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Don't Judge A Note By Its Title: Aurinia Falls On Misinterpreted 'Downgrade'

Don't Judge A Note By Its Title: Aurinia NASDAQ: AUPH Falls On Misinterpreted 'Downgrade'

Aurinia Pharmaceuticals Inc AUPH 2.68% fell 2.6 percent Wednesday as the Street reacted to an ostensible downgrade.

Canaccord Genuity’s John Newman had long been confidently bullish on the stock, so when a new note updated coverage with a “speculative” Buy, traders misconstrued the rating as definitive relegation.

However, the discrete change was not reflective of any shaken conviction in Newman.

Prior to publication, Canaccord had shifted Aurinia coverage to a new analyst, Neil Maruoka, who interpreted the firm’s prospects with a slightly higher degree of skepticism than his predecessor did. Notably, Marouka remained bullish on the stock and maintained a Buy rating, qualified as “speculative” given perceived risk in drug development.

Technically, Canaccord’s ratings change could be labeled a “downgrade,” but Maruoka advocates a different perspective (see Maruoka's track record here).

“It was really just a change in rating, as I highlighted the speculative nature of the investment,” Maruoka told Benzinga. “To make the change as I assumed coverage from John, it was technically listed as a downgrade; although I don’t view it this way.”

The Nuanced View

Looking beyond the headline, Marouka offered favorable reviews of Aurinia’s voclosporin amid a Phase 3 study for the treatment of lupus nephritis.

“While voclosporin has previously been in development for psoriasis, we believe many issues relating to manufacturing, formulation, and pharmacokinetics have been solved, as evidenced by the very strong clinical results generated in the Phase IIb AURA-LV study,” he wrote in the note. “Based on this data and a post hoc analysis of AURA-LV, we believe that the ongoing Phase III AURORA study has a good chance of success.”

He considers Aurinia fully funded to complete clinical development.

Canaccord maintains a $10 price target on the stock.

Sep 2017Canaccord GenuityDowngradesBuySpeculative Buy
Apr 2017Cantor FitzgeraldInitiates Coverage OnOverweight
Nov 2016Mackie ResearchInitiates Coverage OnSpeculative Buy

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