SEC Filing | Kiniksa Pharmaceuticals

Three Months Ended

March 31,

Product revenue, net

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38492

Kiniksa Pharmaceuticals, Ltd.

(Exact Name of Registrant as Specified in Its Charter)

Bermuda		98-1327726
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

Kiniksa Pharmaceuticals, Ltd.

Clarendon House

2 Church Street

Hamilton HM11, Bermuda

(808) 451-3453

(Address, zip code and telephone number, including area code of principal executive offices)

Kiniksa Pharmaceuticals Corp.

100 Hayden Avenue

Lexington, MA, 02421

(781) 431-9100

(Address, zip code and telephone number, including area code of agent for service)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Shares	KNSA	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	◻	Accelerated Filer	◻

Non-accelerated Filer	☒	Smaller Reporting Company	☒

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2023, there were 69,899,510 common shares outstanding in aggregate, comprised of:

34,970,866 Class A common shares, par value $0.000273235 per share

1,795,158 Class B common shares, par value $0.000273235 per share

17,075,868 Class A1 common shares, par value $0.000273235 per share

16,057,618 Class B1 common shares, par value $0.000273235 per share

Table of Contents

Kiniksa Pharmaceuticals, Ltd.

FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2023

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION	7
Item 1. Financial Statements (unaudited)	7
Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	7
Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022	8
Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022	9
Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	10
Notes to Consolidated Financial Statements	11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
Item 4. Controls and Procedures	38

PART II — OTHER INFORMATION	39
Item 1. Legal Proceedings	39
Item 1A. Risk Factors	39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	116
Item 3. Defaults Upon Senior Securities	116
Item 4. Mine Safety Disclosures	116
Item 5. Other Information	116
Item 6. Exhibits	117

SIGNATURES	118

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”), contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report including statements regarding our products’ commercial sales, future results of anticipated products, future results of operations and financial position, expected timeline for our cash, cash equivalents and short-term investments, business strategy, product development, prospective products and product candidates, their expected properties, performance, market opportunity and competition, supply of drug products at acceptable cost and quality, collaborators, license and other strategic arrangements, the expected timeline for achievement of our clinical milestones, the timing of, and potential results from, clinical and other trials, potential marketing authorization from the FDA or regulatory authorities in other jurisdictions, potential and ongoing coverage and reimbursement for our products and product candidates, if approved, clinical and commercial activities, research and development costs, timing of regulatory filings and feedback, timing and likelihood of success and plans and objectives of management for future operations and funding requirements, are forward-looking statements.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “goal,” “design,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these identifying words. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions described under the sections in this Quarterly Report entitled “Summary Risk Factors,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. These forward-looking statements are subject to numerous risks and uncertainties, including, without limitation, the following:

●

our continued ability to commercialize ARCALYST® (rilonacept) and to develop and commercialize our current and future product candidates, if approved;

●

our status as a small commercial stage biopharmaceutical company and our expectation to incur losses for the foreseeable future;

●

our future capital needs and our need to raise additional funds;

●

our ability to manufacture sufficient quantities of our products and product candidates to meet patient and partner demand;

●

our ability to successfully complete the technology transfer of the manufacturing process for ARCALYST drug substance;

●

the market acceptance of our products and product candidates;

●

competitive and potentially competitive products and technologies;

●

prescriber awareness and adoption of our products and product candidates, if approved;

●

the size of the market for our products and product candidates, if approved;

●

our ability to meet the quality expectations of prescribers or patients;

Table of Contents

●

the decision of third party payors not to cover or maintain coverage of or to establish burdensome requirements prior to covering ARCALYST or any of our current or future product candidates, if approved, or to require extensive or independently performed clinical trials prior to covering or maintaining coverage of our product candidates, if approved;

●

the lengthy and expensive clinical development process with its uncertain outcomes and potential for clinical failure or delay;

●

the decision by any applicable regulatory authority whether to clear our current or future product candidates for clinical development and, ultimately, whether to approve them for marketing and sale;

●

our ability to anticipate and prevent adverse events caused by our products and product candidates;

●

our ability to improve our product candidates;

●

our ability to identify, in-license, acquire, discover or develop additional product candidates;

●

our ability to undertake and execute on business combinations, out-licensing activities, collaborations or other strategic transactions and our ability to realize value therefrom;

●

our ability to have our products and product candidates manufactured in accordance with regulatory requirements and at acceptable cost and quality specifications;

●

our ability to successfully manage our growth;

●

our ability to avoid product liability claims and maintain adequate product liability insurance;

●

our ability to obtain regulatory exclusivity;

●

federal, state and foreign regulatory requirements applicable to our products and product candidates;

●

our ability to obtain, maintain, protect and enforce our intellectual property rights related to our products and product candidates;

●

ownership concentration of our executive officers, directors, certain members of senior management and affiliated shareholders may prevent our shareholders from influencing significant corporate decisions; and

●

our ability to attract and retain skilled personnel.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

Table of Contents

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report. You should carefully consider these risks and uncertainties when investing in our Class A common shares. The principal risks and uncertainties affecting our business include the following:

●

we began generating product revenue in 2021, have incurred significant operating losses in the past, expect to incur significant operating losses for the foreseeable future and may never achieve corporate profitability on a sustained basis;

●

we will require significant additional funding to develop our portfolio, commercialize our products and product candidates, if approved, and to identify, discover, develop or acquire additional product candidates, and if we are unable to secure financing on acceptable terms when needed, or at all, we could be forced to delay, reduce or cease one or more of our product development plans, research and development programs or other operations or commercialization efforts;

●

we depend heavily on the commercial success of ARCALYST and may be unsuccessful in our efforts to commercialize ARCALYST on a sustained basis, support our sales, marketing, and distribution activities and maintain applicable infrastructure for these activities either directly and/or through agreements with third parties; as a result, we may not be able to sustain the commercialization of ARCALYST, or successfully commercialize any future products;

●

we depend heavily on the success of one or more of our product candidates, which are in various stages of development; such success is dependent upon us advancing our product candidates in clinical development, obtaining regulatory approval and ultimately commercializing one or more of our product candidates on a timely basis;

●

ARCALYST in recurrent pericarditis, as well as our current or future product candidates, if approved, may not gain sustained market acceptance by prescribers, patients, or third party payors, in which case our ability to generate product revenues will be impaired;

●

successful commercialization of our products and product candidates, if approved, will depend in part on the extent to which third party payors provide funding, establish favorable coverage and pricing policies, respond to price increases and set adequate reimbursement levels for our products and product candidates, if approved, and failure to obtain or maintain coverage and adequate reimbursement for our products and product candidates, if approved, could limit our ability to market those products and decrease our ability to generate revenue;

●

the market opportunities for our products and product candidates, if approved, may be smaller than we estimate, or any approval that we obtain may be based on a narrower definition of our targeted patient population, either of which may materially adversely affect our revenue and ability to achieve profitability;

●

clinical development of our product candidates is a lengthy and expensive process with uncertain timelines, costs and outcomes;

●

we may encounter substantial delays in our current or planned preclinical and/or clinical trials, including as a result of delays in obtaining regulatory approvals for indications, activating sites, enrolling participants, and conducting trials, which could delay or prevent our product development activities;

●

we rely on third parties, including contract research organizations (“CROs”) to activate our sites and conduct or otherwise support our research activities, preclinical studies and clinical trials for our product candidates, and these third parties may not perform satisfactorily, which could delay, prevent or impair our product development activities;

Table of Contents

●

we rely on third parties, including independent contract manufacturing organizations (“CMOs”) to manufacture our product candidates for preclinical and clinical development, to manufacture our commercial supply of ARCALYST, and supply of drug substance and drug product for ARCALYST and our product candidates; and if these third parties do not perform satisfactorily, including by producing insufficient supply of commercial and clinical stock to meet patient demand or clinical trial requirements, or are impacted by delays or supply shortages, our product development activities, regulatory approval, and commercialization efforts may be delayed, prevented or impaired;

●

we are conducting a technology transfer of the manufacturing process for ARCALYST drug substance from Regeneron Pharmaceuticals, Inc. (“Regeneron”) to a new contract development and manufacturing organization (“CDMO”), and the process to complete the technology transfer and qualify a new CDMO may be subject to significant risks and uncertainties;

●

all of our products and current product candidates have been licensed or acquired from other parties; if those parties did not adequately protect and we are unable to adequately protect such products and product candidates, or to secure and maintain freedom to operate, others could preclude us from commercializing our products and product candidates, if approved, or compete against us more directly;

●

we face significant competition from other biotechnology and pharmaceutical companies, which may result in others discovering, developing or commercializing drugs before or more successfully than us;

●

we may not successfully execute our growth strategy to identify, discover, develop, license or acquire additional product candidates or technologies, and our strategy may not deliver anticipated results or we may refine or otherwise alter our growth strategy;

●

we may seek to acquire businesses or undertake business combinations, collaborations or other strategic transactions which may not be successful or on favorable terms, if at all, and we may not realize the intended benefits of such transactions;

●

we have entered into and may seek to enter into collaboration, licensing or other transactions to further develop, commercialize or otherwise realize value from one or more of our product candidates, and the expected value we hope to realize, including through milestone, royalty or other payments may be less than we expect; and

●

concentration of ownership of the voting power of our common shares may prevent new investors from influencing significant corporate decisions and may have an adverse effect on the price of our Class A common shares.

Industry and other data

Unless otherwise indicated, certain industry data and market data included in this Quarterly Report were obtained from independent third party surveys, market research, publicly available information, reports of governmental agencies and industry publications and surveys. All of the market data used in this Quarterly Report involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications and surveys included in this Quarterly Report is reliable.

ARCALYST is a registered trademark of Regeneron. Solely for convenience, trademarks, service marks, and trade names referred to in this Quarterly Report may be listed without identifying symbols.

Table of Contents

Part I — Financial Information

Item 1. Financial Statements (unaudited)

KINIKSA PHARMACEUTICALS, LTD.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	80,618	$	122,715
Short-term investments		106,876		67,893
Accounts receivable, net		7,424		12,660
Contract asset		—		7,656
Inventory		23,425		21,599
Prepaid expenses and other current assets		13,157		10,537
Total current assets		231,500		243,060
Property and equipment, net		1,393		1,658
Operating lease right-of-use assets		5,228		5,385
Other long-term assets		2,323		5,824
Intangible asset, net		18,000		18,250
Deferred tax assets		184,418		185,495
Total assets	$	442,862	$	459,672

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,391	$	7,899
Accrued expenses		20,885		30,112
Deferred revenue		6,495		—
Operating lease liabilities		3,482		3,301
Other current liabilities		4,334		5,754
Total current liabilities		36,587		47,066
Non-current liabilities:
Non-current deferred revenue		12,163		12,000
Non-current operating lease liabilities		2,133		2,618
Other long-term liabilities		1,884		1,839
Total liabilities		52,767		63,523
Commitments and contingencies (Note 13)
Shareholders’ equity:
Class A common shares, par value of $0.000273235 per share; 34,886,136 shares and 34,750,560 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		9		9
Class B common shares, par value of $0.000273235 per share; 1,813,457 shares issued and outstanding as of March 31, 2023 and December 31, 2022		1		1
Class A1 common shares, $0.000273235 par value; 17,075,868 shares issued and outstanding as of March 31, 2023 and December 31, 2022		5		5
Class B1 common shares, $0.000273235 par value; 16,057,618 shares issued and outstanding as of March 31, 2023 and December 31, 2022		4		4
Additional paid-in capital		894,325		888,120
Accumulated other comprehensive income		55		44
Accumulated deficit		(504,304)		(492,034)
Total shareholders’ equity		390,095		396,149
Total liabilities and shareholders’ equity	$	442,862	$	459,672

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Revenue:
Product revenue, net	$	42,659	$	22,189
License and collaboration revenue		5,686		10,000
Total revenue		48,345		32,189
Costs and operating expenses:
Cost of goods sold		7,036		4,219
Collaboration expenses		8,288		8,254
Research and development		15,172		20,817
Selling, general and administrative		29,045		22,218
Total operating expenses		59,541		55,508
Loss from operations		(11,196)		(23,319)
Other income		1,832		34
Loss before income taxes		(9,364)		(23,285)
Provision for income taxes		(2,906)		(1,925)
Net loss	$	(12,270)	$	(25,210)
Net loss per share attributable to common shareholders—basic and diluted	$	(0.18)	$	(0.36)
Weighted average common shares outstanding—basic and diluted		69,751,697		69,136,901
Comprehensive loss:
Net loss	$	(12,270)	$	(25,210)
Other comprehensive loss:
Unrealized gain (loss) on short-term investments and currency translation adjustments, net of tax		11		(37)
Total other comprehensive gain (loss)		11		(37)
Total comprehensive loss	$	(12,259)	$	(25,247)

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)


	Common Shares			Additional		Accumulated				Total
	(Class A, B, A1 and B1)			Paid-In		Other Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Capital		Income		Deficit		Equity
Balances at December 31, 2022	69,697,503	$	19	$	888,120	$	44	$	(492,034)	$	396,149
Issuance of Class A common shares under incentive award plans	135,576		—		90		—		—		90
Share-based compensation expense	—		—		6,115		—		—		6,115
Unrealized gain on short-term investments and currency translation adjustments	—		—		—		11		—		11
Net loss	—		—		—		—		(12,270)		(12,270)
Balances at March 31, 2023	69,833,079	$	19	$	894,325	$	55	$	(504,304)	$	390,095

	Common Shares			Additional		Accumulated				Total
	(Class A, B, A1 and B1)			Paid-In		Other Comprehensive		Accumulated		Shareholders'
	Shares	Amount		Capital		Loss		Deficit		Equity
Balances at December 31, 2021	69,060,403	$	18	$	860,482	$	(66)	$	(675,397)	$	185,037
Issuance of Class A common shares under incentive award plans	210,720		1		422		—		—		423
Share-based compensation expense	—		—		6,031		—		—		6,031
Unrealized loss on short-term investments and currency translation adjustments	—		—		—		(37)		—		(37)
Net loss	—		—		—		—		(25,210)		(25,210)
Balances at March 31, 2022	69,271,123	$	19	$	866,935	$	(103)	$	(700,607)	$	166,244

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(12,270)	$	(25,210)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		596		656
Share-based compensation expense		6,115		6,031
Non-cash lease expense		841		735
Amortization of premiums and accretion of discounts on short-term investments		(1,061)		164
Loss on disposal of property and equipment		175		—
Deferred income taxes		1,077		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(2,634)		(3,932)
Accounts receivable, net		5,236		(25,455)
Inventory		(1,826)		(9,548)
Contract asset		7,656		—
Other long-term assets		3,268		2,755
Accounts payable		(6,508)		1,515
Accrued expenses and other current liabilities		(10,647)		4,085
Operating lease liabilities		(988)		(643)
Deferred revenue		6,658		12,000
Other long-term liabilities		45		1
Net cash used in operating activities		(4,267)		(36,846)
Cash flows from investing activities:
Purchases of property and equipment		(24)		—
Purchases of short-term investments		(52,896)		(30,223)
Proceeds from the maturities of short-term investments		15,000		7,500
Net cash used in investing activities		(37,920)		(22,723)
Cash flows from financing activities:
Proceeds from issuance of Class A common shares under incentive award plans and employee share purchase plan		510		992
Payments in connection with Common Stock tendered for employee tax obligations		(420)		(569)
Net cash provided by financing activities		90		423
Net decrease in cash and cash equivalents		(42,097)		(59,146)
Cash and cash equivalents at beginning of period		122,715		122,470
Cash and cash equivalents at end of period	$	80,618	$	63,324

Supplemental information:
Cash paid for income taxes	$	3,196		—

Supplemental disclosure of non-cash investing and financing activities:
Right-of-use asset obtained in exchange for operating lease obligation	$	684	$	—

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

1. Nature of the Business and Basis of Presentation

Kiniksa Pharmaceuticals, Ltd. (the “Company”) is a biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutic medicines for patients suffering from debilitating diseases with significant unmet medical need. The Company’s immune-modulating assets, ARCALYST, KPL-404 and mavrilimumab, are based on strong biologic rationale or validated mechanisms, target a spectrum of underserved cardiovascular and autoimmune conditions and offer the potential for differentiation.

The Company is subject to risks and uncertainties common to small commercial stage companies in the biopharmaceutical industry and global health, societal, economic and market conditions, including the Company’s dependence on third parties, including contract research organizations and contract manufacturing organizations, the Company’s limited experience obtaining regulatory approvals, the potential failure of the Company to successfully complete research and development of its current or future product candidates, the potential inability of the Company to adequately protect its technology, potential competition, the uncertainty that any current or future product candidates will obtain necessary government regulatory approval, that ARCALYST will continue to be commercially viable and whether any of the Company’s current or future product candidates, if approved, will be commercially viable. Such risks and uncertainties may be subject to substantial and uncertain changes, which may cause significant disruption to the Company’s business and operations, preclinical studies and clinical trials, the business and operations of the third parties with whom the Company conducts business and the national and global economies, all of which may have material impacts on the Company’s business, financial condition and results of operations.

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries, Kiniksa Pharmaceuticals Corp. (“Kiniksa US”), Primatope Therapeutics, Inc. (“Primatope”) and Kiniksa Pharmaceuticals (UK), Ltd. (“Kiniksa UK”) as well as the subsidiaries of Kiniksa UK, Kiniksa Pharmaceuticals (Germany) GmbH (“Kiniksa Germany”), Kiniksa Pharmaceuticals (France) SARL (“Kiniksa France”), and Kiniksa Pharmaceuticals GmbH (“Kiniksa Switzerland”), after elimination of all significant intercompany accounts and transactions.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the recognition of revenue, the accrual for research and development expenses, the valuation of our deferred tax assets and the valuation of share-based awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Unaudited Interim Consolidated Financial Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information. The accompanying unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and the accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”). The Company’s accounting policies are described in the Notes to

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

Consolidated Financial Statements in the Company’s 2022 Form 10-K and updated, as necessary, in this report. The accompanying year-end consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2023 and the results of its operations for the three months ended March 31, 2023 and 2022, the changes in its shareholders’ equity for the three months ended March 31, 2023 and 2022 and its cash flows for the three months ended March 31, 2023 and 2022. The results for the three months ended March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period.

Liquidity

The Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued. As of March 31, 2023, the Company had an accumulated deficit of $504,304. During the three months ended March 31, 2023, the Company reported net loss of $12,270 and used $4,267 cash in operating activities. As of March 31, 2023, the Company had cash, cash equivalents and short-term investments of $187,494.

Based on its current operating plan, the Company expects that its cash, cash equivalents and short-term investments will be sufficient to fund its operations and capital expenditure requirements for at least twelve months from the issuance date of these consolidated financial statements. The future viability of the Company beyond that point is dependent on its ability to fund its operations through sales of ARCALYST and/or raise additional capital, as needed. If the Company is unable to grow sales of ARCALYST in future periods, the Company would need to seek additional financing through public or private securities offerings, debt financings, or other sources, which may include licensing, collaborations or other strategic transactions or arrangements. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its commercialization efforts, research and development programs for product candidates or product portfolio expansion, which could adversely affect its business prospects, or the Company may be unable to continue operations.

Recently Adopted Accounting Pronouncements

Accounting standards that have been issued by the Financial Accounting Standards Board or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.

2. Fair Value of Financial Assets and Liabilities

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

●

Level 1—Quoted prices in active markets for identical assets or liabilities.

●

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

●

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The following tables present information about the Company’s financial instruments measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:


	Fair Value Measurements
	as of March 31, 2023 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents — money market funds	$	51,481	$	—	$	—	$	51,481
Cash equivalents — U.S. Treasury notes		—		1,000		—		1,000
Short-term investments — U.S. Treasury notes		—		106,876		—		106,876
	$	51,481	$	107,876	$	—	$	159,357


	Fair Value Measurements
	as of December 31, 2022 Using:
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents — money market funds	$	20,929	$	—	$	—	$	20,929
Cash equivalents — U.S. Treasury notes		—		15,009		—		15,009
Short-term investments — U.S. Treasury notes		—		67,893		—		67,893
	$	20,929	$	82,902	$	—	$	103,831

During the three months ended March 31, 2023 and the year ended December 31, 2022, there were no transfers between Level 1, Level 2 and Level 3. The money market funds were valued using quoted prices in active markets, which represent a Level 1 measurement in the fair value hierarchy. The Company’s cash equivalents and short-term investments as of March 31, 2023 and December 31, 2022 included U.S. Treasury notes, which are not traded on a daily basis and, therefore, represent a Level 2 measurement in the fair value hierarchy at each period end.


			Gross		Gross
	Amortized		Unrealized		Unrealized		Credit		Fair
	Cost		Gains		Losses		Losses		Value
March 31, 2023
Cash equivalents — U.S. Treasury notes	$	1,000	$	—	$	—	$	—	$	1,000
Short-term investments — U.S. Treasury notes		106,848		29		(1)		—		106,876
	$	107,848	$	29	$	(1)	$	—	$	107,876


			Gross		Gross
	Amortized		Unrealized		Unrealized		Credit		Fair
	Cost		Gains		Losses		Losses		Value
December 31, 2022
Cash equivalents — U.S. Treasury notes	$	15,006	$	3	$	—	$	—	$	15,009
Short-term investments — U.S. Treasury notes		67,891		6		(4)		—		67,893
	$	82,897	$	9	$	(4)	$	—	$	82,902

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

As of March 31, 2023, we consider the unrealized losses in our investment portfolio to be temporary in nature and not due to credit losses. We have the ability to hold such investments until recovery of the fair value. We utilize the specific identification method in computing realized gains and losses. We had no realized gains and losses on our available-for-sale securities for the three months ended March 31, 2023 or 2022.

3. Product Revenue, Net

Product revenue, net, from sales of ARCALYST was as follows:

The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2023:


	Contractual		Government
	Adjustments		Rebates		Returns		Total
Balance at December 31, 2022	$	1,464	$	2,084	$	351	$	3,899
Current provisions relating to sales in the current year		3,239		1,800		96		5,135
Adjustments relating to prior years		(72)		46		—		(26)
Payments/returns relating to sales in the current year		(2,120)		(402)		—		(2,522)
Payments/returns relating to sales in the prior years		(1,392)		(1,230)		(39)		(2,661)
Balance at March 31, 2023	$	1,119	$	2,298	$	408	$	3,825

Total revenue-related reserves as of March 31, 2023 and December 31, 2022, included in our consolidated balance sheets, are summarized as follows:


	March 31,		December 31,
	2023		2022
Components of accounts receivable	$	(175)	$	(304)
Components of other current liabilities		4,000		4,203
Total revenue-related reserves	$	3,825	$	3,899

Primarily all of the Company’s trade accounts receivable arise from product revenue in the United States due from the Company’s third party logistics provider.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

4. Inventory

Inventory consisted of the following:


	March 31,		December 31,
	2023		2022
Raw materials	$	—	$	—
Work-in-process		13,517		6,312
Finished Goods		9,908		15,287
	$	23,425	$	21,599

5. Property and Equipment, Net

Property and equipment, net consisted of the following:


	March 31,		December 31,
	2023		2022
Furniture, fixtures and vehicles	$	224	$	224
Computer hardware and software		345		345
Leasehold improvements		3,931		3,931
Lab equipment		4,017		4,017
Construction in progress		24		—
Total property and equipment		8,541		8,517
Less: Accumulated depreciation		(7,148)		(6,859)
Total property and equipment, net	$	1,393	$	1,658

Depreciation expense was $289 and $359 during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, $198 and $226, respectively, of our property and equipment, net was in the United Kingdom.

6. Intangible Assets

Intangible assets, net of accumulated amortization, impairment charges and adjustments as of March 31, 2023 and December 31, 2022 are summarized in the following table.


		As of March 31, 2023						As of December 31, 2022
	Estimated			Accumulated						Accumulated
	life	Cost		Amortization		Net		Cost		Amortization		Net
Regulatory milestone	20 years	$	20,000	$	2,000	$	18,000	$	20,000	$	1,750	$	18,250
		$	20,000	$	2,000	$	18,000	$	20,000	$	1,750	$	18,250

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

7. Accrued Expenses

Accrued expenses consisted of the following:


	March 31,		December 31,
	2023		2022
Accrued research and development expenses	$	2,896	$	8,378
Accrued employee compensation and benefits		5,644		11,213
Accrued collaboration expenses		8,288		7,522
Accrued legal, commercial and professional fees		3,988		2,866
Other		69		133
	$	20,885	$	30,112

8. Share-Based Compensation

The Company maintains several equity compensation plans, including the 2018 Incentive Award Plan (the “2018 Plan”), 2018 Employee Share Purchase Plan (the “2018 ESPP”), and Rilonacept Long-Term Incentive Plan (“RLTIP”) which was approved under the 2018 Plan. Upon the effectiveness of the 2018 Plan, the Company ceased granting awards under its 2015 Equity Incentive Plan (as amended, the “2015 Plan” and together with the 2018 Plan, the “Plans”).

2015 Plan

As of March 31, 2023, there were 1,951,667 Class A common shares subject to outstanding awards under the 2015 Plan and reserved for issuance thereunder pursuant to such awards.

2018 Plan

In May 2018, the Company’s board of directors and shareholders approved the 2018 Plan, which became effective on May 23, 2018. The 2018 Plan provides for the grant of incentive share options, nonqualified share options, share appreciation rights, restricted shares, dividend equivalents, restricted share units (“RSUs”) and other share- or cash- based awards. Pursuant to the 2018 Plan’s evergreen provision, the number of shares available for future issuance under the 2018 Plan, as of January 1, 2023, increased by 2,787,900 Class A common shares. As of March 31, 2023, 6,877,727 shares remained available for future grant under the 2018 Plan.

2018 ESPP

In December 2022, the Company’s board of directors resolved not to increase the number of Class A common shares reserved for issuance under the 2018 ESPP. As of March 31, 2023, 562,890 Class A common shares were available for future issuance under the 2018 ESPP.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

Options

Share option activity under the Plans is summarized as follows:


		Weighted
	Number of	Average
	Shares	Exercise Price
Outstanding as of December 31, 2022	10,144,618	$	13.36
Granted	46,200	$	13.91
Exercised	(14,859)	$	7.56
Forfeited	(90,973)	$	15.79
Outstanding as of March 31, 2023	10,084,986	$	13.35
Share options exercisable as of March 31, 2023	5,982,120	$	13.61
Share options unvested as of March 31, 2023	4,102,866	$	12.96

As of March 31, 2023, total unrecognized compensation expense related to the unvested share option awards was $31,910 which is expected to be recognized over a weighted average remaining period of 2.51 years.

Restricted Share Units

Beginning in March 2021, the Company began granting RSUs with service conditions (“Time-Based RSUs”) to eligible employees as part of its equity incentive compensation. The Time-Based RSUs vest 25% on each of the first, second, third and fourth anniversaries of the date of grant, subject to continued employment through such dates.

During the years ended December 31, 2020 and 2019, the Company granted the first RSU awards (“First RLTIP RSU Awards”) as part of the RLTIP to eligible employees. During the year ended December 31, 2021, the FDA Milestone (as defined in RLTIP) was achieved (the date of such achievement, the “Achievement Date”) and (1) the number of Class A common shares issuable under the First RLTIP RSU Awards were determined in accordance with the RLTIP and vested in one installment in March 2022, and (2) the Company granted a second set of RSU awards to eligible employees on the Achievement Date with respect to a number of shares determined in accordance with the RLTIP, which vested in one installment in March 2023.

During the three months ended March 31, 2023 and 2022, the Company recognized compensation expense of $1,529 and $619, respectively, related to RSUs including those granted in connection with the RLTIP.

The following table summarizes RSU activity, including the RSUs issued under the RLTIP for the three months ended March 31, 2023:


		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested RSUs as of December 31, 2022	1,742,401	$	12.76
Granted	69,045	$	13.91
Vested	(115,907)	$	20.15
Forfeited	(39,462)	$	11.86
Unvested RSUs as of March 31, 2023	1,656,077	$	12.31

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

As of March 31, 2023, total unrecognized compensation cost related to the RSU awards was $16,991 which is expected to be recognized over a weighted average remaining period of 3.06 years.

Share-Based Compensation

Share-based compensation expense was classified in the consolidated statements of operations and comprehensive loss as follows:


	Three Months Ended
	March 31,
	2023		2022
Cost of goods sold	$	286	$	180
Research and development expenses		1,444		1,976
Selling, general and administrative expenses		4,385		3,875
	$	6,115	$	6,031

9.Out-Licensing Agreements

Genentech License Agreement

In August 2022, the Company entered into a license agreement (the “Genentech License Agreement”) with Genentech, Inc. and F. Hoffmann-La Roche Ltd (collectively, “Genentech”), pursuant to which the Company granted Genentech exclusive worldwide rights to develop, manufacture and commercialize vixarelimab and related antibodies (each, a “Genentech Licensed Product”). The Genentech License Agreement became effective on September 12, 2022 (the “Genentech Effective Date”).

Under the Genentech License Agreement, the Company received an upfront payment of $80,000 for the license. In the first quarter of 2023, following the Company’s last delivery of certain drug supplies to Genentech, the Company received an additional $20,000 payment. In addition, the Company will be eligible to receive up to approximately $600,000 in contingent payments, including specified development, regulatory and sales-based milestones, before fulfilling the Company’s upstream financial obligations. The Company will also be eligible to receive tiered percentage royalties on a Genentech Licensed Product-by-Genentech Licensed Product basis ranging from low-double digits to mid-teens on annual net sales of each Genentech Licensed Product, subject to certain customary reductions, with an aggregate minimum floor, before fulfilling the Company’s upstream financial obligations. Royalties will be payable on a Genentech Licensed Product-by-Genentech Licensed Product and country-by-country basis until the latest to occur of the expiration of certain patents that cover a Genentech Licensed Product, the expiration of regulatory exclusivity for such Genentech Licensed Product, or the tenth anniversary of first commercial sale of such Genentech Licensed Product in such country.

Pursuant and subject to the terms of the Genentech License Agreement, Genentech has the exclusive worldwide right to conduct development and commercialization activities for Genentech Licensed Products at its sole cost. Notwithstanding the foregoing, the Company is responsible, at its sole cost, for continuing to conduct and finalize its Phase 2b clinical trial assessing the efficacy, safety and tolerability of vixarelimab in reducing pruritis in prurigo nodularis.

Accounting for the Genentech License Agreement

As of the Genentech Effective Date, the Company identified the following performance obligations in the Genentech License Agreement: (i) the delivery of the exclusive license for vixarelimab; (ii) an initial drug supply delivery; (iii) a drug product resupply delivery; and (iv) completion of the Phase 2b clinical trial for vixarelimab.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

The Company determined the transaction price at the inception of the Genentech License Agreement which consists of the $80,000 upfront payment. The Company determined that the $20,000 variable consideration related to the delivery of the initial drug supply and drug product resupply was no longer constrained during the fourth quarter of 2022, as the Company determined that it could assert it was not probable that a significant reversal in the amount of cumulative revenue recognized would occur. The Company met the initial drug supply and drug product resupply obligation in the first quarter of 2023 and has received the related $20,000 payment.

As noted above, the Company identified four performance obligations in the Genentech License Agreement: (i) the delivery of the exclusive license for vixarelimab; (ii) an initial drug supply delivery; (iii) a drug product resupply delivery; and (iv) completion of the Phase 2b clinical trial for vixarelimab. The selling price of each performance obligation in the Genentech License Agreement was determined based on the Company’s standalone selling price with the objective of determining the price at which it would sell such an item if it were to be sold regularly on a standalone basis. The Company allocated the transaction price to each of the four performance obligations noted above.


Performance Obligation		Method of Recognition
Exclusive license for vixarelimab		Point in time; upon transfer of the license to Genentech, as control of the license was transferred on the Genentech Effective Date and Genentech could begin to use and benefit from the license on that date.
Initial drug supply delivery		Point in time upon delivery.
Drug product resupply delivery		Point in time upon delivery.
Completion of the phase 2b clinical trial for vixarelimab		Over time; using the cost-to-cost input method, which is believed to best depict the transfer of control to the customer. Under the cost-to-cost input method, the percent of completion is based on the ratio of actual costs incurred as of the period end to the total estimated costs. Revenue is recorded as a percentage of the allocated transaction price times the percent of completion.

The Company recognized $5,686 of collaboration revenue during three months ended March 31, 2023 under the Genentech License Agreement related to the license, completed portion of the Phase 2b clinical trial for vixarelimab, and materials delivered. The Company expects to recognize the remaining deferred revenue associated with the Genentech License Agreement over the remaining portion of the Phase 2b clinical trial for vixarelimab.

Huadong Collaboration Agreements

In February 2022 (the “Effective Date”), the Company entered into two collaboration and license agreements (each, a “Huadong Collaboration Agreement” and together, the “Huadong Collaboration Agreements”) with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (“Huadong”), pursuant to which the Company granted Huadong exclusive rights to develop and commercialize rilonacept and develop, manufacture and commercialize mavrilimumab (each, a “Huadong Licensed Product” and together, the “Huadong Licensed Products”) in the following countries: People’s Republic of China, Hong Kong SAR, Macao SAR, Taiwan Region, South Korea, Indonesia, Singapore, The Philippines, Thailand, Australia, Bangladesh, Bhutan, Brunei, Burma, Cambodia, India, Laos, Malaysia, Maldives, Mongolia, Nepal, New Zealand, Sri Lanka, and Vietnam (collectively, the “Huadong Territory”). The Company otherwise retained its current rights to the Huadong Licensed Products outside the Huadong Territory.

Under the Huadong Collaboration Agreements, the Company received a total upfront cash payment of $22,000, which includes $12,000 for the Huadong Territory license of rilonacept and $10,000 for the Huadong Territory license of mavrilimumab. The Company will be eligible to receive up to approximately $70,000 in payments for rilonacept, and up to approximately $576,000 in payments for mavrilimumab, including specified development, regulatory and sales-based milestones. Huadong will also be obligated to pay the Company tiered percentage royalties on a Huadong Licensed Product-by-Huadong Licensed Product basis ranging from the low-teens to low-twenties on annual net sales of each Huadong Licensed Product in the Huadong Territory, subject to certain reductions tied to rilonacept manufacturing costs

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

and certain other customary reductions, with an aggregate minimum floor. Royalties will be payable on a Huadong Licensed Product-by-Huadong Licensed Product and country-by-country or region-by-region basis until the later of (i) 12 years after the first commercial sale of the applicable Huadong Licensed Product in such country or region in the Huadong Territory, (ii) the date of expiration of the last valid patent claim of the Company’s patent rights or any joint collaboration patent rights that covers the applicable Huadong Licensed Product in such country or region in the Huadong Territory, and (iii) the expiration of the last regulatory exclusivity for the applicable Huadong Licensed Product in such country or region in the Huadong Territory.

The Company concluded that the Huadong Collaboration Agreements should not be combined and treated as a single arrangement for accounting purposes as the Huadong Collaboration Agreements were negotiated separately with separate and distinct commercial objectives, the amount of consideration in one Huadong Collaboration Agreement is not dependent on the price or performance of the other Huadong Collaboration Agreement, and the goods and services promised in the Huadong Collaboration Agreements are not a single performance obligation.

Accounting for the Mavrilimumab Huadong Collaboration Agreement

As of the Effective Date, the Company identified the following performance obligations in the mavrilimumab Huadong Collaboration Agreement: delivery of (i) exclusive license for mavrilimumab in the Huadong Territory and (ii) clinical manufacturing supply of certain materials for mavrilimumab products in the Huadong Territory.

The Company determined the transaction price at the inception of the mavrilimumab Huadong Collaboration Agreement which includes $10,000, consisting of the upfront payment. The Company also includes an estimate of variable consideration associated with the clinical manufacturing supply of certain materials when those materials are shipped. The Company determined that any variable consideration related to development and regulatory milestones is deemed fully constrained and therefore excluded from the transaction price due to the high degree of uncertainty and risk associated with these potential payments, as the Company determined that it could not assert that it was probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company also determined that royalties and sales milestones relate solely to the licenses of intellectual property. Revenue related to these royalties and sales milestones will only be recognized when the associated sales occur, and relevant thresholds are met, under the sales or usage-based royalty exception of Topic 606.

The Company recognizes revenue for the license performance obligations at a point in time, that is upon transfer of the license to Huadong. As control of the license was transferred on the Effective Date and Huadong could begin to use and benefit from the license, the Company recognized $10,000 of collaboration revenue during the year ended December 31, 2022 under the mavrilimumab Huadong Collaboration Agreement. The Company will recognize revenue for the clinical manufacturing supply obligations at a point in time, that is upon each delivery of the supply to Huadong.

Accounting for the Rilonacept Huadong Collaboration Agreement

As of the Effective Date, the Company identified one performance obligation in the rilonacept Huadong Collaboration Agreement: the exclusive license for rilonacept and clinical and commercial manufacturing obligations for rilonacept products in the Huadong Territory. Huadong cannot exploit the value of the exclusive license for rilonacept products in the Huadong Territory without receipt of supply as the exclusive license for rilonacept products in the Huadong Territory does not convey to Huadong the right to manufacture and therefore the Company has combined the exclusive license for rilonacept products in the Huadong Territory and the manufacturing obligations into one performance obligation.

The Company determined the transaction price at the inception of the rilonacept Huadong Collaboration Agreement which includes $12,000, consisting of the upfront payment. The Company also includes an estimate of variable consideration associated with the clinical and commercial manufacturing supply of certain materials when those materials are shipped. The Company determined that any variable consideration related to development and regulatory

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in thousands, except share and per share amounts)

(Unaudited)

milestones, sales milestones and royalties are deemed fully constrained and therefore excluded from the transaction price due to the high degree of uncertainty and risk associated with these potential payments, as the Company determined that it could not assert that it was probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Royalties and sales milestones will be recognized as the Company delivers the commercial manufactured product to Huadong. Any changes in estimates may result in a cumulative catch-up based on the number of units of manufactured product delivered.

The Company recognizes revenue for the single performance obligation in the rilonacept Huadong Collaboration Agreement consisting of the exclusive license for rilonacept and clinical and commercial manufacturing obligations for rilonacept products in the Huadong Territory at a point in time, upon which control of materials are transferred to Huadong for each delivery of the associated materials. The Company currently expects to recognize the revenue over the life of the agreement. This estimate considers the timing of development and commercial activities under the rilonacept Huadong Collaboration Agreement and may be reduced or increased based on changes in the various activities.

The Company has not recognized any revenue under the rilonacept Huadong Collaboration Agreement for the three months ended March 31, 2023 as there has been no delivery of materials under the rilonacept Huadong Collaboration Agreement to date. The transaction price of $11,931 is recorded in non-current deferred revenue and $69 is recorded in current deferred revenue, based upon timing of anticipated future shipments.

The following table summarizes the Company’s contract assets and contract liabilities in connection with license and collaboration agreements for the three months ended March 31, 2023:


	Balance at				Revenue				Balance at End
	Beginning of Period		Additions		Recognized		Reclassification		of Period
Three Months Ended March 31, 2023
Contract Assets:
Genentech vixarelimab	$	7,656	$	—	$	—	$	(7,656)	$	—
Contract Liabilities:
Genentech vixarelimab	$	—	$	20,000	$	(5,686)	$	(7,656)	$	6,658
Huadong rilonacept		12,000		—		—		—		12,000
Total Contract Liabilities	$	12,000	$	20,000	$	(5,686)	$	(7,656)	$	18,658

10. License and Acquisition Agreements

Biogen Asset Purchase Agreement

In September 2016, the Company entered into an asset purchase agreement (the “Biogen Agreement”) with Biogen MA Inc. (“Biogen”) to acquire all of Biogen’s right, title and interest in and to certain assets used in or relating to vixarelimab and other antibodies covered by certain patent rights, including patents and other intellectual property rights, clinical data, know-how, and clinical drug supply. In addition, Biogen granted the Company a non-exclusive, sublicensable, worldwide license to certain background patent rights related to the vixarelimab program. The Company is obligated to use commercially reasonable efforts to develop and commercialize such acquired products.

Under the Biogen Agreement, the Company is obligated to make milestone payments to Biogen of up to $179,000 upon the achievement of specified clinical and regulatory milestones in multiple indications in various territories, of which $165,000 remains as of March 31, 2023. Additionally, the Company could be obligated to make up to an aggregate of up to $150,000 of payments upon the achievement of specified annual net sales milestones and to pay tiered royalties on escalating tiers of annual net sales of licensed products starting in the high single-digit percentages and ending below the teens.

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS