Aurinia Pharmaceuticals Shareholder Calls for CEO Peter Greenleaf, Dr. Brinda Balakrishnan, and Dr. Robert Foster to Resign from the Board

Rhea-AI Summary

Aurinia Pharmaceuticals (NASDAQ: AUPH) shareholder Lucien Selce, owning 2.2% of shares, has called for the resignation of CEO Peter Greenleaf and two other directors following the 2024 Annual General Meeting results. Four of nine directors, including Greenleaf, failed to receive majority votes. Selce criticizes the company's excessive spending, lack of R&D investment, and ineffective strategy. He highlights concerns about LUPKYNIS sales, potential generic competition, and management's disregard for shareholder interests. Selce proposes immediate firm resignations, appointment of two shareholder representatives, board size reduction, and an Extraordinary General Meeting. He emphasizes the need for urgent action to rectify issues and warns against acquiring assets that could jeopardize financial stability.

Positive

• Announcement of a $150 million share repurchase program in February 2024

Negative

• Four of nine directors, including CEO, failed to receive majority votes at 2024 AGM
• Excessive spending of $100 million in six months with little R&D investment
• Inconsistent strategy regarding AUR200 development
• Struggles to achieve expected sales of LUPKYNIS
• Potential generic competition from ADALVO's Voclosporin-based product
• Only $18 million spent on share repurchases despite low stock price
• Board's failure to accept conditional director resignations after AGM results

Insights

Corporate Governance Expert

This shareholder activism highlights significant governance issues at Aurinia Pharmaceuticals. The failure of four directors, including the CEO, to secure majority votes is a red flag for investors. It signals a disconnect between management and shareholders, potentially impacting the company's strategic direction and value creation.

The allegations of excessive spending ($100 million in six months) without adequate R&D investment raise concerns about financial stewardship. The inconsistency in strategic decisions, such as the reversal on AUR200, suggests poor communication and potentially flawed decision-making processes.

The proposed boardroom changes, including adding shareholder representatives, could lead to improved oversight and accountability. However, the current board's resistance to change may result in a prolonged governance crisis, potentially affecting the company's operations and stock performance.

Financial Analyst

Aurinia's financial management is under scrutiny. The alleged overspending of $100 million in six months, compared to a suggested $70 million annual budget, indicates poor cost control. This could rapidly deplete cash reserves, important for biotech companies.

The underutilization of the $150 million share repurchase program (only $18 million used) is puzzling given the low stock price. This missed opportunity to support share value suggests either cash conservation concerns or poor capital allocation decisions.

The potential entry of a generic competitor to LUPKYNIS could significantly impact future revenues. Combined with reported struggles in LUPKYNIS sales, this paints a concerning picture for Aurinia's financial outlook. Investors should closely monitor cash burn rates and revenue trends in upcoming quarters.

Pharmaceutical Industry Analyst

The inconsistency regarding AUR200's development status is troubling. Frequent changes in R&D strategy can lead to wasted resources and delayed product development, critical issues in the competitive pharmaceutical landscape.

The emergence of a potential generic competitor to LUPKYNIS is a significant threat to Aurinia's market position. Management's failure to address this during earnings calls raises questions about their market awareness and strategic planning.

The alleged lack of investment in R&D is particularly concerning for a biotech company. Without a robust pipeline, Aurinia risks becoming overly reliant on LUPKYNIS, especially with generic competition looming. This single-product dependency increases the company's risk profile and may limit long-term growth prospects.

Highlights Damning Annual General Meeting Results, Which Show That Four of the Company’s Nine Directors Failed to Receive a Majority of the Votes

Calls on the Company to Appoint Two Shareholder Representatives to Bring Much-Needed Accountability to the Boardroom

GENEVA--(BUSINESS WIRE)-- Lucien Selce, who owns approximately 2.2% of the outstanding shares of Aurinia Pharmaceuticals Inc. (NASDAQ: AUPH) (“Aurinia” or the “Company”), today issued the below open letter to the Board of Directors (the “Board”) regarding the urgent need for accountability and boardroom changes.

***

August 13, 2024

Aurinia Pharmaceuticals Inc.
#140, 14315 – 118 Avenue
Edmonton, AB T5L 4S6
Canada
Attention: The Board of Directors

Members of the Board,

Over the past few months, I have expressed my concerns regarding the Company’s current strategy and trajectory due to the Board’s lack of appropriate oversight and relevant skillsets. Recent developments following the 2024 Annual General Meeting (the “AGM”) have made clear that current leadership has no interest in acting in shareholders’ best interests and in protecting the future of the Company.

The fact that four of the nine directors up for re-election at the 2024 AGM, including CEO Peter Greenleaf, failed to secure a majority of the votes speaks volumes about the need for boardroom change and a new strategy for value creation.¹ The current state of affairs at Aurinia – marked by unchecked spending, ineffective leadership, and a clear lack of strategic direction – demands immediate and decisive action.

Aurinia Has Spent Excessive Capital Without Focusing on Research and Development (“R&D”)

• The Company has recklessly spent $100 million in just six months, yet there has been little to no investment in R&D, which is the cornerstone of Aurinia’s future growth. This irresponsible financial management is unacceptable. Aurinia should be operated efficiently with a budget of $70 million – not $150 million. The current financial strategy is unsustainable and detrimental to shareholder value.

Management Continues to Pursue an Ineffective Strategy

• In February 2024, the Company publicly announced the discontinuation of AUR200. Then, during the Q2 2024 earnings call, Mr. Greenleaf reversed this decision, stating that its development had resumed. This inconsistency not only undermines the credibility of the Company’s leadership, but also raises serious concerns about transparency with the market.

• Moreover, during the same earnings call, it was openly acknowledged that the Company struggled to achieve the expected sales of LUPKYNIS. In addition, ADALVO (a generic drug manufacturer) has come up with a Voclosporin-based product, akin to a generic version of LUPKYNIS. This development, which could upset the Company’s competitive position, was not even discussed by management.

Leadership Has a Track Record of Ignoring Shareholders’ Interests

• Despite announcing a $150 million share repurchase program in February 2024, only $18 million has been spent over the last six months, even as the Company continues to trade at rock bottom levels. This lack of action is a missed opportunity to support the share price and demonstrates poor judgment by leadership.

• After being voted out at the recent AGM, Mr. Greenleaf and three other directors remain in their positions. The Board’s failure to accept conditional director resignations and Mr. Greenleaf’s avoidance of this topic during the latest earnings call demonstrate a blatant disregard for shareholders’ votes and sound governance.

The issues outlined above highlight the urgent need for effective oversight and changes to the composition of the Board. In my view, the only way the Company can improve its trajectory and begin creating value for shareholders is by taking the below steps:

1. Dr. Brinda Balakrishnan, Dr. Robert T. Foster, and Mr. Greenleaf should each submit their immediate firm (not provisional) resignations, as they have failed in their respective roles. At the 2024 AGM, 52.5% of shareholders withheld support for Dr. Balakrishnan, 51.8% withheld support for Mr. Greenleaf, and Dr. Foster was narrowly elected with just 51.4% support.² These three directors should be held responsible for the lack of meaningful M&A activity, the absence of significant research initiatives, and the consistent failure to meet the Company’s objectives.
2. The Board should appoint two shareholder representatives: one from MKT Capital and one from ILJIN SNT Co., Ltd. (“ILJIN”). This will ensure that the interests of the Company’s owners are directly represented in all strategic decisions moving forward.
3. The Board should reduce its size to streamline decision-making and enhance accountability.
4. ILJIN, a significant shareholder of Aurinia, should call for an Extraordinary General Meeting as soon as possible. This meeting is essential to address the aforementioned urgent issues, execute necessary leadership changes, and realign the Company’s strategic direction with shareholders’ interests.

The time for change is now. Continued mismanagement of Aurinia threatens the future of our Company and the value we, as shareholders, have entrusted to you. I expect immediate action to rectify these issues.

Furthermore, I want to emphasize that under no circumstances should the Board proceed with acquiring additional assets that could jeopardize the Company's cash flow and financial stability. This reckless behavior must be halted to preserve the long-term health of Aurinia.

Sincerely,

Lucien Selce

***

________________________
1		Company’s Form 8-K dated June 14, 2024.
2		Company’s Form 8-K dated June 14, 2024.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240813146385/en/

Lucien Selce

Lucienselce@gmail.com

Source: On behalf of Lucien Selce

FAQ

What are the main concerns raised by Aurinia Pharmaceuticals (AUPH) shareholder Lucien Selce?

Lucien Selce raised concerns about excessive spending, lack of R&D investment, ineffective strategy, poor LUPKYNIS sales, potential generic competition, and management's disregard for shareholder interests at Aurinia Pharmaceuticals (AUPH).

How did Aurinia Pharmaceuticals (AUPH) directors perform in the 2024 Annual General Meeting vote?

Four of nine Aurinia Pharmaceuticals (AUPH) directors, including CEO Peter Greenleaf, failed to receive a majority of votes in the 2024 Annual General Meeting.

What specific actions does Lucien Selce propose for Aurinia Pharmaceuticals (AUPH)?

Lucien Selce proposes immediate firm resignations of three directors including the CEO, appointment of two shareholder representatives, board size reduction, and calling an Extraordinary General Meeting for Aurinia Pharmaceuticals (AUPH).

How much has Aurinia Pharmaceuticals (AUPH) spent on share repurchases since February 2024?

Aurinia Pharmaceuticals (AUPH) has spent only $18 million on share repurchases since announcing a $150 million program in February 2024, despite low stock prices.