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Aurinia Pharmaceuticals Inc

Aurinia Pharmaceuticals Shareholder Urges Board of Directors to Take Action to Enhance Shareholder Value

Outlines Concerns Regarding the Company’s Current Strategy and Board Composition and Offers Superior Paths to Improving Performance and Market Penetration

GENEVA--(BUSINESS WIRE)--May 7, 2024-- Lucien Selce, who owns approximately 2.2% of the outstanding shares of Aurinia Pharmaceuticals Inc. (NASDAQ: AUPH) (“Aurinia” or the “Company”), today issued the following letter to Aurinia shareholders:

May 7, 2024

Fellow Shareholders,

As a shareholder of Aurinia since 2020, I have grown increasingly worried about the Company’s trajectory and am disappointed in the Board of Directors’ (the “Board”) actions. This is why I now feel dutybound to publicly share my concerns and ideas for improving the Company.

In recent years, Aurinia has faced challenges in effectively penetrating the market with its flagship drug, Lupkynis. With CEO and director Peter Greenleaf at the helm, the Board has struggled to implement successful strategies to enhance market penetration and shareholder value. I believe that the composition of the Board and the excessive number of directors sitting on it are holding Aurinia back from achieving its full potential. In my view, the Board’s size should be reduced to ensure efficiency and cost-effectiveness. All directors with merger and acquisition-related or research experience should be removed. Shareholders have clearly lost faith in the ability of this Board to deliver results.

The Company’s recent Q1 2024 earnings release and accompanying call did little to appease our concerns. Although we noted the small “beat” in revenues and management’s forecast that Aurinia will be cash flow positive in Q2 2024 instead of H2 2024, we also note that most of the revenue growth stems from pre-existing clients re-enrolling for treatment instead of new clients’ enrollment.

Key failures of the current Board include:

1. The Board severely mishandled the communication of itsdead-end strategic review, which resulted in investors fleeing the stock. The Board’s communication in this regard seemed designed to destroy Aurinia’s share price. The message was essentially that the Company has no desirability for any industry actor as a potential buyer. The Company’s February 15, 2024 press release alluded, unnecessarily, to a failed 2018 sale process. There is no rational explanation for this inept communication other than possibly allowing management to grant itself Restricted Stock Units (“RSUs”) on the cheap.

2. The Board currently has an excessive number of directors who lack relevant skills and much-needed objectivity, compromising its efficiency and effectiveness.

  1. Dr. Robert Foster was appointed to the Board at the urging of MKT Capital to ensure a comprehensive and fair strategic review. Dr. Foster was not meant to stay on after the conclusion of the strategic review. It appears to me that Mr. Greenleaf’s motivation for keeping him on the Board is exclusively linked to the cooperation agreement between Aurinia and MKT Capital. Under this agreement, MKT Capital is not allowed to disparage or otherwise publicly dissent with the Company’s management. By remaining on the Board, Dr. Foster has betrayed MKT Capital – and is being financially rewarded by Aurinia for doing so.

  2. The two latest additions to the Board, Jeffrey Bailey and Dr. Karen Smith, who were originally praised by Mr. Greenleaf for their M&A experience and achievements, no longer possess relevant skillsets now that the strategic review has ended.

  3. Chair Daniel Billen’s close ties with Mr. Greenleaf raise concerns about his impartiality and increase the risk of repetition of past failures.

3. The Board has failed to effectively oversee Mr. Greenleaf and a value-enhancing strategy for Aurinia.Mr. Greenleaf's five-year tenure as CEO has been marked by repeated drug failures. After failing to deliver substantial market penetration for Lupkynis, he purchased Aur200 and Aur300, touting them as transformational for Aurinia. As a result, the Board granted Mr. Greenleaf options and RSUs for building a pipeline, only for him to kill this pipeline after Aur200 and Aur300 received Investigational New Drug applications from the U.S. Food and Drug Administration. With a single stroke, the Board transformed Aurinia into a one-trick pony. The Board then shifted the Company’s focus to potential future pipeline acquisitions while simultaneously announcing a $150 million share buyback.

4. The Board has rewarded Mr. Greenleaf with RSUs despite lackluster performance. I believe it is imperative that Mr. Greenleaf be removed from the Board to ensure boardroom independence, while remaining as CEO. Clear objectives for market penetration must be set, with no more options or RSUs granted unless targets are achieved.

Clearly, Aurinia’s Board is mired in contradictions and conflict of interest. In my view, the Board should immediately take the following actions to improve its independence and enable it to oversee management more effectively for the benefit of all Aurinia shareholders:

  1. Restructure the Board and reduce its size from nine directors to five directors. The ideal Board should comprise an independent Chair, one large shareholder representative (in this respect, it is logical that long-standing, top investor ILJIN SNT Co., Ltd. (“ILJIN”) nominate someone), one small shareholder representative and another independent director.

  2. Link management’s compensation to fulfilling quantitative revenue goals set by an independent Board. Clear objectives for market penetration must be set, with no more options or RSUs granted unless targets are achieved. The current management “entrenchment” package recently issued in the amended annual report should be rejected.

  3. Develop accretive strategic partnerships. A strategy for accelerating Lupkynis’ commercial development should be developed and implemented. This could potentially take the form of a royalty or co-promotion deal with a middle or major pharmaceutical company.

Aurinia must undergo significant changes to realize its potential. The upcoming Annual General Meeting of Shareholders (the “Annual Meeting”) will serve as an opportunity for shareholders to vote for a reduced Board that is committed to effective market penetration strategies and shareholder value enhancement.

We urge the Board to embrace the solutions we have proposed to improve Aurinia’s performance, governance and go-forward strategy. Further, ILJIN – as a preeminent shareholder owning more than 5% of the Company’s common stock – can also request the inclusion of resolutions to address these improvements at the upcoming Annual Meeting.

Sincerely,

Lucien Selce

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Lucien Selce
Lucienselce@gmail.com

Source: On behalf of Lucien Selce