Aurinia Pharmaceuticals Inc. (AUPH) FY 2022 MD&A

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.

46

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

47

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.

48

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.

49

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.

50

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

51

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.

52