024

The following table sets forth our results of operations for the years ended December 31, 2025 and 2024 (in thousands):

Net Product Sales

Aurinia sells LUPKYNIS to two specialty pharmacies and a specialty distributor in the United States (the “U.S.”), and Aurinia sells LUPKYNIS inventory to its collaboration partner, Otsuka Pharmaceutical Co., Ltd. (“Otsuka”), for the European and Japanese market. The two specialty pharmacies, specialty distributor and Otsuka are considered our customers for accounting purposes.

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For the year ended December 31, 2025, net product sales were $271.3 million, up 25% compared to $216.2 million in 2024. The increase is primarily due to an increase in the number of LUPKYNIS cartons sold to specialty pharmacies, driven by further LN market penetration.

License, Collaboration and Royalty Revenue

License, collaboration and royalty revenue consists of revenue from a collaboration and licensing agreement with Otsuka to develop and commercialize oral voclosporin in Japan, the European Union (the “E.U.”), the United Kingdom (the “U.K.”), Switzerland, Russia, Norway, Belarus, Iceland, Liechtenstein and Ukraine (collectively, the “Otsuka Territories”) in exchange for: (i) a $50 million upfront cash payment; (ii) regulatory and commercial milestone payments; and (iii) royalties ranging from 10% to 20% on net sales in the Otsuka Territories.

License, collaboration and royalty revenue also consists of revenue from a commercial supply agreement with Otsuka to provide manufacturing and other services, including sharing the capacity of a dedicated manufacturing facility at Lonza Ltd. (“Lonza”), Aurinia’s contract manufacturing partner for voclosporin.

For the year ended December 31, 2025, license, collaboration and royalty revenue was $11.7 million, down 38% compared to $18.9 million in 2024. The year ended December 31, 2024 included a milestone payment of $10.0 million associated with LUPKYNIS regulatory approval in Japan.

Cost of Revenue

Cost of revenue consists primarily of expense associated with: (i) amortization of the finance lease right-of-use asset recognized in connection with the Monoplant; (ii) manufacturing; and (iii) shipping, storage and distribution.

In December 2020, Aurinia entered into a manufacturing services agreement with Lonza for the construction of a dedicated manufacturing facility for voclosporin (the “Monoplant”). The construction of the Monoplant began in January 2021 and manufacturing of voclosporin began in late June 2023. The Monoplant is equipped with state-of-the-art manufacturing equipment to provide cost and production efficiency for the manufacturing of voclosporin, while expanding existing capacity and providing supply security to meet future commercial demand. Aurinia pays a quarterly fixed facility fee of 3.6 million Swiss Francs for the exclusive right to use the Monoplant through March 31, 2030.

For the year ended December 31, 2025, cost of revenue was $32.7 million, compared to $28.2 million in 2024. The increase is primarily due to an increase in: (i) Aurinia’s net product sales of LUPKYNIS in the U.S.; and (ii) Aurinia’s net product sales of LUPKYNIS inventory to Otsuka.

For the years ended December 31, 2025 and 2024, gross margin was 88%.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to support growing net product sales of LUPKYNIS. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in sales, finance and administrative functions. Non-personnel-related expense includes: (i) selling, patient services, pharmacovigilance, marketing, advertising, travel, sponsorships and trade shows; and (ii) other general and administrative costs, including consulting, legal, patent, insurance, accounting, information technology and facilities.

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The following table summarizes our SG&A expense for the years ended December 31, 2025 and 2024 (in thousands):

The decrease in SG&A personnel and non-personnel expense was primarily due to lower employee-related costs, including share-based compensation, and lower marketing, professional fees and services and other overhead resulting from our strategic restructuring efforts in 2024.

We expect our SG&A expense in 2026 to remain substantially consistent with 2025.

Research and Development Expense

Research and development (“R&D”) expense consists of personnel and non-personnel expenses. Personnel-related expense includes salaries, incentive pay, benefits and share-based compensation for personnel engaged in research and development functions. Non-personnel-related expense includes contract research organizations, contract manufacturing organizations and materials used for R&D activities, including development, clinical trials, clinical supply and distribution, and other professional services.

The following table summarizes our R&D expense for the years ended December 31, 2025 and 2024 (in thousands):

The increase in R&D personnel and non-personnel expense was primarily due to an increase in employee-related costs, including share-based compensation, and higher clinical supply and distribution costs to support our development activities.

We expect our R&D expense to continue to increase as we progress our development activities.

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Restructuring Expense

Restructuring expense consists primarily of one-time termination benefits to affected employees, including severance and health care benefits, contract terminations and other costs related to our strategic restructuring efforts in 2024. In February 2024, we announced a strategic restructuring that reduced headcount by approximately 25% and discontinued Aurinia’s AUR300 development program. In November 2024, we announced another strategic restructuring that further reduced headcount by approximately 45% to sharpen the Company's focus on continued LUPKYNIS growth and the development of aritinercept.

For the year ended December 31, 2025, restructuring expense was $1.6 million, compared to $23.1 million in 2024.

Other Expense (Income), Net

For the year ended December 31, 2025, other expense (income), net was $9.5 million, compared to $(4.3) million in 2024. The change is primarily due to: (i) changes in the foreign exchange remeasurement of the finance lease liability recognized in connection with the Monoplant, which is denominated in Swiss Francs; and (ii) changes in the fair value assumptions related to our deferred compensation liability.

Income Tax (Benefit) Expense

For the year ended December 31, 2025, income tax (benefit) expense was $(173.0) million, compared to $1.7 million in 2024. The change is primarily due to the release of the Company’s valuation allowance on deferred tax assets that the Company now expects to realize.

Liquidity and Capital Resources

As of December 31, 2025, Aurinia had cash, cash equivalents, restricted cash and investments of $398.0 million, compared to $358.5 million at December 31, 2024. For the year ended December 31, 2025, cash flows from operating activities were $135.7 million, compared to $44.4 million in 2024. For the year ended December 31, 2025, the Company repurchased 12.2 million of its common shares for $98.2 million.

Based on our current operating plans and projections, the Company expects to fund future operations with existing cash or cash flows from operating activities.

The amount and timing of additional future funding needs, if any, will depend on many factors, including the success of our commercialization efforts for LUPKYNIS and our ability to control expenses. If necessary, we intend to raise additional capital through equity or debt financings. We can provide no assurance that additional financing will be available to us on favorable terms, or at all.

Refer to the Notes to Consolidated Financial Statements, including Note 5 of Item 15 of this Annual Report for Aurinia’s material cash requirements from known contractual and other obligations as of December 31, 2025.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations is based on our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these audited consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Critical accounting estimates are those estimates made in accordance with U.S. GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. While our significant accounting policies are more fully described in the notes to our consolidated financial statements in Item 15 of this Annual Report, we believe that the following critical accounting policy and underlying estimates are most critical to understanding our reported financial results.

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Net Product Sales

Revenue from product sales is recognized when the customer obtains control of our product, which typically occurs on delivery. Revenue from product sales is recorded at the transaction price, net of estimates for variable consideration consisting of customer discounts, customer fees, government rebates, co-payment assistance, payor rebates and administration fees 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).

Variable consideration is estimated using the expected-value amount method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. 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 that has not yet been dispensed. Actual amounts of consideration ultimately received may differ from our estimates. If actual results vary materially from our estimates, we adjust these estimates, which will affect net product sales and earnings in the period such estimates are adjusted.

For the year ended December 31, 2025, we did not have any material adjustments to variable consideration estimates based on actual results.

Income taxes

Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance is applied against any deferred tax asset if, based on available evidence, it is “more likely than not” that some or all of the deferred tax assets will not be realized.

Impact of Recently Issued Accounting Pronouncements

We describe the impact of recently issued accounting pronouncements that apply to us in Note 2 of Item 15 of this Annual Report.