Aurinia Pharmaceuticals Inc. (AUPH)

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 may differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis.

The following generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussion of 2022 and year-to-year comparisons between 2023 and 2022 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, 2023, filed with the SEC on February 15, 2024.

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 AUR200, 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, 2024 and 2023

The following table sets forth our results of operations for the years ended December 31, 2024 and 2023 (in thousands):

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Net Product Sales

Aurinia sells LUPKYNIS to two specialty pharmacies and a specialty distributor in 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.

For the year ended December 31, 2024, net product sales were $216.2 million, up 36% from $158.5 million in 2023. 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, 2024, license, collaboration and royalty revenue was $18.9 million, up 11% from $17.0 million in 2023. The increase is primarily due to an increase in manufacturing services provided to Otsuka for sharing the capacity of the Monoplant, which commenced in late 2023. Aurinia recognized revenue for a $10.0 million milestone in 2024 for the approval of LUPKYNIS for the treatment of LN in Japan by the Japanese Ministry of Health, Labour and Welfare and a $10.0 million milestone in 2023 for pricing and reimbursement approval in certain European jurisdictions.

Cost of Revenue

Cost of revenue consists primarily of expense associated with: (ii) 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 (approximately $4.0 million) for the exclusive right to use the Monoplant through March 31, 2030.

For the year ended December 31, 2024, cost of revenue was $28.2 million, compared to $14.1 million in 2023. The increase is primarily due to an increase in: (i) amortization of the finance lease right-of-use asset recognized in connection with the Monoplant, which was placed into service in late June 2023; (ii) Aurinia’s net sales of LUPKYNIS inventory to Otsuka; and (iii) Aurinia’s net sales of LUPKYNIS in the U.S.

For the year ended December 31, 2024, gross margin was 88%, compared to 92% in 2023.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to support growing 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

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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.

The following table summarizes our SG&A expense for the years ended December 31, 2024 and 2023 (in thousands):

The decrease in SG&A personnel-expense and non-personnel expense were primarily a result of lower employee-related general and administrative costs, including share-based compensation, and overhead costs resulting from our strategic restructuring efforts in 2024.

We expect our SG&A expense to decrease in 2025 as we realize the full benefits of our strategic restructuring efforts.

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 subcontractors 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, 2024 and 2023 (in thousands):

The decrease in R&D personnel-expense was primarily a result of a reduction of headcount from our strategic restructuring efforts in 2024, including the reversal of non-cash, share-based compensation expense related to forfeited, unvested equity awards. The decrease in R&D non-personnel expense was primarily a result of discontinuing our AUR300 development program in February 2024, and the timing of development activities for our AUR200 program.

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We expect our R&D expenses to increase for the foreseeable future as we advance AUR200 through clinical development and continue to meet our post-approval obligations with the FDA related to LUPKYNIS.

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. On February 15, 2024, we announced a strategic restructuring that reduced headcount by approximately 25% and discontinued Aurinia’s AUR300 development program. On November 7, 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 rapid development of AUR200.

For the year ended December 31, 2024, restructuring expense was $23.1 million, compared to nil in 2023.

Other (Income) Expense, Net

For the year ended December 31, 2024, other (income) expense, net was $(4.3) million, compared to $8.4 million in 2023. 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 commenced in late June 2023 and is denominated in Swiss Francs; (ii) changes in the fair value assumptions related to our deferred compensation liability; and (iii) a one-time expense in 2023 related to shareholder matters.

Liquidity and Capital Resources

As of December 31, 2024, Aurinia had cash, cash equivalents, restricted cash and investments of $358.5 million, compared to $350.7 million at December 31, 2023. For the year ended December 31, 2024, the Company repurchased 6.1 million of its common shares for $41.0 million. For the year ended December 31, 2024, cash flow provided by (used in) operating activities was $44.4 million, compared to $(33.5) million in 2023.

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

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, 2024.

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.

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 prompt-pay discounts, customer fees, government rebates, co-payment assistance, payor rebates and administration fees for which

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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.

As of December 31, 2024, we did not have any material adjustments to variable consideration estimates based on actual results.

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.

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

The following management’s discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the notes thereto included in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Annual Report. Our actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

The following generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussion of historical items and year-to-year comparisons between 2022 and 2021 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, 2022, filed with the SEC on February 28, 2023 and such comparisons are incorporated herein by reference.

Overview

Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to people living with autoimmune diseases with high unmet medical needs. In January 2021, we introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active LN. We continue to conduct clinical and regulatory activities to support the LUPKYNIS development program. We contracted with Otsuka as a collaboration partner for development and commercialization of LUPKYNIS in the Otsuka Territories.

Effective February 14, 2024, the Company's Board of Directors elected to conclude its strategic review process and determined that it was in the best interest of the Company and its shareholders to undergo a restructuring. In principal, the corporate restructuring will involve the Company reaffirming its commitment to enhancing value and driving LUPKYNIS growth, while maintaining a sharp focus on operating efficiencies and maximizing cash flows. As a result, the Company is ceasing future development efforts on AUR200 and its pre-clinical asset AUR300.

LUPKYNIS is an orally administered CNI immunosuppressant that has been demonstrated to improve near and long-term outcomes in LN when used in combination with 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.

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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.

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. During the third quarter of 2023, the Company received notification that the pricing and reimbursement milestone was secured. As a result, this triggered a $10.0 million milestone which was recognized as collaboration revenue for the year ended December 31, 2023. On November 13, 2023, Otsuka filed a new drug application (NDA) for voclosporin for the treatment of lupus nephritis (LN) with the Japanese Ministry of Health, Labour, and Welfare for the manufacture and sale in Japan of voclosporin.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, are reflected in our financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Annual Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

Product Revenues

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

Reserves for discounts and allowances: Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer).

Our estimates 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 and specialty distributors, 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 December 31, 2023, we did not have any material adjustments to variable consideration estimates based on actual results.

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License, Collaboration and Royalty Revenues

We enter into out-licensing agreements in which we license certain rights to LUPKYNIS to third parties. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees, development, regulatory and commercial milestone payments, payments for collaboration services we provide through our contract manufacturers, payments for manufacturing services and royalties on net sales of licensed products. Each of these payments results in license, collaboration and royalty revenues. Our main collaboration partnership is with Otsuka. In 2023 and 2022, we recognized $16.0 million and $30.6 million, respectively, in license, collaboration and royalty revenue from Otsuka.

Manufacturing Services Revenue: Our agreements may include manufacturing services to be performed by us on behalf of the counterparty. If these services are determined to be distinct from the other promises or performance obligations identified in the arrangement, we recognize the transaction price allocated to these services as revenue either over time based on an appropriate measure of progress when the performance by us does not create an asset with an alternative use and we have an enforceable right to payment for the performance completed to date or at a point in time as the related performance obligations are satisfied. Certain agreements may include terms where we can partially bill for manufacturing services before the serves are provided, resulting in a deferred revenue which is to be recognized once the performance obligation is satisfied.

Deferred Compensation Arrangements

We have recorded deferred compensation arrangements in liabilities for estimated future employee benefits relating to applicable historical employment arrangements. In 2012, deferred compensation arrangements were approved by a resolution of the board of directors. Pursuant to ASC Topic 710 – Compensation, we recognize future benefits provided by employee retention arrangements, as deferred compensation, which is recognized when we determine that it is probable to make future payments. The deferred compensation is based on an income approach for the estimated future net revenues of voclosporin using an internal risk-adjusted net present value of the future payments to be made to the individuals.

Initially, these obligations are measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting periods. Subsequent re-measurements as a result of performance obligations we meet or changes in assumptions are recognized in the consolidated statement of operations. There have been no material historical adjustments to amounts recorded in the consolidated statement of operations in prior periods.

Impact of Recently Issued Accounting Pronouncements

For information of recent accounting pronouncements and their impact on our consolidated financial statements or disclosures, see Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

The following table sets forth our results of operations for the years ended December 31, 2023 and 2022:

Total Revenue, net

Total net revenue was $175.5 million and $134.0 million for the years ended December 31, 2023 and 2022, respectively.

The Company currently has two main customers for U.S. commercial sales of LUPKYNIS and a collaboration partnership with Otsuka for sales of semi-finished product and license, collaboration and royalty revenue in Otsuka Territories. The percentage of total revenues, net from our main customers were as follows:

Product Revenue, net

Product Revenue, net was $158.5 million and $103.5 million for the years ended December 31, 2023 and 2022, respectively. The increase is primarily due to an increase of LUPKYNIS sales to our two main customers, driven predominantly by further penetration of the LN market.

The market penetration can be demonstrated, in part, by 1,791 additional prescriptions (which we generally refer to as patient start forms (PSFs)) received during the year ended December 31, 2023 compared to 1,650 PSFs received during the year ended December 31, 2022. Additionally, during the fourth quarter of 2023, the Company added approximately 101 new patients, which includes, restarts (patients coming back onto therapy who do not require PSF) and an estimate of new patients beginning therapy in the hospital channel. Patient restarts and estimated patients coming through the hospital channel are newly reported in the fourth quarter since they have achieved numerical significance for the first time. Lastly, our 12-month persistency rate has increased from approximately 50% at December 31, 2022 to approximately 55% at December 31, 2023. These factors have

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contributed to an increase in our patients on therapy with approximately 2,066 patients on LUPKYNIS therapy at December 31, 2023, compared with 1,525 at December 31, 2022.

License, Collaboration and Royalty Revenue

License, collaboration and royalty revenue was $17.0 million and $30.6 million for the years ended December 31, 2023 and 2022, respectively. For the year ended December 31, 2023, license, collaboration and royalty revenue included a $10.0 million pricing and reimbursement milestone in September 2023 and additional collaboration and manufacturing services revenue from Otsuka. For the year ended December 31, 2022, license, collaboration and royalty revenue was primarily due to the recognition of a $30.0 million regulatory milestone from Otsuka following the EC marketing authorization of LUPKYNIS in September 2022.

Cost of Sales

Cost of sales were $14.1 million and $5.7 million for the years ended December 31, 2023 and 2022, respectively. The increase is primarily due to an increase in sales of LUPKYNIS, coupled with the amortization of the monoplant finance right-of-use asset, which was placed into service in late June 2023.

Gross margin for the years ended December 31, 2023 and 2022 was approximately 92% and 96%, respectively.

Selling, General and Administrative Expenses

SG&A expenses decreased to $195.0 million for the year ended December 31, 2023 compared to $196.4 million for the year ended December 31, 2022. SG&A expenses consisted of the following:

The primary drivers for the decrease in SG&A were a decrease of professional fees and services due to a reduction in expenses associated with corporate legal matters and insurance partially offset by an increase in share-based compensation expense.

We expense SG&A costs in the periods in which they are incurred. We anticipate continuing to incur significant expenses in SG&A to support the commercialization of LUPKYNIS.

Research and Development Expenses

R&D expenses increased to $49.6 million for the year ended December 31, 2023 compared to $45.0 million for the year ended December 31, 2022. R&D expenses consisted of the following:

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The primary driver for the increase in R&D expenses was due to the increase in share-based compensation expense.

We spent approximately $17.4 million and $13.5 million on early stage pre-clinical research programs in the years ended December 31, 2023 and 2022, respectively. The spend does not include internal resource expenses as we currently do not track these for early stage research programs, prior to IND. The increase in spend on our pre-clinical research programs was offset by a decrease in spend associated with clinical voclosporin associated studies.

We expect our R&D expenses will decrease going forward as we cease future development on AUR200 and AUR300 and focus our efforts on the development of voclosporin and our FDA post-approval obligations for LUPKYNIS. We are unable to determine the duration and completion costs of our R&D projects.

Other Expense (Income), Net

Other expense (income), net was $8.4 million for the year ended December 31, 2023 compared to other income of $(1.5) million for the year ended December 31, 2022. The primary drivers for other expense for the year ended 2023 were expenses related to shareholder matters and the foreign exchange loss related to the revaluation of the monoplant finance lease liability, which commenced in June 2023 and is denominated in CHF.

Interest Income

Interest income was $17.0 million for the year ended December 31, 2023 compared to $5.1 million for the year ended December 31, 2022. The increase was mainly due to higher yields on our investments as a result of higher interest rates.

Liquidity and Capital Resources

As of December 31, 2023, we had cash, cash equivalents and restricted cash of $48.9 million and investments of $301.8 million compared to cash, cash equivalents and restricted cash of $94.2 million and short-term investments of $295.2 million at December 31, 2022. Cash, cash equivalents and restricted cash and investments are primarily held in U.S. dollars. As of December 31, 2023 and 2022, we had working capital of $347.6 million and $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. Taking into consideration the cash, cash equivalents and restricted cash and investments as of December 31, 2023, we believe that our cash position is sufficient to fund our current plans which include funding commercial activities, such as our FDA related post-approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our LUPKYNIS (voclosporin) related R&D programs and funding our working capital obligations for at least the next few years.

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The following table summarizes our cash flows for December 31, 2023, 2022 and 2021:

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2023 was $33.5 million, compared to $79.5 million, for the year ended December 31, 2022. The decrease is primarily due to an increase in cash receipts from sales of LUPKYNIS. See "Total Revenue, net" above for further discussion regarding our increased sales of LUPKYNIS.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2023 was $6.7 million compared to $60.6 million for the year ended December 31, 2022. The decrease was primarily due to the timing of purchases of investments and capital payment for the monoplant, offset by proceeds of maturities of investments.

Cash Flows from Financing Activities

Cash used in financing activities for the year ended December 31, 2023 was $5.1 million compared to cash provided by financing activities of $2.4 million for the year ended December 31, 2022. The change is primarily due to the quarterly lease payments for our monoplant finance lease, which commenced during the second quarter of 2023.

A discussion of changes in our cash flow from the year ended December 31, 2021 to the year ended December 31, 2022 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 2022 Form 10-K.

November 2021 ATM facility

In November 2021, we entered into an Open Market Sale Agreement under which we issued 10.2 million common shares, resulting in net proceeds of $196.7 million through December 31, 2021. There were no sales subsequent to December 31, 2021. In February 2022, we terminated the Open Market Sale Agreement and no further sales occurred.

We intend to use the net proceeds to fund our operations, which include, but are not limited to, commercial activities, including our FDA related post approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our R&D programs and funding our working capital obligations.

Material Cash Requirements

As of December 31, 2023, our material short-term cash requirements are approximately $170.0 million. We anticipate our long-term cash requirements to be approximately $134.0 million, which does not include per annum requirements related to human capital, insurance and government payor rebates, each of which we anticipate to fluctuate based on future requirements (those per annum amounts, calculated on a short-term cash requirement basis, amount to approximately $116.0 million). These short and long-term cash requirement estimates are all based on our current operating plans and strategies, and could fluctuate if our plans were to change.

Our material cash requirements include the following:

•short-term per annum expenses for human capital (which includes estimates for personnel headcount, performance bonuses, salaries, benefits and commissions);

•payor and government rebates and co-payment programs;

•marketing and promotional services;

•corporate insurance premiums;

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•cash requirements related to R&D projects, clinical trials and post-approval related studies and support;

•short-term and long-term lease liabilities included on our consolidated balance sheet or Note 15, Leases for further details;

•deferred compensation arrangements included on our consolidated balance sheet or Note 14, Deferred Compensation and Other Non-Current Liabilities for further details;

•severance costs and potential contract termination costs related to our restructuring program; and

•purchases for inventory and production costs to support our commercial and clinical product supply requirements, as well as capital expenditures. For further details see Note 13, Commitments and Contingencies.

There are several factors that we believe could impact our future cash requirements, including:

•the amount of revenue received from commercial sales of LUPKYNIS, from our licensing partners;

•the scope, rate of progress, results and costs of our clinical trials and other related regulatory requirements and activities;

•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•the expenses needed to attract and retain skilled personnel as well as any other personnel changes that we may implement;

•the timing of our restructuring program and our ability to execute successfully on the restructuring; and

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.

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

The following management’s discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the notes thereto included in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Annual Report. Our actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

The following generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussion of historical items and year-to-year comparisons between 2021 and 2020 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, 2021, filed with the SEC on February 28, 2022 and such comparisons are incorporated herein by reference.

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Overview

Aurinia is a fully integrated biopharmaceutical company focused on delivering therapies to treat targeted patient populations that are impacted by autoimmune, kidney and rare diseases with a high unmet medical need. In January 2021, we introduced LUPKYNIS (voclosporin), the first FDA-approved oral therapy for the treatment of adult patients with active LN. We continue to conduct pre-clinical, clinical and regulatory activities to support the 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 Otsuka Territories.

LUPKYNIS is an orally administered CNI immunosuppressant that has been demonstrated to improve near and long-term outcomes in LN when used in combination with 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.

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 during the third quarter in 2022. We continue to progress with regulatory approval with Otsuka in the other Otsuka Territories.

Our net product revenue in 2022 increased to $103.5 million from $45.5 million in 2021. We did not have any products approved for sale before 2021. We expect our net product revenue to continue to increase as we continue to execute on our post approval commercialization strategy for LUPKYNIS.

Our total cost of sales and operating expenses increased in 2022 to $245.5 million from $226.3 million in 2021, primarily as a result of additional efforts related to the commercialization of LUPKYNIS, along with an increase in cost of sales recognized for product sales. We anticipate continuing to spend in R&D to support our development programs and post approval commitments to the FDA for LUPKYNIS and in respect of our two additional assets, AUR200 and AUR300.

We ended 2022 with $389.4 million in cash, cash equivalents and restricted cash and short-term investments, which we believe to be sufficient to fund our current business plans for at least the next few years.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, are reflected in our financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Annual Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

Product Revenues

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

Reserves for discounts and allowances: Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer).

Our estimates 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 and specialty distributors, 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 December 31, 2022, we did not have any material adjustments to variable consideration estimates based on actual results.

License, Collaboration and Other Revenues

We enter into out-licensing agreements in which we license certain rights to our product candidates to third parties. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees, development, regulatory and commercial milestone payments, payments for collaboration services we provide through our contract manufacturers, and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. We recorded $50.0 million for upfront, non-refundable revenue in 2020 related to the Otsuka agreement. The upfront fee of $50.0 million was fixed consideration for the transfer of the license and distribution rights and was recognized upon transfer in December 2020. In 2022, we recognized $30.6 million in license and collaboration revenue from Otsuka.

Deferred Compensation Arrangements

We have recorded deferred compensation arrangements in liabilities for estimated future employee benefits relating to applicable historical employment arrangements. In 2012, deferred compensation arrangements were approved by a resolution of the board of directors. Pursuant to ASC Topic 710 – Compensation, we recognize future benefits provided by employee retention arrangements, as deferred compensation, which is recognized when we determine that it is probable to make future payments. The deferred compensation is based on an income approach for the estimated future net revenues of voclosporin using an internal risk-adjusted net present value of the future payments to be made to the individuals.

Initially, these obligations are measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting periods. Subsequent re-measurements as a result of performance obligations we meet or changes in assumptions are recognized in the consolidated statement of operations. There have been no material historical adjustments to amounts recorded in the consolidated statement of operations in prior periods.

Impact of Recently Issued Accounting Pronouncements

For information of recent accounting pronouncements and their impact on our consolidated financial statements or disclosures, see Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table sets forth our results of operations for the years ended December 31, 2022 and 2021:

Revenues

Total net revenue were $134.0 million and $45.6 million for the years ended December 31, 2022 and 2021, respectively. Our total net revenue during 2022 increased primarily as a result of net product revenue from our two main customers for LUPKYNIS driven predominantly by further penetration in the LN market, as well as the recognition of a $30.0 million milestone payment from Otsuka following the EC granting marketing authorization of LUPKYNIS in September 2022. Revenues from our two main customers in the U.S. accounted for approximately 45% and 35%, respectively, of our total revenues for the year ended December 31, 2022.

Cost of Sales

Cost of sales were $5.7 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively. The increase was primarily due to an increase in product related revenue, coupled with an increase in our inventory reserves which were mainly related to reserves on process validation batches used for FDA approval.

Gross margin for the years ended December 31, 2022 and 2021 was approximately 96% and 98%, respectively.

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Selling, General and Administrative Expenses

SG&A expenses increased to $196.4 million for the year ended December 31, 2022 compared to $173.5 million for the year ended December 31, 2021. SG&A expenses consisted of the following:

The primary drivers for the increase of $22.8 million in SG&A were an increase of professional fees and services mainly related to corporate legal matters and pharmacovigilance; and travel, trade shows and sponsorships to support the commercialization of LUPKYNIS. Additionally, salaries, incentive pay and employee benefits increased due to inflationary increases and routine year over year merit and promotion increases.

We expense SG&A costs in the periods in which they are incurred. We anticipate continuing to incur significant expenses in SG&A to support the commercialization of LUPKYNIS.

Research and Development Expenses

R&D expenses decreased to $45.0 million for the year ended December 31, 2022 compared to $51.1 million for the year ended December 31, 2021. R&D expenses consisted of the following:

The primary drivers for the decrease of R&D were due to the $10.0 million upfront license and accrued milestone expense within the CRO and developmental expenses line item for AUR300 in the prior year, offset partially by additional expenses related to AUR200 and AUR300 for the year ended December 31, 2022.

We spent approximately $13.5 million and $16.0 million on early stage pre-clinical research programs in the years ended December 31, 2022 and 2021, respectively. The spend does not include internal resource expenses as we currently do not track these for early stage research programs, prior to IND.

We expect our R&D expenses will increase as we continue to meet our post-approval obligations for LUPKYNIS with the FDA, invest in R&D activities related to developing voclosporin and product candidates, and as programs advance into later stages of development and we begin to conduct larger clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and R&D is highly uncertain. As a result, we are unable to determine the duration and completion costs of our R&D projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

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Other Expenses (Income), Net

Other income was $1.5 million for the year ended December 31, 2022 compared to other expense of $0.6 million for the year ended December 31, 2021. The primary driver for the change was the revaluation of deferred compensation based on a change in discount rate.

Interest Income

Interest income was $5.1 million for the year ended December 31, 2022 compared to $0.5 million for the year ended December 31, 2021. The increase was mainly due to higher yields on our investments as a result of increasing interest rates.

Liquidity and Capital Resources

As of December 31, 2022, we had cash, cash equivalents and restricted cash of $94.2 million and short-term investments of $295.2 million compared to cash, cash equivalents and restricted cash of $231.9 million and short-term investments of $234.2 million at December 31, 2021. Cash, cash equivalents and restricted cash and investments are primarily held in U.S. dollars. As of December 31, 2022 and 2021, we had working capital of $396.4 million and $472.7 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, cash equivalents and restricted cash and investments as of December 31, 2022, 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, advancing our R&D programs and funding our working capital obligations for at least the next few years.

The following table summarizes our cash flows for December 31, 2022, 2021 and 2020:

Cash Flows from Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $79.5 million, compared to $157.7 million, for the year ended December 31, 2021. Net cash used in both periods was primarily related to the continued investment in commercialization activities, payments made for our ongoing post approval obligations, advancement of our pipeline, and inventory purchases partially offset by cash receipts from sales of LUPKYNIS. The decrease in net cash used for operating activities is primarily due to an increase in cash receipts from sales of LUPKYNIS and the milestone payment received from Otsuka in 2022 related to the EC marketing authorization.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2022 was $60.6 million compared to $103.9 million for the year ended December 31, 2021. Investing activities during 2022 consisted primarily of $524.0 million for purchases of investments of commercial paper and corporate bonds offset by $464.3 million in proceeds as discussed in Note 4 of the audited consolidated financial statements for the year ended December 31, 2022. The decrease in cash used in investing activities is

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mainly related to the shift to a shorter duration of investments in our portfolio in 2022 in addition to upfront lease and license payments made in 2021 not recurring in 2022.

Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2022 was $2.4 million compared to cash provided by financing activities of $221.1 million for the year ended December 31, 2021. The decrease in cash provided by financing activities is mainly due to the Company not completing financings and less stock option exercises occurring in 2022.

A discussion of changes in our cash flow from the year ended December 31, 2020 to the year ended December 31, 2021 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Conditions and Results of Operations" of the 2021 Form 10-K.

November 2021 ATM facility

In November 2021, we entered into an Open Market Sale Agreement under which we issued 10.2 million common shares, resulting in net proceeds of $196.7 million through December 31, 2022. There were no sales subsequent to December 31, 2021. In February 2022, we terminated the Open Market Sale Agreement and no further sales occurred.

We intend to use the net proceeds to fund our operations, which includes, but is not limited to, commercial activities, including our FDA related post approval commitments, manufacturing and packaging commercial drug supply, funding our supporting commercial infrastructure, advancing our R&D programs and funding our working capital obligations.

Material Cash Requirements

As of December 31, 2022, our material short-term cash requirements are approximately $181.4 million. We anticipate our long-term cash requirements to be approximately $157.5 million, which does not include per annum requirements related to human capital, insurance and government payor rebates, each of which we anticipate to fluctuate based on future requirements (those per annum amounts, calculated on a short-term cash requirement basis, amount to approximately $104.9 million). These short and long-term cash requirement estimates are all based on our current operating plans and strategies, and could fluctuate if our plans were to change.

Our material cash requirements include the following:

•short-term per annum expenses for human capital (which includes estimates for personnel headcount, performance bonuses, salaries, benefits and commissions);

•payor and government rebates and co-payment programs;

•marketing and promotional services;

•corporate insurance premiums;

•cash requirements related to R&D projects, clinical trials, milestone expenses and post-approval related studies and support;

•short-term and long-term lease liabilities included on our consolidated balance sheet or Note 15 Leases for further details;

•deferred compensation arrangements included on our consolidated balance sheet or Note 14, Deferred Compensation and Other Non-Current Liabilities for further details; and

•purchases for inventory and production costs to support our commercial and clinical product supply requirements, as well as capital expenditures. For further details see Note 13, Commitments and Contingencies.

There are several factors that we believe could impact our future cash requirements, including:

•the amount of revenue received from commercial sales of LUPKYNIS, from our licensing partners and potential future drug candidates;

•the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related regulatory requirements and activities;

•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•the number and characteristics of the R&D assets we seek to acquire, develop or commercialize;

•the expenses needed to attract and retain skilled personnel as well as any other personnel changes that we may implement; and

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.

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

The following management’s discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the notes thereto included in this Annual Report. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Annual Report. Our actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Special Note Regarding Forward-Looking Statements” and “Risk Factors.”

The following generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussion of historical items and year-to-year comparisons between 2020 and 2019 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-

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K for the fiscal year ended December 31, 2020, filed with the SEC on February 24, 2021 and such comparisons are incorporated herein by reference.

Overview

Aurinia is a commercial-stage biopharmaceutical company focused on developing and commercializing therapies to treat targeted patient populations that are suffering from serious diseases with a high unmet medical need. In 2021, we commercially launched LUPKYNIS in the United States for the treatment of adult patients with active LN. We continue to conduct pre-clinical, clinical, and regulatory activities to support the voclosporin development program as well as our other assets.

On January 22, 2021, the FDA approved LUPKYNIS in combination with a background immunosuppressive therapy regimen to treat adult patients with active LN.

On August 17, 2021, we announced the acquisition 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. It is anticipated that an IND for AUR300 will be submitted during the first half of 2023.

On December 9, 2021, we announced positive topline results from the AURORA 2 continuation study evaluating the long-term safety and tolerability of LUPKYNIS.

Our net product revenue in 2021 increased to $45.5 million due to FDA approval of LUPKYNIS on January 22, 2021. We did not have any products approved for sale before 2021. We expect our net product revenue to continue to increase as we continue to execute on our post approval commercialization strategy for LUPKYNIS.

Our total expenses increased in 2021 to $226.3 million, primarily as a result of additional efforts related to the commercialization of LUPKYNIS, along with an increase in and cost of sales recognized for product sales. We anticipate continuing to spend more in R&D to support our continued development programs for LUPKYNIS and in respect of our two additional assets, AUR200 and AUR300 and our post approval commitments to the FDA.

We ended 2021 with $466.1 million in cash, cash equivalents and short-term investments, which we believe to be sufficient to fund our current business plans.

LUPKYNIS is an orally administered CNI, immunosuppressant, that has the potential to improve near and long-term outcomes in LN when used in combination with 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.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, are reflected in our financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our

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significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Annual Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

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 health care providers and patients. Revenues from product sales are recognized when the customer obtains control of our product, which occurs at a point in time, typically upon delivery to the customer.

Reserves for discounts and allowances: Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to our customer) or a liability (if the amount is payable to a party other than our customer).

Our estimates 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. 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. We use a data aggregator and historical claims to estimate variable consideration for inventory sold to its customers that has not yet been dispensed. As of December 31, 2021, we did not have any material adjustments to estimates based on actual results.

License, Collaboration and Other Revenues

We enter into out-licensing agreements that are within the scope of ASC 606, under which we license certain rights to our product candidates to third parties. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees; development, regulatory and commercial milestone payments, payments for manufacturing supply services we provide through our contract manufacturers, and royalties on net sales of licensed products. Each of these payments results in license, collaboration and other revenues, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues. We recorded $50.0 million for upfront, non-refundable license revenue in 2020 related to the Otsuka agreement. 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 and we have not recorded any material amounts of revenue related to its license agreements in 2021.

Research and Development (R&D)Costs: R&D costs are accounted for in accordance with ASC Topic 730, Research and Development, (ASC 730) and are expensed as incurred. R&D costs consist primarily of the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, subcontractors and materials used for R&D activities, including nonclinical studies, clinical trials, manufacturing costs and professional services and in process R&D costs associated with acquired or licensed assets that do not have alternative uses and therefore no separate economic value. The costs of services performed by others in connection with the R&D activities, including R&D conducted by others on behalf of us, shall be included in R&D costs and expensed as the contracted work is performed.

We accrue the costs incurred under our agreements with these third parties based on actual work completed in accordance with agreements established with these third parties. We determine the accruals for R&D costs through monitoring invoices received and discussions with internal personnel and external service providers as to the progress or stage of completion of the clinical studies and the agreed-upon fee to be paid for such services. Where contingent milestone payments are due to third parties under R&D arrangements or license agreements, the milestone payment obligations are expensed when the milestone results are probable to be achieved.

Deferred Compensation Arrangements: We have recorded deferred compensation arrangements in liabilities for estimated future employee benefits relating to applicable historical employment arrangements. The deferred compensation arrangements were approved by a resolution of the Board of Directors of the Company on March 8, 2012. Pursuant to ASC Topic 710, we recognize future benefits provided by employee retention arrangements, as deferred compensation, which is recognized when we determine that it is probable to make future payments. The deferred compensation is based on an income approach for the estimated future net revenues of voclosporin using an internal risk-adjusted net present value of the future payments to be made to the individuals.

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Initially, these obligations are measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting periods. Subsequent re-measurements as a result of performance obligations we meet or changes in assumptions are recognized in the consolidated statement of operations. There have been no material historical adjustments to amounts recorded in the consolidated statement of operations in prior periods.

Impact of Recently Issued Accounting Pronouncements

For information of recent accounting pronouncements and their impact on our consolidated financial statements or disclosures, see Note 2 "Summary of Significant Accounting Policies" to our consolidated financial statements included in "Financial Statements and Supplementary Data" in this Annual Report.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table sets forth our results of operations for the years ended December 31, 2021 and 2020:

Revenues

Total revenues were $45.6 million and $50.1 million for the years ended December 31, 2021 and 2020, respectively. Our total revenues during 2021 primarily consisted of product revenues, net of adjustments, for LUPKYNIS following FDA approval in January 2021. Total revenues during 2020 were primarily due to the upfront payment from Otsuka of $50.0 million recorded as licensing revenue. In 2020, we did not have any drugs approved for commercial sale.

Cost of Sales

Cost of sales were $1.1 million and nil for the years ended December 31, 2021 and 2020, respectively. The increase was primarily the result of commercial sales of LUPKYNIS. In 2020, we did not have any drugs approved for commercial sale and the upfront payment from Otsuka did not have cost of sales. Gross margin for the year ended December 31, 2021 was approximately 98%.

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Selling, General and Administrative Expenses

SG&A expenses increased to $171.4 million for the year ended December 31, 2021 compared to $96.0 million for the year ended December 31, 2020. SG&A expenses consisted of the following:

We expense all SG&A costs in the periods in which they are incurred. We expect our SG&A expenses to continue to grow as we continue to build out the commercial and administrative functions to further support the commercialization of LUPKYNIS.

The primary drivers for the increase of $75.5 million in SG&A were due to an increase of $38.9 million in salaries and incentive pay including sales commissions and performance bonuses and employee benefits, and a $12.8 million increase in share-based compensation expense related to the expansion of the commercial and administrative functions to support the launch and commercialization of LUPKYNIS. Also contributing was an increase of $15.0 million in professional fees and services for activities such as patient assistance programs, consulting, recruiting, legal, market research and marketing. Following FDA approval, approximately $7.5 million of salaries and expenses that were previously allocated to R&D have been allocated to SG&A expense related to post approval support of LUPKYNIS. We anticipate continuing to incur significant expenses in SG&A to support the commercialization of LUPKYNIS.

Research and Development Expenses

R&D expenses increased slightly to $51.1 million for the year ended December 31, 2021 compared to $50.3 million for the year ended December 31, 2020. R&D expenses consisted of the following:

The primary drivers for the slight increase of $0.8 million in R&D were due to the upfront license and accrued milestone expense totaling $10.0 million related to our recently acquired developmental programs, AUR200 and AUR300 included in the CRO and developmental expenses line item and higher clinical research organization expenses related to our new clinical programs offset by a $3.8 million decrease in clinical supply and distribution costs following the approval of LUPKYNIS, including a reduction in new drug application preparation costs and termination of the dry eye trial during the fourth quarter of 2020. Following FDA approval, approximately $7.5 million of salaries and expenses that were previously allocated to R&D have been allocated to SG&A expense related to post approval support of LUPKYNIS.

We expect our R&D expenses will increase as we continue to develop our pipeline assets. We expect our R&D expenses will increase in future periods as we continue to meet our post approval obligations related to LUPKYNIS with the FDA, to invest in R&D activities related to developing voclosporin and product candidates, and as programs advance into later stages of development and we begin to conduct larger clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and R&D is highly uncertain. As a result, we are unable to determine the

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duration and completion costs of our R&D projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

Amortization of Acquired Intellectual Property and Other Intangible Assets

Amortization of acquired intellectual property and other intangible assets increased to $2.1 million for the year ended December 31, 2021 compared to $1.3 million for the year ended December 31, 2020 mainly due to implementations of internal-use software in 2020 and 2021.

Other Expenses (Income), Net

Other expenses were $0.6 million for the year ended December 31, 2021 compared to $6.8 million for the year ended December 31, 2020. The primary driver for the decrease of $6.2 million in other expenses during 2021 was the revaluation of deferred compensation in 2020 based on changes in estimates.

Interest Income

Interest income was $0.5 million for the year ended December 31, 2021 compared to $1.5 million for the year ended December 31, 2020. The decrease was mainly due to a lower return, as a result of lower interest rates on our 2021 investments, in comparison to 2020.

Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents of $231.9 million and short-term investments of $234.2 million compared to cash and cash equivalents of $272.4 million and short-term investments of $126.0 million at December 31, 2020. Cash and cash equivalents and our investments are primarily held in U.S. dollars. As of December 31, 2021 and 2020, we had working capital of $472.7 million and $387.4 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 our newly acquired assets AUR200 and AUR300. Taking into consideration the cash and cash equivalents and investments as of December 31, 2021, 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 commercial drug supply, funding our supporting commercial infrastructure, conducting our planned R&D programs, investing in our pipeline and funding our supporting corporate and working capital for at least the next few years.

The following table summarizes our cash flows for December 31, 2021, 2020 and 2019:

Cash Flows from Operating Activities

Cash used in operating activities in December 31, 2021 was $157.7 million, compared to $69.9 million, for the year ended December 31, 2020. The increase is primarily due to the commercial infrastructure spend to support the launch and commercialization of LUPKYNIS, payments for inventory, payments to help advance our clinical programs and one-time payments to a related party upon achievement of specific milestones partially offset by an increase in cash receipts. In the prior year, the Company was still in the development phase of LUPKYNIS.

Cash used in operating activities in December 31, 2020 was $69.9 million, compared to cash used in operating activities of $63.6 million for the year ended December 31, 2019. While we had a net loss of $102.7 million in 2020, non-cash components mainly included $17.5 million of share-based compensation. Operating cash flows included a net increase in working capital of

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$4.5 million. Net change in working capital during 2020 was largely impacted by changes in inventory, prepaid expenses and deposits, accounts payable and accrued liabilities and changes in our non-current assets and liabilities.

Cash Flows from Investing Activities

Cash used in investing activities for the year ended December 31, 2021 was $103.9 million compared to cash used in investing activities of $158.2 million for the year ended December 31, 2020. Investing activities during 2021 consisted primarily of $439.0 million for purchases of investments of commercial paper and corporate bonds as discussed in Note 4 of the audited consolidated financial statements for the year ended December 31, 2021.

Cash used in investing activities for the year ended December 31, 2020 was $158.2 million compared to cash provided by investing activities of $7.8 million for the year ended December 31, 2019. Investing activities in 2020 consisted primarily of $203.0 million for purchases of investments of commercial paper and corporate bonds as discussed in Note 4 of the audited consolidated financial statements for the year ended December 31, 2020.

Cash Flows from Financing Activities

Cash provided by financing activities for the year ended December 31, 2021 was $221.1 million compared to cash provided by financing activities of $194.4 million for the year ended December 31, 2020. Cash provided by financing activities for the year ended December 31, 2021 increased primarily due to the net proceeds of $196.7 million from our November 2021 ATM facility and $24.0 million of proceeds from the exercise of stock options.

Cash provided by financing activities for the year ended December 31, 2020 of $194.4 million compared to cash provided by financing activities of $243.9 million for the year ended December 31, 2019 decreased mainly due to the net proceeds of $187.7 million from our public offering of common shares compared to 2019, which included $223.1 million net proceeds from public offerings of common shares in 2019.

November 2021 ATM facility

In November 2021, we entered into an Open Market Sale Agreement, or the Sale Agreement, under which we issued 10.2 million common shares, resulting in net proceeds of $196.7 million through December 31, 2021. There have been no sales subsequent to December 31, 2021.

We intend to use the net proceeds to fund our operations, which includes, but is not limited to, clinical development and commercial production of voclosporin (whether for LN or other indications), advance our pipeline, regulatory, additional clinical trials, business development opportunities, capital expenditures and working capital.

In February 2022 we terminated the Sale Agreement and no further sales will occur under the Sale Agreement.

Material cash requirements

As of December 31, 2021, our material short-term cash requirements are approximately $117.3 million. We anticipate our long-term cash requirements to be approximately $163.3 million, which does not include per annum requirements related to human capital, insurance and government payor rebates, each of which we anticipate to fluctuate based on future requirements (those per annum amounts, calculated on a short-term cash requirement basis, amount to approximately $92.9 million). These short and long-term cash requirement estimates are all based on our current operating plans and strategies, and could fluctuate if our plans were to change.

Our material cash requirements include the following:

•Short-term per annum expenses for human capital (which includes estimates for personnel headcount, performance bonuses, salaries, benefits and commissions);

•Government payor rebates and co-payment programs;

•Corporate insurance premiums;

•Cash requirements related to R&D projects, clinical trials, milestone expenses and post-approval related studies and support;

•Short-term and long-term lease liabilities included on our consolidated balance sheet or Note 16, Leases for further details;

•Deferred compensation arrangements included on our consolidated balance sheet or Note 15, Deferred Compensation and Other Non-Current Liabilities for further details; and

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•Purchases for inventory and production costs to support our commercial and clinical product supply requirements, as well as capital expenditures. For further details see Note 14, Commitments and Contingencies.

There are several factors that we believe could impact our future cash requirements, including:

•the amount of revenue received from commercial sales of LUPKYNIS and potential future drug candidates;

•the scope, rate of progress, results and costs of our clinical trials, preclinical studies and other related regulatory requirements and activities;

•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•the number and characteristics of the R&D assets we seek to develop or commercialize;

•the expenses needed to attract and retain skilled personnel as well as any other personnel changes that we may implement; and

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.