Shares of Aurinia Pharmaceuticals (US:AUPH) are up almost 14% in Friday’s premarket activity following a series of director departures and news of a strategic review of potential sale or merger opportunities.

Exiting the board of the Edmonton, Alberta biopharma company are chairman George Milne and chair of the Compensation committee, Joseph Hagan, after both failed to win shareholders’ support at the May 17 annual general meeting, sending a signal of strategic change of direction for the beleaguered biotech firm.

The rejection of the pair of industry heavyweights came despite full endorsement of nominees by independent proxy advisors Glass Lewis and ISS head of the AGM.

The strategic review will involve JPMorgan as a financial advisor along with American and Canadian law firms. As for replacing the directors, Korn Ferry’s been tasked with the responsibility.

Institutions Disappearing

Fintel’s institutional ownership analysis of AUPH revealed that the total number of funds on the register declined by 5.13% during the most recent quarter to 293 holders. While the average portfolio allocation rose by 36.5%, this was largely driven by the recovering share price over the first half of 2023.

The company is known for its groundbreaking product Lupkynis, an approved asset in the treatment of lupus nephritis (LN). As one of the few players in the pharmaceutical industry with a singular, highly successful product, Aurinia’s shift towards exploring strategic alternatives is a move some investors have long anticipated.

The recent settlement with Sun Pharma over patent issues and the addition of a new method-of-use patent in the Orange Book have only bolstered the company’s position as an attractive acquisition target.

Moreover, if an acquisition were to materialize, estimated acquisition prices discussed with market contacts indicate a potential takeout price could be around $18-$20 per share, based on recent acquisitions. However, this could be even higher if a premium was added to the group’s branding.

Market Thoughts

TD Cowen analyst Stacy Ku commented on the movement by management on Thursday, stating that the firm believes there could be strategic interest, potentially forming a larger organization with an established presence in the rheumatology space.

Ku notes that positive comments on Lupkynic and expectations for continued adoption in the future should support interest. TD Cowen maintained an ‘outperform’ call on the stock with a $15 target price.

Fintel’s consensus target price of $13.70 per share suggests the market thinks the stock could be worth 30% more than the $10.40 price showing this morning.

Options Action

Fintel’s options data analysis on AUPH stock also revealed a substantial amount of net long premium that was bought in the market on Thursday before the release of the news.

While suspicious, this could reveal that some insiders or close individuals to the group may have let the news slip before the release. As well, the Officer Sentiment score of 77.35 shows a higher level of buying by officers without a large increase in price. Fintel readers find this metric useful for identifying companies with high management confidence before price movements.

While the company’s shift toward exploring strategic alternatives has been largely met with approval, some investors may have been left wondering about the sudden timing and public manner of the announcement.

Yet, amid this uncertainty, many will be keeping a close eye on the company’s next quarterly earnings release, given the strong Q1 results reported earlier this year.

In Q1, the company reported robust new patient starts and raised its revenue guidance to $135-155 million. With education and marketing initiatives gaining traction, and patent challenges dismissed, the company’s strategic appeal has never been more potent. Even so, how this will impact long-term use remains uncertain.

As the pharmaceutical world keeps a keen eye on the firm’s next move, what’s clear is that Aurinia is on a definitive path of strategic transformation, ensuring its actions reflect the best interests of its shareholders, patients, healthcare providers, and employees.

This article originally appeared on Fintel

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