Potential Positive Readout Of Aurinia Pharmaceuticals’ Phase 2/3 AUDREY Trial Could Bring Best-In-Class Eye Drops For Dry Eye Syndrome – Seeking Alpha

Potential Positive Readout Of Aurinia Pharmaceuticals’ Phase 2/3 AUDREY Trial Could Bring Best-In-Class Eye Drops For Dry Eye Syndrome – Seeking Alpha

The Dry Eye Syndrome is a relatively common disease whose prevalence increases as people age. It is believed that more than 6% of the population over age of 40 and 15% of the population over age of 65 is impacted by DES in US, with symptoms that vary from mild (redness, irritation, etc.) to severe (cornea scarring and blurred vision).

DES was originally recognized mainly as an exocrine disease, where the fast drying of the corneal surface was believed to be caused by aqueous production deficiency, where the lacrimal gland under the upper eyelids does not generate enough salty water solution, and increased tear evaporation, which can be caused by eyelid problems, not enough blinking, or meibomian glands not secreting enough meibum, an oily substance that covers the tear film to prevent it from evaporation.

More recently, based on numerous evolving discoveries, DES was recognized more as an immunological/inflammatory disease. In 2007, the International Dry Eye Workshop comes with a new definition of DES: "a complex, multifactorial disorder of the tear film and ocular surface" with two distinct characteristics: 1. increased tear film osmolarity and 2. inflammation of ocular surface. Further, researchers also found a vicious cycle between ocular inflammation and DES, where the inflammation can be both a cause as well as a consequence of desiccation of corneal epithelium (Fig. 1). This vicious cycle elaborates the importance of early medical intervention in DES patients.

Figure 1. The vicious cycle between ocular inflammation and dry eye. (Source)

Current management of DES include symptomatic relief, such as topical artificial tears, autologous serum eye drops, punctal plugs to reduce nasolacrimal drainage of tears, as well as anti-inflammation including but not limited to NSAID drops, topical corticosteroids, topical calcineurin inhibitors ("CNI"), and oral vitamin/omega-3 fatty acid supplements.

Despite DES's multi-factorial nature, the infiltration of T-cells in the conjuctiva tissue and their production of cytokines in ocular surface and glands are central to the disease manifestation. As a result, moderate to severe patients (especially Sjogren related) usually get a topical corticosteroid which can induce a fast and effective anti-inflammatory effect, in addition to other corresponding disease modifying procedures. Corticosteroids (e.g. loteprendol etabonate) with minimal potential to raise intraocular pressure (IOP) is preferred, but still not recommended for prolonged exposure after a few weeks. After steroids tapering, patients switch to other safer immunomodulator like calcineurin inhibitor (e.g. cyclosporin) for long-term inflammation control, if necessary. Topical cyclosporine emulsion has proven to be effective in improving metrics of ocular surface health including decreased inflammatory marker expression (HLA-DR, CD40L, CD11a, IL-6, IL-8), decreased inflammatory cell levels (HLA-DR positive, Fas positive, CD11a positive, CD3 positive cells, TGF-2 positive goblet cells) and increased mucin production in multiple trials. As a result, the 0.05% cyclosporine emulsion formula (Allergen's Restasis) was approved by FDA back in 2003 to enhance tear production and reduce inflammation in DES.

Aurinia's DES candidate, topical voclosporin solution is currently under AUDREY Phase II/III clinical development. It is considered as a second generation, safer and more potent cyclosporine derivative. The AUDREY trial top-line readout is expected in Q4 2020. We think topical voclosporin is a best-in-class CNI eye drops for DES and AUDREY trial is highly likely to succeed.

I. Voclosporin has identical MOA to cyclosporine but with better systemic PK/PD and stronger binding to calcineurin-calmodulin complex.

Structurally, voclosporin is an analogue of cyclosporine with a methyl group addition to the aminoacid-1 residue (Fig. 2) with an identical mechanism of action, as indicated by in vitro studies. In addition, voclosporin was shown to have at least five-fold lower IC50 values on lymphocyte proliferation, T-cell cytokine production, and expression of all T-cell activation surface antigens comparing to cyclosporine, suggesting a much stronger binding to calcineurin-calmodulin complex. In consequence, various controlled human trials for oral formulation of voclosporin usually have a dose as low as ~10% of the dose of oral cyclosporine in comparable settings and still achieving similar efficacy.

Figure 2. Chemical structure of (A) Voclosporin and (B) cyclosporin. (Source)

Voclosporin also exhibits a more explicit dose-dependent pharmacokinetics profile with less individual variation in healthy individuals, comparing to cyclosporine (Fig. 3). This helps trial designers to determine target dose more easily and having a more controlled safety profile.

Figure 3. The pharmacokinetic profile of single dose (left) cyclosporine and (right) voclosporin. (Source)

II. Voclosporin aqueous solution is a better ophthalmic formulation comparing to Restasis's oil-in-water emulsion.

Our natural tear film is not just a salty water solution. It has a thin layer of lipid component called meibum floating on top of the water solution. Meibum is a lipid-rich secretion produced by meibomian gland and it reduces water evaporation of the tear. This is one of the reasons that oil-in-water emulsion eye drops have been verified to benefit DES patients, especially patients with meibomian gland dysfunction.

Restasis applies the same oil-in-water emulsion, but serves a different purpose here. Since cyclosporine (and same as voclosporin) has a poor water solubility, Restasis is formulated with 0.05% cyclosporine dissolved in castor oil (1.25%), which binds to the hydrophobic end of surfactant polysorbate 80 (1.00%), forming a fine dispersion of micro droplets and stabilized by carbomer copolymer type A (0.05%). Here the tear film lipid layer may work against Restasis' intended delivery purpose since fraction of the cyclosporine containing oil droplet may merge with the tear film lipid layer, entrapping a portion of active drug within. On the other hand, Aurinia's voclosporin eye drops utilize an aqueous nanomicellar formulation, where surfactants form micelles when present in water at concentrations above the critical micellar concentration ("CMC"), and encapsulating voclosporin inside. This formulation does not contain oil. Thus, it is believed that higher portion of the active ingredient can travel through tear film and reaching corneal epithelium.

In fact, researchers have compared the ocular pharmacokinetics of these two different formulations for topical cyclosporine ("CsA") in rabbits. The study reported that the AUC0-12 of aqueous micellar solution (Aq-CsA) is about three times of AUC0-12 of oil-in-water emulsion (Em-CsA) in corneal stroma endothelium. The same pattern was observed in the bulbar conjunctiva, where the AUC0-12 of Aq-CsA is more than double of the AUC0-12 of Em-CsA. These results clearly showed that aqueous micellar solutions improve the ocular bioavailability of cyclosporine which would potentially maximize the clinical efficacy of cyclosporine products. Due to the extreme physical similarities between cyclosporine and voclosporin, we assume a similar characteristics in voclosporin as well.

III. The AUDREY design makes it highly likely to meet its primary endpoint.

In the Phase IIa trial, 0.2% voclosporin treatment arm was compared with Restasis arm as control. Even under this head-to-head setting, voclosporin still produced statistically significant improvement in Schirmer Score (Fig. 4). We think the result is really encouraging, as the percentage of patients with a Schirmer Score increase of >= 10mm at week 4 (which is also the primary endpoint of AUDREY) reaches a stunning 43%, more than doubling of various commercially available cyclosporine eye drops on the market. In AUDREY trial, the active comparator is replaced by vehicle control. We think the separation between treatment (0.2% voclosporin) and control arm at month 1 should be at least the same, if not more than Phase IIa result.

Figure 4. Schirmer score improvement in various trials, suggesting a potential best-in-class efficacy of VOS. (Source)

It is worth noting that in AUDREY trial, there are three voclosporin treatment cohorts with varying dosages: 0.2%, 0.1%, and 0.05%. The phase IIa just tested the highest dose of 0.2%. One may argue that Restasis only contains 0.05% cyclosporine so it is not a fair comparison, and that lower doses of voclosporin may be much less effective. However, we think the treatment efficacy will not differ too much between the three doses. Let me elaborate.

In Restasis Phase 2 trial, it compared the Schirmer score of four different doses of cyclosporine (0.05%, 0.1%, 0.2%, 0.4%) at different time points. We can see the dose response is not clear either at week 4 or week 8 (Fig. 5). Even the dose response can be observed at week 12, it quickly diminished post treatment. Further, if one looks at other metrics such as change from baseline in rose Bengal staining and ocular surface disease index (OSDI), no dose response was observed at any time point. That is why the later Restasis' Phase 3 trial only includes two lower doses of 0.05% and 0.1%. We think similar results should be expected in AUDREY trial. If Restasis of 0.05% cyclosporine is enough to produce a consistent efficacy, 0.05% voclosporin with same MOA, stronger binding and better formulation would likely be enough. Consequently, we expect little dose response between 0.2%, 0.1%, and 0.05% doses of voclosporin, and the separation between two lower doses of voclosporin and vehicle on Schirmer Tear Test in AUDREY trial is likely to be significant as well.

Figure 5. Schirmer score improvement (cm) in Restasis Phase 2 trial. (Source)

One significant difference we observe between voclosporin and cyclosporine is that cyclosporine seems to have a slower onset. In Fig. 5, we can see strongest efficacy is observed at month 4. Further, in Restasis' large scale Phase 3 trial, the corneal stain score and Schirmer score did not separate significantly between treatment and vehicle at or before month 3, but gradually became significant towards month 6. On the other hand, voclosporin seems to have a much quicker onset at month 1.

For key secondary endpoint, the change in ocular dryness visual analogue scale at month 1, we think the result will likely to be positive. In Restasis' Phase 2 trial, cyclosporine had produced positive outcome on eye dryness as soon as month 2, we think voclosporin is likely to produce a positive outcome as well.

We want to emphasize that a lot of our conclusions about voclosporin's efficacy are based on the (partially approved) assumption of the extreme similarities between voclosporin and cyclosporine. We understand that the physiological outcomes of the two could in theory, still be different, resulting in unexpected clinical readout.

IV. Voclosporin eye drop should have little safety concern.

As a second generation CNI, voclosporin is known to have a much better safety profile than cyclosporine. Under systemic delivery, cyclosporine was known to statistically significantly increase blood pressure, and the magnitude of increase is clinically significant to increase the risk of stroke, myocardial infarction, and other MACE event. Cyclosporine is also known to display nephrotoxicity due predominantly to functional declines in renal blood flow ("RBF"), though this impairment is reversible. Conversely, the systemic delivery of voclosporin, based on different human studies involving over 2,000 patients suggested a lack of nephrotoxicity and no significant change in either mean systolic or diastolic blood pressure. One of the main reasons for better tolerability of voclosporin is that its clinically effective dose is only about one-tenth of the dose of cyclosporine.

For ophthalmic formulation, neither cyclosporine nor voclosporin induces clinically meaningful plasma concentration. Studies had shown that after 0.2% voclosporin TID dosing, the maximum plasma concentration is around 0.2 ng/ml. In comparison, a 20mg BID oral administration of voclosporin generates a Cmax of 20-40 ng/ml. As a result, we think 0.2% voclosporin eye drop should have no systemic AEs.

One may recall that the primary endpoint of its Phase IIa trial is ocular discomfort one minute following drug administration. However, it failed to demonstrate an advantage over Restasis, which was known to cause discomfort feelings (stinging, burning and itching) in 17% of the patients. Such irritation is usually caused by surfactants. It is well understood that, the discomfort "improve over time so that by three months after starting Restasis, the burning and stinging almost always goes away". Therefore, we think ocular discomfort is not a big concern. Just like the former CEO Richard Glickman explained why it failed on the primary, "if you actually look at the data across the board, it's quite consistent and remarkable - we just picked the wrong primary endpoint".

We combine all above factors and we think AUDREY has a 90% probability to meet its primary endpoint in highest dose cohort, an 80% probability to meet its primary endpoint in all doses, and a 75% chance to produce positive outcome in both primary and key secondary endpoints in one, if not all doses.

The current US DES market is estimated to be $4B in 2020, with a CAGR of 5% towards the near future. The majority of the market is taken by immunomodulator ophthalmic solutions. Traditional topical ocular corticosteroids, thanks to their long-expired patents, are highly cost effective. To illustrate, a 5 ml bottle of prednisolone acetate or prednisolone sodium phosphate, 1% ophthalmic suspension costs about $30~$40. Newer generation steroids such as loteprednol etabonate, which was previously labeled to treat eye inflammation or pain post-surgery with price tags around $200, recently gained clinical success in DES in lower doses (Kala's EYSUVIS). If EYSUVIS is eventually approved by FDA, it probably will have a price lower than Restasis, likely in the $400~$500 range. CNIs, due to their reputation of long-term safety and less withdraw/rebound events over steroids, have been accepted by more and more patients in the past decade. Currently, Restasis is the best-selling DES drug in the globe.

Other immunomodulators with different MOA have been applied to clinic which intensify the competition. Lifitegrast, an LFA-1/ICAM-1 inhibitor which down-regulates inflammation mediated by T-lymphocytes, is the API of Xiidra which was approved by FDA for DES in 2016. It is often used in conjunction with Restasis. Xiidra, currently, generates an annual revenue of $400M for Novartis (NYSE:NVS). Aldeyra's Reproxalap, a RASP inhibitor which function as a pre-cytokine pro-inflammation modulator is under Phase 3 DES trial.

Disappointingly, with all these conventional and novel immunomodulators of various MOAs on the market, DES is still a field with large unmet medical needs. First, majority of DES cases are chronic conditions that one rarely finds a permanent cure under current therapeutic regime. Second, a decent portion of DES patients are resistant or refractory to corticosteroids and CNIs after repetitive use and they need to seek for alternative options. Third, even FDA approved DES drugs are not always free of suspicion. In June 2020, Novartis voluntarily withdrew the application for Xiidra in Europe after EMA questioned its efficacy. Same situation applies to the best-selling Restasis, where it was challenged by EMA and never approved in Europe. We hope the Aurinia's VOS could keep demonstrating its therapeutic potential which would benefits all DES patients globally.

Restasis entered the US market in 2003 and its commercial franchise has been extremely successful. In 2017, it reached a peak revenue of $1.41B in US. In the year 2018 and 2019, the sales dropped to $1.28B and $1.20B. Even with the decreasing number, it is still the second-best-selling product on Allergan's catalog, right after Botox. We think the application of topical CNIs on DES is a mature, well-recognized and widely accepted strategy. The popularity of Restasis could help pave the way for a smooth launch of VOS, the voclosporin eye drop, if getting approved by FDA. Also, Restasis' US revenue serves a good reference for VOS's future market potential.

Based on our analysis, we think VOS should be superior on various efficacy endpoints and non-inferior on AEs, when comparing head-to-head against Restasis. It will probably have a similar retail price of $600 per month. However, its future peak sale (if approved) really depends on the marketing efforts. From 2016-2017, Allergan spent a stunning $645 million advertising Restasis, including its website. Further, both Allergan website and offer online help locating a doctor, and Allergan paid over $9 million to 24,152 U.S. doctors from 2013-2015. The "find-a-doctor" feature also includes seven of the top 10 payees.

We are not sure if Aurinia has the same level of dedication on commercializing VOS themselves. During their Q2 earnings call, the company mentioned that a second pivotal trial will be necessary before submitting NDA. They also mentioned that, had AUDREY readout turned positive, they will be open to look for a partner. The CEO of Aurinia, Peter Greenleaf actually said, "I think the ideal path for launch is as a global company that would have deeper pockets and have the ability to invest at a much higher level than then a small company would".

Allergan (acquired by AbbVie (NYSE:ABBV)) will be a potential partner. Keep in mind that Restasis lost its patent protection in 2019 after the controversial St. Regis Mohawk tribe drama. The generic form of Restasis from Teva and other players would soon flood the market, with retail price around $400 per month. Given the identical MOA, Allergan could easily advertise VOS as the second generation Restasis and promote it with little additional effort. In addition, the estimated VOS launch time is around late 2022, which is three years after Restasis' patent cliff. Allergan probably would worry less about self-competition by then. If Allergan participates in VOS's launch, it is comfortable to say it will reach $600M - $800M peak sale, resulting a $1.2B-$1.6B fair valuation. For other potential partners who may not have such extensive experience in DES, the valuation may be smaller, but we think $700M-$800M valuation is still very reasonable, if not too conservative.

Aurinia currently has a market cap of $1.8B, with most of its value in its lupus nephritis pipeline. In our last December's analysis, we evaluated the LN pipeline, if being approved by FDA on PDUFA date Jan.22nd, 2021, could be worth over $3B. The market currently seems to ignore most of its DES pipeline value. We think a positive readout from AUDREY could increase $300M valuation immediately, representing a 15% stock upside.

Author: Weiwei Wang

Disclosure: I am/we are long AUPH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any information mentioned in this article was not verified, and should not be relied on as a formal investment justification. All recommendations and other statements, unless specified, are based on the author's personal understanding/judgment and may subject to future changes.

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Potential Positive Readout Of Aurinia Pharmaceuticals' Phase 2/3 AUDREY Trial Could Bring Best-In-Class Eye Drops For Dry Eye Syndrome - Seeking Alpha

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