00001605761816057618171296031712960369136901682694860.360.7218134571813457NASDAQ340597253427044500001730430--12-312022Q1false0001730430us-gaap:RetainedEarningsMember2022-03-310001730430us-gaap:AdditionalPaidInCapitalMember2022-03-310001730430us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001730430us-gaap:RetainedEarningsMember2021-12-310001730430us-gaap:AdditionalPaidInCapitalMember2021-12-310001730430us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001730430us-gaap:RetainedEarningsMember2021-03-310001730430us-gaap:AdditionalPaidInCapitalMember2021-03-310001730430us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-310001730430us-gaap:RetainedEarningsMember2020-12-310001730430us-gaap:AdditionalPaidInCapitalMember2020-12-310001730430us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001730430knsa:EquityIncentivePlan2015Memberus-gaap:CommonClassAMember2022-03-310001730430us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2021-12-310001730430us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2022-01-012022-03-310001730430us-gaap:EmployeeStockOptionMemberus-gaap:CommonClassAMember2022-03-310001730430knsa:EmployeeSharePurchasePlan2018Memberus-gaap:CommonClassAMember2022-03-310001730430knsa:IncentiveAwardPlan2018Member2022-03-310001730430srt:MaximumMemberknsa:EmployeeSharePurchasePlan2018Memberus-gaap:CommonClassAMember2022-01-012022-01-010001730430us-gaap:RestrictedStockUnitsRSUMember2021-12-310001730430knsa:RestrictedStockUnitsRsuTimeBasedMember2021-03-012021-03-310001730430knsa:CollaborationMemberknsa:TerritoryLicenseMavrilimumabMember2022-01-012022-03-310001730430knsa:MedimmuneLimitedMemberknsa:LicenseAgreementMember2022-01-012022-03-310001730430knsa:BiogenMaMemberknsa:AssetPurchaseAgreementMember2022-01-012022-03-310001730430knsa:BethIsraelDeaconessMedicalCenterIncMemberknsa:LicenseAgreementMember2022-01-012022-03-310001730430knsa:MedimmuneLimitedMemberknsa:LicenseAgreementMember2021-01-012021-03-310001730430knsa:BiogenMaMemberknsa:AssetPurchaseAgreementMember2021-01-012021-03-310001730430knsa:BethIsraelDeaconessMedicalCenterIncMemberknsa:LicenseAgreementMember2021-01-012021-03-310001730430us-gaap:LeaseholdImprovementsMember2022-03-310001730430us-gaap:ConstructionInProgressMember2022-03-310001730430us-gaap:ComputerEquipmentMember2022-03-310001730430knsa:LabEquipmentMember2022-03-310001730430knsa:FurnitureFixturesAndVehiclesMember2022-03-310001730430us-gaap:LeaseholdImprovementsMember2021-12-310001730430us-gaap:ConstructionInProgressMember2021-12-310001730430us-gaap:ComputerEquipmentMember2021-12-310001730430knsa:LabEquipmentMember2021-12-310001730430knsa:FurnitureFixturesAndVehiclesMember2021-12-310001730430us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001730430us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001730430us-gaap:RetainedEarningsMember2022-01-012022-03-310001730430us-gaap:RetainedEarningsMember2021-01-012021-03-310001730430knsa:RegeneronPharmaceuticalsIncMemberknsa:ClinicalSupplyAgreementMember2022-03-310001730430knsa:RegeneronPharmaceuticalsIncMemberknsa:ClinicalSupplyAgreementMember2021-12-310001730430knsa:RegulatoryMilestoneMember2022-01-012022-03-310001730430knsa:RegulatoryMilestoneMember2022-03-310001730430knsa:RegulatoryMilestoneMember2021-12-310001730430us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001730430us-gaap:RestrictedStockUnitsRSUMember2022-03-310001730430us-gaap:EmployeeStockOptionMember2022-03-310001730430us-gaap:ProductMember2022-01-012022-03-310001730430knsa:CollaborationMember2022-01-012022-03-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:CollaborationMemberknsa:TerritoryLicenseRilonaceptMember2022-01-012022-03-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseRilonaceptMember2022-03-310001730430us-gaap:CommonStockMember2022-03-310001730430us-gaap:CommonStockMember2021-12-310001730430us-gaap:CommonStockMember2021-03-310001730430us-gaap:CommonStockMember2020-12-310001730430us-gaap:CommonClassBMember2022-03-310001730430us-gaap:CommonClassAMember2022-03-310001730430knsa:CommonClassB1Member2022-03-310001730430knsa:CommonClassA1Member2022-03-310001730430us-gaap:CommonClassBMember2021-12-310001730430us-gaap:CommonClassAMember2021-12-310001730430knsa:CommonClassB1Member2021-12-310001730430knsa:CommonClassA1Member2021-12-3100017304302021-03-3100017304302020-12-310001730430us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2022-03-310001730430us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2022-03-310001730430us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-12-310001730430us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MoneyMarketFundsMember2021-12-310001730430us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-03-310001730430us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-03-310001730430us-gaap:USTreasurySecuritiesMemberus-gaap:ShortTermInvestmentsMember2022-03-310001730430us-gaap:USTreasurySecuritiesMemberus-gaap:CashEquivalentsMember2022-03-310001730430us-gaap:USTreasurySecuritiesMember2022-03-310001730430us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-310001730430us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2021-12-310001730430us-gaap:USTreasurySecuritiesMemberus-gaap:ShortTermInvestmentsMember2021-12-310001730430us-gaap:USTreasurySecuritiesMember2021-12-310001730430us-gaap:USTreasurySecuritiesMemberus-gaap:ShortTermInvestmentsMember2022-01-012022-03-310001730430us-gaap:USTreasurySecuritiesMemberus-gaap:CashEquivalentsMember2022-01-012022-03-310001730430us-gaap:USTreasurySecuritiesMember2022-01-012022-03-310001730430us-gaap:USTreasurySecuritiesMemberus-gaap:ShortTermInvestmentsMember2021-01-012021-12-310001730430us-gaap:USTreasurySecuritiesMember2021-01-012021-12-310001730430us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001730430us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001730430us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2022-03-310001730430us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001730430us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001730430us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001730430us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001730430us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001730430us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-03-310001730430us-gaap:EmployeeStockOptionMember2021-01-012021-03-310001730430us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-01-012022-03-310001730430us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001730430us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-310001730430knsa:CostOfGoodsAndServicesSoldMember2022-01-012022-03-310001730430us-gaap:SellingGeneralAndAdministrativeExpensesMember2021-01-012021-03-310001730430us-gaap:RestrictedStockUnitsRSUMember2021-01-012021-03-310001730430us-gaap:ResearchAndDevelopmentExpenseMember2021-01-012021-03-310001730430us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001730430us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001730430us-gaap:ProductMember2022-03-310001730430us-gaap:ProductMember2021-12-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberus-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2022-04-012022-05-050001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseRilonaceptMember2022-04-012022-05-050001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseMavrilimumabMember2022-04-012022-05-050001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberus-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2022-02-212022-02-210001730430knsa:BiogenMaMemberknsa:AssetPurchaseAgreementMember2016-09-012016-09-300001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Membersrt:MinimumMemberus-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2022-02-212022-02-210001730430us-gaap:OtherCurrentLiabilitiesMember2022-03-310001730430us-gaap:AccountsReceivableMember2022-03-310001730430us-gaap:OtherCurrentLiabilitiesMember2021-12-310001730430us-gaap:AccountsReceivableMember2021-12-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Membersrt:MaximumMemberknsa:TerritoryLicenseRilonaceptMember2022-02-212022-02-210001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Membersrt:MaximumMemberknsa:TerritoryLicenseMavrilimumabMember2022-02-212022-02-2100017304302021-01-012021-12-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseRilonaceptMember2022-02-212022-02-210001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseMavrilimumabMember2022-02-212022-02-210001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberus-gaap:CollaborativeArrangementTransactionWithPartyToCollaborativeArrangementMember2022-02-212022-02-210001730430knsa:MedimmuneLimitedMemberknsa:LicenseAgreementMember2020-07-012020-07-3100017304302021-01-012021-03-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseMavrilimumabMember2022-01-012022-03-310001730430knsa:HangzhouZhongmeiHuadongPharmaceuticalCo.Ltd.Memberknsa:TerritoryLicenseRilonaceptMember2022-01-012022-03-310001730430knsa:BiogenMaMemberknsa:AssetPurchaseAgreementMember2022-03-310001730430knsa:MedimmuneLimitedMemberknsa:LicenseAgreementMember2021-03-310001730430knsa:BethIsraelDeaconessMedicalCenterIncMembersrt:MaximumMemberknsa:LicenseAgreementMember2022-03-310001730430knsa:BiogenMaMembersrt:MaximumMemberknsa:AssetPurchaseAgreementMember2016-09-300001730430knsa:RegeneronPharmaceuticalsIncMemberknsa:LicenseAgreementMember2022-01-012022-03-310001730430knsa:RegeneronPharmaceuticalsIncMemberknsa:LicenseAgreementMember2021-01-012021-03-310001730430knsa:MedimmuneLimitedMemberknsa:LicenseAgreementMember2017-12-012017-12-310001730430knsa:MedimmuneLimitedMembersrt:MaximumMemberknsa:LicenseAgreementMember2020-07-012020-07-310001730430knsa:MedimmuneLimitedMembersrt:MinimumMemberknsa:LicenseAgreementMember2017-12-012017-12-310001730430knsa:BiogenMaMemberknsa:AssetPurchaseAgreementMember2016-09-300001730430knsa:MedimmuneLimitedMembersrt:MaximumMemberknsa:LicenseAgreementMember2017-12-3100017304302017-09-012017-09-300001730430us-gaap:CommonStockMember2022-01-012022-03-310001730430us-gaap:CommonStockMember2021-01-012021-03-3100017304302022-03-3100017304302021-12-310001730430us-gaap:CommonStockMember2022-04-300001730430us-gaap:CommonClassBMember2022-04-300001730430us-gaap:CommonClassAMember2022-04-300001730430knsa:CommonClassB1Member2022-04-300001730430knsa:CommonClassA1Member2022-04-3000017304302022-01-012022-03-31xbrli:sharesiso4217:USDxbrli:pureknsa:agreementknsa:itemknsa:securityiso4217:USDxbrli:shares

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, 2022

OR

     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, 2022, there were 69,275,724 common shares outstanding in aggregate, comprised of:

34,275,046 Class A common shares, par value $0.000273235 per share

1,813,457 Class B common shares, par value $0.000273235 per share

,

17,129,603 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, 2022

TABLE OF CONTENTS

Page

PART I — FINANCIAL INFORMATION

7

Item 1. Financial Statements (unaudited)

7

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

7

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

8

Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2022 and 2021

9

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

10

Notes to Consolidated Financial Statements

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

39

Item 4. Controls and Procedures

40

PART II — OTHER INFORMATION

41

Item 1. Legal Proceedings

41

Item 1A. Risk Factors

41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

118

Item 3. Defaults Upon Senior Securities

118

Item 4. Mine Safety Disclosures

118

Item 5. Other Information

118

Item 6. Exhibits

119

SIGNATURES

121

2

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or 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 coverage and reimbursement for our products and product candidates, if approved, commercial strategy and pre-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 “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:

the impact of the coronavirus disease 2019, or COVID-19, pandemic on our business, including our commercial operations and clinical trials;
our continued ability to commercialize ARCALYST (rilonacept) and to develop and commercialize our current and future product candidates, if approved;
our status as an early-commercial stage biopharmaceutical company and our expectation to incur losses in the future;
our future capital needs and our need to raise additional funds;
our ability to manufacture sufficient commercial stock of our products to meet patient demand;
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;

3

Table of Contents

the decision of third-party payors not to cover 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, including due to the COVID-19 pandemic and the ongoing war in Ukraine;
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, collaborations or other strategic transactions;
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.

4

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 have only recently begun generating product revenue, have incurred significant operating losses since our inception, and expect to incur significant operating losses for the foreseeable future and may never achieve or maintain corporate profitability;
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 have limited experience commercializing a therapeutic, supporting sales, marketing, and distribution activities and maintaining 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 approved product candidates;
we depend heavily on the success of one or more of our product candidates, which are in various stages of product 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, if at all;
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 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 incidence and prevalence for target patient populations of our products and product candidates have not been established with precision, and if the market opportunities for our products and product candidates, if approved, are smaller than we estimate, or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability may be materially adversely affected;
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, site activation, enrollment, and conduct of the trials, which could delay or prevent our product development activities;
we rely on third parties, including contract research organizations, or CROs, to activate our sites, 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;

5

Table of Contents

we rely on third parties, including independent contract manufacturing organizations, or 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 our products and product candidates; and if these third parties do not perform satisfactorily, including by producing insufficient commercial supply of ARCALYST to meet patient demand, or are impacted by delays or supply shortages, our product development activities, regulatory approval, and commercialization efforts may be delayed, prevented or impaired;
the ongoing COVID-19 pandemic, and related measures taken in response, including measures imposed or re-imposed in light of new variants of the virus, may have an adverse impact on our business and operations as well as those of our manufacturers, CROs and other third parties with whom we conduct business or otherwise engage, including regulatory authorities;
all of our products and 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; 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 Pharmaceuticals, Inc (“Regeneron”). Solely for convenience, trademarks, service marks, and trade names referred to in this Quarterly Report may be listed without identifying symbols.

6

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, 

    

2022

    

2021

Assets

 

  

 

  

Current assets:

 

 

  

Cash and cash equivalents

$

63,324

$

122,470

Short-term investments

82,253

59,731

Accounts receivable, net

29,440

3,985

Inventory

13,223

3,675

Prepaid expenses and other current assets

 

10,517

 

6,585

Total current assets

 

198,757

 

196,446

Property and equipment, net

 

2,475

 

2,834

Operating lease right-of-use assets

4,815

5,550

Other long-term assets

5,918

8,720

Intangible asset, net

19,000

19,250

Total assets

$

230,965

$

232,800

Liabilities and Shareholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

3,383

$

1,868

Accrued expenses

 

38,887

 

38,031

Operating lease liabilities

3,311

3,381

Other current liabilities

4,773

1,544

Total current liabilities

 

50,354

 

44,824

Non-current liabilities:

 

  

 

  

Non-current operating lease liabilities

2,096

2,669

Deferred revenue

12,000

Other long-term liabilities

 

271

270

Total liabilities

 

64,721

 

47,763

Commitments and contingencies (Note 14)

 

  

 

  

Shareholders’ equity:

 

 

Class A common shares, par value of $0.000273235 per share; 34,270,445 shares and 34,059,725 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

9

 

8

Class B common shares, par value of $0.000273235 per share; 1,813,457 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

1

 

1

Class A1 common shares, $0.000273235 par value; 17,129,603 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

5

 

5

Class B1 common shares, $0.000273235 par value; 16,057,618 shares issued and outstanding as of March 31, 2022 and December 31, 2021

 

4

 

4

Additional paid-in capital

 

866,935

 

860,482

Accumulated other comprehensive loss

(103)

(66)

Accumulated deficit

 

(700,607)

 

(675,397)

Total shareholders’ equity

 

166,244

 

185,037

Total liabilities and shareholders’ equity

$

230,965

$

232,800

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

7

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, 

    

2022

    

2021

Revenue:

Product revenue, net

$

22,189

$

Collaboration revenue

10,000

Total revenue

32,189

Costs and operating expenses:

    

  

Cost of goods sold

4,219

Collaboration expenses

8,254

Research and development

20,817

28,683

Selling, general and administrative

 

22,218

20,600

Total operating expenses

 

55,508

 

49,283

Loss from operations

 

(23,319)

 

(49,283)

Interest income

 

34

9

Loss before provision for income taxes

 

(23,285)

 

(49,274)

Provision for income taxes

 

(1,925)

(210)

Net loss

$

(25,210)

$

(49,484)

Net loss per share attributable to common shareholders—basic and diluted

$

(0.36)

$

(0.72)

Weighted average common shares outstanding—basic and diluted

 

69,136,901

68,269,486

Comprehensive loss:

Net loss

$

(25,210)

$

(49,484)

Other comprehensive loss:

Unrealized gain (loss) on short-term investments and currency translation adjustments, net of tax

(37)

13

Total other comprehensive gain (loss)

(37)

13

Total comprehensive loss

$

(25,247)

$

(49,471)

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

8

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

  

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

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, 2020

 

68,215,022

$

18

$

829,424

$

(34)

$

(517,473)

$

311,935

Issuance of Class A common shares under incentive award plans

115,012

1,106

1,106

Share-based compensation expense

 

7,126

7,126

Unrealized gain on short-term investments and currency translation adjustments

 

13

13

Net loss

 

(49,484)

(49,484)

Balances at March 31, 2021

 

68,330,034

$

18

$

837,656

$

(21)

$

(566,957)

$

270,696

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

9

Table of Contents

KINIKSA PHARMACEUTICALS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended

March 31, 

    

2022

2021

Cash flows from operating activities:

 

  

Net loss

$

(25,210)

$

(49,484)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization expense

 

656

 

312

Share-based compensation expense

 

6,031

 

7,126

Non-cash lease expense

 

735

 

593

Amortization of premiums and accretion of discounts on short-term investments

164

410

Deferred income taxes

 

 

10

Changes in operating assets and liabilities:

 

 

Prepaid expenses and other current assets

 

(3,932)

 

408

Accounts receivable, net

(25,455)

Inventory

(9,548)

Other long-term assets

2,755

(231)

Accounts payable

 

1,515

 

72

Accrued expenses and other current liabilities

 

4,085

 

1,079

Operating lease liabilities

(643)

(421)

Deferred revenue

12,000

Other long-term liabilities

 

1

4

Net cash used in operating activities

 

(36,846)

 

(40,122)

Cash flows from investing activities:

 

  

 

Purchases of property and equipment

 

 

(54)

Purchases of short-term investments

(30,223)

(74,362)

Proceeds from the maturities of short-term investments

7,500

139,250

Intangible asset acquired

(20,000)

Net cash provided by (used in) investing activities

 

(22,723)

 

44,834

Cash flows from financing activities:

 

  

 

Proceeds from issuance of Class A common shares under incentive award plans and employee share purchase plan

 

992

1,106

Payments in connection with Common Stock tendered for employee tax obligations

(569)

Net cash provided by financing activities

 

423

 

1,106

Net increase (decrease) in cash, cash equivalents and restricted cash

 

(59,146)

 

5,818

Cash, cash equivalents and restricted cash at beginning of period

 

122,470

114,248

Cash, cash equivalents and restricted cash at end of period

$

63,324

$

120,066

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

10

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 portfolio of assets is based on strong biologic rationale or validated mechanisms, target underserved conditions and offer the potential for differentiation.

The Company is subject to risks and uncertainties common to early, commercial stage companies in the biopharmaceutical industry and global health, societal, economic and market conditions, including adverse impact from the coronavirus disease 2019 (“COVID-19”) pandemic, the ongoing war in Ukraine, the Company’s dependence on third parties, including CROs and CMOs, 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, and the uncertainty that any current or future product candidates will obtain necessary government regulatory approval, that ARCALYST will continue to be commercially viable, and that any of the Company’s current or future product candidates, if approved, will be commercially viable.

Risks and Uncertainties Related to COVID-19

The COVID-19 pandemic, and measures undertaken in response to the pandemic, or the easing of any of such measures, may cause significant disruptions in the Company’s business or operations as well as in the business and operations of third parties with whom the Company conducts business or otherwise engages now or in the future. The COVID-19 pandemic may also adversely impact the Company’s preclinical studies and clinical trials, which could impede, delay, limit or prevent the clinical development of the Company’s product candidates and ultimately lead to the delay or denial of regulatory approval of its product candidates, which would materially adversely affect the Company’s business and operations, including its ability to generate revenue. Moreover, the COVID-19 pandemic is impacting the global economy, and the U.S. economy in particular, with the potential for an economic downturn to be severe and prolonged. A severe or prolonged economic downturn could result in continued disruptions in the financial markets, which could adversely impact the Company’s ability to raise additional capital when needed or on acceptable terms, if at all. While the Company has implemented certain workplace safety protocols and business contingency plans, there can be no assurance that such protocols or plans will be effective. The extent of the impact on the Company’s business and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, economic effects of the pandemic, new or emerging variants of the virus and the effectiveness of actions taken to contain and treat the disease.

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

11

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

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 capitalization of inventory, the accrual for research and development expenses 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, 2021 (the “2021 Form 10-K”). The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in the Company’s 2021 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, 2022 and the results of its operations for the three months ended March 31, 2022 and 2021, the changes in its shareholders’ equity for the three months ended March 31, 2022 and 2021 and its cash flows for the three months ended March 31, 2022 and 2021. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, 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, 2022, the Company had an accumulated deficit of $700,607. During the three months ended March 31, 2022, the Company incurred a net loss of $25,210 and used $36,846 cash in operating activities. The Company expects to continue to generate operating losses and cash used in operations for the foreseeable future. As of March 31, 2022, the Company had cash, cash equivalents and short-term investments of $145,577.

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, government funding or grants, 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.

12

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

2.           Summary of Significant Accounting Policies

Revenue Recognition

ASC Topic 606, Revenue from contracts with Customers (“ASC 606”) outlines a five-step process for recognizing revenue from contracts with customers: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the separate performance obligations in the contract, and (v) recognize revenue associated with the performance obligations as they are satisfied.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606, the Company determines the performance obligations that are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery of the product to the customer.

ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g., receivable), before the entity transfers a good or service to the customer.

Collaboration Revenue

The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (“Topic 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of Topic 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of Topic 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of Topic 606.

For elements of collaboration arrangements that are accounted for pursuant to ASC 606, we identify the performance obligations and allocate the total consideration we expect to receive on a relative standalone selling price basis to each performance obligation. Variable consideration such as performance-based milestones will be included in the total consideration if we expect to receive such consideration and if it is probable that the inclusion of the variable consideration will not result in a significant reversal in the cumulative amount of revenue recognized under the arrangement. Our estimate of the total consideration we expect to receive under each collaboration arrangement is updated for each reporting period, and any adjustments to revenue are recorded on a cumulative catch-up basis. We exclude sales-based royalty and milestone payments from the total consideration we expect to receive until the underlying sales occur because the license to our intellectual property is deemed to be the predominant item to which the royalties or milestones relate as it is the primary driver of value in our collaboration arrangements.

Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. We recognize revenue associated with each performance obligation as the control over the promised goods or services transfer to our collaboration partner which occurs either at a point in time or over time. If control transfers over time, revenue is recognized by using a method of measuring progress that best depicts the transfer of goods or services. We

13

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

evaluate the measure of progress and related inputs each reporting period and any resulting adjustments to revenue are recorded on a cumulative catch-up basis.

Consideration received that does not meet the requirements to satisfy ASC 808 or ASC 606 revenue recognition criteria is recorded as deferred revenue in the accompanying consolidated balance sheets, classified as either short-term (less than 12 months) or long-term (more than 12 months) deferred revenue based on our best estimate of when such revenue will be recognized.

There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2021 Form 10-K.

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.

3.           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.
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, 2022 Using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

  

 

  

 

  

 

  

Cash equivalents — money market funds

$

26,470

$

$

$

26,470

Cash equivalents — U.S. Treasury notes

12,698

12,698

Short-term investments — U.S. Treasury notes

82,253

82,253

$

26,470

$

94,951

$

$

121,421

14

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

Fair Value Measurements

as of December 31, 2021 Using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

  

 

  

 

  

 

  

Cash equivalents — money market funds

$

94,324

$

$

$

94,324

Short-term investments — U.S. Treasury notes

59,731

59,731

$

94,324

$

59,731

$

$

154,055

During the three months ended March 31, 2022 and the year ended December 31, 2021 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, 2022 and December 31, 2021 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.

Cash equivalents and short-term investments as of March 31, 2022 and December 31, 2021 consisted of U.S. Treasury notes which investments were each due within six months of such date.

Gross

Gross

Amortized

Unrealized

Unrealized

Credit

Fair

Cost

Gains

Losses

Losses

Value

March 31, 2022

Cash Equivalents - U.S. Treasury notes

$

12,697

$

1

$

$

$

12,698

Short-term investments — U.S. Treasury notes

82,304

(51)

82,253

$

95,001

$

1

$

(51)

$

$

94,951

Gross

Gross

Amortized

Unrealized

Unrealized

Credit

Fair

Cost

Gains

Losses

Losses

Value

December 31, 2021

Short-term investments — U.S. Treasury notes

$

59,745

$

1

$

(15)

$

$

59,731

$

59,745

$

1

$

(15)

$

$

59,731

As of March 31, 2022, the Company held 18 securities that were in an unrealized loss position. The aggregate fair value of securities held by the Company in an unrealized loss position was $82,253 at March 31, 2022. As of December 31, 2021, the Company held 11 securities that were in an unrealized loss position. The aggregate fair value of securities held by the Company in an unrealized loss position was $49,739 at December 31, 2021. As of March 31, 2022 and December 31, 2021, these securities were held by the Company in an unrealized loss position for less than 12 months. The Company determined that there was no material change in the credit risk of these securities. As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of March 31, 2022 and December 31, 2021.

15

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

4.           Product Revenue, Net

ARCALYST

Following the approval by the U.S. Food and Drug Administration (“FDA”) of ARCALYST on March 18, 2021, the Company began generating product revenue from sales of ARCALYST in April 2021.

Three Months Ended

March 31, 

2022

Product revenue, net

$

22,189

The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the three months ended March 31, 2022:

Contractual

Government

Adjustments

Rebates

Returns

Total

Balance at December 31, 2021

$

515

$

719

$

101

$

1,335

Current provisions relating to sales in the current year

1,671

718

62

2,451

Adjustments relating to prior years

Payments/returns relating to sales in the current year

(553)

(89)

(642)

Payments/returns relating to sales in the prior years

(301)

(180)

(481)

Balance at March 31, 2022

$

1,332

$

1,168

$

163

$

2,663

Total revenue-related reserves as of March 31, 2022 and December 31, 2021, included in our consolidated balance sheets, are summarized as follows:

March 31, 

December 31,

2022

2021

Reduction of accounts receivable

$

(41)

$

(50)

Components of other current liabilities

2,704

1385

Total revenue-related reserves

$

2,663

$

1,335

Accounts receivable, net as of March 31, 2022 and December 31, 2021 related to product revenue was $7,339 and $3,910, respectively.

5.           Inventory

During the year ended December 31, 2021, the Company commenced the capitalization of ARCALYST inventory in connection with receiving FDA approval of ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and children 12 years and older.

16

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

Inventory consisted of the following:

March 31, 

December 31,

    

2022

    

2021

Raw materials

$

$

Work-in-process

 

148

 

Finished Goods

13,075

3,675

$

13,223

$

3,675

6.           Property and Equipment, Net

Property and equipment, net consisted of the following:

March 31, 

December 31, 

    

2022

    

2021

Furniture, fixtures and vehicles

$

62

$

62

Computer hardware and software

 

345

 

341

Leasehold improvements

3,931

3,931

Lab equipment

4,249

4,249

Construction in progress

 

162

 

166

Total property and equipment

8,749

8,749

Less: Accumulated depreciation

 

(6,274)

 

(5,915)

Total property and equipment, net

$

2,475

$

2,834

Depreciation expense was $359 and $290 during the three months ended March 31, 2022 and 2021, respectively.

7.           Intangible Assets

Intangible assets, net of accumulated amortization, impairment charges and adjustments as of March 31, 2022 and December 31, 2021 are summarized in the following table.

As of March 31, 2022

As of December 31, 2021

Estimated

Accumulated

Accumulated

    

life

    

Cost

    

Amortization

    

Net

Cost

    

Amortization

    

Net

Regulatory milestone

20 years

$

20,000

$

1,000

$

19,000

$

20,000

$

750

$

19,250

$

20,000

$

1,000

$

19,000

$

20,000

$

750

$

19,250

17

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

8.           Accrued Expenses

Accrued expenses consisted of the following:

March 31, 

December 31, 

    

2022

    

2021

Accrued research and development expenses

$

22,212

$

24,977

Accrued employee compensation and benefits

4,934

8,916

Accrued legal, commercial and professional fees

 

11,412

 

3,768

Other

 

329

 

370

$

38,887

$

38,031

9.           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, 2022, there were 2,172,447 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. As of March 31, 2022, 4,092,732 shares remained available for future grant under the 2018 Plan.

2018 ESPP

In December 2021, the Company’s board of directors approved an increase in the number of shares available for future issuance under the 2018 ESPP, as of January 1, 2022, of 90,000 shares. As of March 31, 2022, 554,801 Class A common shares were available for future issuance under the 2018 ESPP.

18

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, 2021

 

9,226,846

$

14.14

Granted

 

117,000

$

10.91

Exercised

 

(58,155)

$

9.76

Forfeited

 

(496,334)

$

16.17

Outstanding as of March 31, 2022

 

8,789,357

$

14.01

Share options exercisable as of March 31, 2022

 

5,148,927

$

13.10

Share options unvested as of March 31, 2022

 

3,640,430

$

15.29

As of March 31, 2022, total unrecognized compensation expense related to the unvested share option awards was $35,767 which is expected to be recognized over a weighted average remaining period of 2.35 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 on the first anniversary of the Achievement Date, subject to continued employment through such date, 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 will vest on the second anniversary of the Achievement Date, subject to continued employment through such date.

During the three months ended March 31, 2022 and 2021, the Company recognized compensation expense of $619 and $1,452, respectively, related to RSUs including those granted in connection with the RLTIP.

The following table summarizes RSU activity, including the RSUs outstanding under the RLTIP for the three months ended March 31, 2022:

Weighted

Average

Number of

Grant Date

Shares

Fair Value

Unvested RSUs as of December 31, 2021

885,021

$

15.72

Granted

58,650

$

10.91

Vested

(161,898)

$

15.82

Forfeited

(116,003)

$

14.43

Unvested RSUs as of March 31, 2022

665,770

$

15.50

19

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, 2022, total unrecognized compensation cost related to the RSU awards was $8,600 which is expected to be recognized over a weighted average remaining period of 3.12 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, 

    

2022

    

2021

Cost of goods sold

$

180

$

Research and development expenses

1,976

2,634

Selling, general and administrative expenses

 

3,875

 

4,492

$

6,031

$

7,126

10.Out-licensing Agreements

Huadong Collaboration Agreements

On February 21, 2022 (the “Effective Date”), the Company entered into two collaboration and license agreements (each, a “Collaboration Agreement” and together, the “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 “Licensed Product” and together, the “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 “Territory”). The Company otherwise retained its current rights to the Licensed Products outside the Territory.

Under the Collaboration Agreements, the Company received a total upfront cash payment of $22,000, which includes $12,000 for the Territory license of rilonacept and $10,000 for the Territory license of mavrilimumab. The Company recorded these balances in accounts receivable as of March 31, 2022 and received payment subsequent to quarter end. In addition, 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 Licensed Product-by-Licensed Product basis ranging from the low-teens to low-twenties on annual net sales of each Licensed Product in the Territory, subject to certain reductions tied to rilonacept manufacturing costs and certain other customary reductions, with an aggregate minimum floor. Royalties will be payable on a Licensed Product-by-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 Licensed Product in such country or region in the 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 Licensed Product in such country or region in the Territory, and (iii) the expiration of the last regulatory exclusivity for the applicable Licensed Product in such country or region in the Territory.

Pursuant and subject to the terms of the Collaboration Agreements, Huadong has the exclusive right to conduct Territory-specific development activities for the Licensed Products in the Territory, the first right to support global development of the Licensed Products by serving as the sponsor of the global clinical trials conducted in the Territory and the exclusive right to commercialize the Licensed Products in the Territory. Huadong will be responsible for all costs of development activities and commercialization in the Territory. Both the Company and Huadong participate in a

20

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

Joint Steering Committee (“JSC”), which coordinates and oversees the exploitation of the Licensed Products in the Territory.

The Company will supply certain materials to support development and commercialization activities for both mavrilimumab and rilonacept. Under the Collaboration Agreement for mavrilimumab, Huadong has the right to assume manufacturing responsibilities for materials in the Territory. Under the Collaboration Agreement for rilonacept, Huadong does not have rights to perform manufacturing activities in the Territory.

Absent early termination, each Collaboration Agreement will continue on a country-by-country or region-by-region basis until there are no more royalty payments owed to the Company in such country or region for the applicable Licensed Product. Huadong has the right to terminate each Collaboration Agreement at its discretion upon 12 months’ notice and either party may terminate the applicable Collaboration Agreement in the event of an uncured material breach of the other party or in the case of insolvency of the other party. In addition, the Company may terminate the applicable Collaboration Agreement if Huadong or its affiliates or sublicensees challenges the scope, validity, or enforceability of the Company’s patent rights being licensed to Huadong. If Huadong and its affiliates do not conduct any material development or commercialization activities with respect to a Licensed Product in the People’s Republic of China for a continuous period of longer than six months, then, subject to certain exceptions, the Company may terminate the Collaboration Agreement applicable to such Licensed Product with 60 days’ prior written notice. In addition, Huadong’s rights under each Collaboration Agreement in certain regions within the Territory may be subject to termination upon failure by Huadong to perform certain clinical, development or commercialization activities, as applicable, with respect to the applicable Licensed Product in such regions.

The Company concluded that Huadong is a customer in these Collaboration Agreements, and as such, each Collaboration Agreement falls within the scope of the revenue recognition guidance in ASC 606.

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

Accounting for Mavrilimumab Collaboration Agreement

As of the Effective Date, the Company identified the following material promises in the mavrilimumab Collaboration Agreement that were evaluated under the scope of ASC 606: delivery of (i) exclusive license for mavrilimumab in the Territory and (ii) clinical manufacturing supply of certain materials for mavrilimumab products in the Territory.

The Company also evaluated whether certain options outlined within the mavrilimumab Collaboration Agreement represented material rights that would give rise to a performance obligation and concluded that none of the options convey a material right to Huadong and therefore are not considered separate performance obligations within the mavrilimumab Collaboration Agreement.

The Company assessed the above promises and determined that the exclusive license for mavrilimumab in the Territory is reflective of a vendor-customer relationship and therefore represents a performance obligation within the scope of ASC 606. The exclusive license for mavrilimumab in the Territory is considered functional intellectual property and distinct from other promises under the Collaboration Agreement as Huadong can benefit from the license on its own or together with other readily available resources and the license is separately identifiable from the other promises. The clinical manufacturing supply of certain materials for mavrilimumab products in the Territory is considered distinct from the exclusive license for mavrilimumab as Huadong can benefit from the manufacturing services together with the

21

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

license transferred by the Company at the inception of the Collaboration Agreement. Therefore, each represents a separate performance obligation within a contract with a customer under the scope of ASC 606 at contract inception.

The Company determined the transaction price under ASC 606 at the inception of the mavrilimumab Collaboration Agreement and as of March 31, 2022 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.

As noted above, the Company identified two performance obligations in the mavrilimumab Collaboration Agreement: (i) the delivery of the exclusive license for mavrilimumab in the Territory; and (ii) the clinical manufacturing supply of certain materials for mavrilimumab products in the Territory. The selling price of each performance obligation in the mavrilimumab Collaboration Agreement was determined based on the Company’s standalone selling price (“SSP”) 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 variable consideration related to the manufacturing obligations to the future clinical supply of mavrilimumab products in the Territory and the remaining fixed and variable consideration to the license obligation. 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 three months ended March 31, 2022 under the mavrilimumab 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 Rilonacept Collaboration Agreement

As of the Effective Date, the Company identified the following material promises in the rilonacept Collaboration Agreement that were evaluated under the scope of ASC 606: delivery of (i) exclusive license for rilonacept in the Territory; (ii) clinical manufacturing supply of certain materials for rilonacept products in the Territory; and (iii) commercial manufacturing supply of certain material for rilonacept products in the Territory.

The Company also evaluated whether certain options outlined within the rilonacept Collaboration Agreement represented material rights that would give rise to a performance obligation and concluded that none of the options convey a material right to Huadong and therefore are not considered separate performance obligations within the rilonacept Collaboration Agreement.

The Company assessed the above promises and determined that there is one combined performance obligation for the exclusive license for rilonacept and clinical and commercial manufacturing obligations for rilonacept products in the Territory. Huadong cannot exploit the value of the exclusive license for rilonacept products in the Territory without receipt of supply as the exclusive license for rilonacept products in the Territory does not convey to Huadong the right to manufacture and therefore the Company has combined the exclusive license for rilonacept products in the Territory and the manufacturing obligations into one performance obligation.

The Company determined the transaction price under ASC 606 at the inception of the rilonacept Collaboration Agreement which includes $12,000, 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,

22

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

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.

As noted above, the Company identified a single combined performance obligation in the rilonacept Collaboration Agreement consisting of the exclusive license for rilonacept and clinical and commercial manufacturing obligations for rilonacept products in the Territory. The Company recognizes revenue for the combined performance obligation consisting of the exclusive license for rilonacept and clinical and commercial manufacturing obligations for rilonacept products in the 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 License Agreement and may be reduced or increased based on changes in the various activities.

The Company has not recognized any revenue under the rilonacept License Agreement as of March 31, 2022 as there has been no delivery of materials under the rilonacept License Agreement to date. The full transaction price of $12,000 is recorded in long-term deferred revenue, based upon timing of anticipated future shipments.

The following table summarizes deferred revenue in connection with collaboration agreements for the three months ended March 31, 2022:

Balance at

Balance at End

Beginning of Period

Additions

Deductions

of Period

Three Months ended March 31, 2022

Huadong rilonacept

$

$

12,000

$

$

12,000

Deferred revenue

$

$

12,000

$

$

12,000

11.           License, Acquisition and Collaboration 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 to 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, 2022. 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.

The Company also agreed to pay certain obligations under third-party contracts retained by Biogen that relate to the vixarelimab program. Under these retained contracts, the Company paid a one-time upfront sublicense fee and is

23

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

obligated to pay insignificant annual maintenance fees as well as clinical and regulatory milestone payments of up to an aggregate of $1,575.

The Biogen Agreement will terminate upon the expiration of all payment obligations with respect to the last product in all countries in the territory. The Company has the right to terminate the agreement with 90 days’ prior written notice. Both parties may terminate by mutual written consent or in the event of material breach of the agreement by the other party that remains uncured for 90 days (or 30 days for payment-related breaches).

During the three months ended March 31, 2022, the Company did not record any research and development expense in connection with the Biogen Agreement. During the three months ended March 31, 2021, the Company recorded research and development expense of $14, related to the annual maintenance fee in connection with the retained contracts.

Beth Israel Deaconess Medical Center License Agreement

In 2019, the Company exercised the call option under the stock purchase option agreement with Primatope and acquired all of the outstanding securities of Primatope (the “Primatope Acquisition”). As a result of the Primatope Acquisition, the Company acquired the rights to an exclusive license to certain intellectual property rights controlled by Beth Israel Deaconess Medical Center, Inc. (“BIDMC”) to make, use, develop and commercialize KPL-404 (the “BIDMC Agreement”). Under the BIDMC Agreement, the Company is solely responsible for all development, regulatory and commercial activities and costs. The Company is also responsible for costs related to filing, prosecuting and maintaining the licensed patent rights. Under the BIDMC Agreement, the Company is obligated to pay an insignificant annual maintenance fee as well as clinical and regulatory milestone payments of up to an aggregate of $1,200 to BIDMC. The Company is also obligated to pay a low single-digit royalty on annual net sales of products licensed under the agreement.

During the three months ended March 31, 2022 and 2021, the Company did not record any research and development expense in connection with the BIDMC Agreement.

Regeneron License Agreement

In September 2017, the Company entered into a license agreement (the “Regeneron Agreement”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”), pursuant to which the Company has been granted an exclusive license under certain intellectual property rights controlled by Regeneron to develop and commercialize ARCALYST worldwide, excluding the Middle East and North Africa, for all indications other than those in oncology and local administration to the eye or ear. Upon receiving positive data in RHAPSODY, the Company’s pivotal Phase 3 clinical trial of ARCALYST, Regeneron transferred the biologics license application, for ARCALYST to the Company. In March 2021, when the FDA granted approval of ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and children 12 years and older, the Company assumed the sales and distribution of ARCALYST for Cryopyrin-Associated Periodic Syndromes and Deficiency of Interleukin-1 Receptor Antagonist in the United States.

The Company made a $20,000 payment in the first quarter of 2021 in connection with the achievement of a specified regulatory milestone event. The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use.

The Company evenly splits profits on sales of ARCALYST with Regeneron, where profits are determined after deducting from net sales of ARCALYST certain costs related to the manufacturing and commercialization of

24

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

ARCALYST. Such costs include but are not limited to (i) the Company’s cost of goods sold for product used, sold or otherwise distributed for patient use by the Company; (ii) customary commercialization expenses, including the cost of the Company’s field force, and (iii) the Company’s cost to market, advertise and otherwise promote ARCALYST, with such costs identified in subsection (iii) subject to specified limits.  In addition, should there be a transfer of technology related to the manufacture of ARCALYST, then, to the extent permitted in accordance with the Regeneron Agreement, the fully-burdened costs incurred by each of the Company and Regeneron in performing (or having performed) such technology transfer shall also be deducted from net sales of ARCALYST to determine profit. The Company also evenly splits with Regeneron any proceeds received by the Company from any licensees, sublicensees and distributors in consideration for the sale, license or other disposition of rights with respect to ARCALYST, including upfront payments, milestone payments and royalties. For the three months ended March 31, 2022, the Company recognized $8,254 of expenses related to the profit sharing agreement presented within collaboration expenses. For the three months ended March 31, 2021 the Company did not recognize any collaboration expenses related to the profit sharing agreement.

Pursuant to the Regeneron Agreement, in September 2017, the parties entered into a clinical supply agreement under which Regeneron agreed to manufacture materials solely for the Company’s use in development activities. Pursuant to the Regeneron Agreement, during the year ended December 31, 2021, the Company entered into a commercial supply agreement under which Regeneron agreed to manufacture product for the Company’s use, including for commercial sales. The commercial supply agreement terminates upon the termination of the Regeneron Agreement or the date of completion of the transfer of technology related to the manufacture of ARCALYST. During the three months ended March 31, 2022 and 2021, the Company did not incur any research and development expense related to the purchase of drug materials under the clinical supply agreement. As of March 31, 2022 and December 31, 2021, the Company recorded inventory of $13,223 and $3,675, respectively, related to the purchase of commercial product under the commercial supply agreement (see Note 5). As of March 31, 2022, the Company had non-cancelable purchase commitments under the commercial supply agreement (see Note 14).

The Regeneron Agreement will expire when the Company is no longer developing or commercializing any licensed product under the Regeneron Agreement. Either party may terminate the agreement upon the other party’s insolvency or bankruptcy or for material breach of the agreement by the other party that remains uncured for 90 days (or 30 days for payment related breaches). Regeneron has the right to terminate the agreement if the Company suspends its development or commercialization activities for a consecutive 12 month period or does not grant a sublicense to a third party to perform such activities, or if the Company challenges any of the licensed patent rights. The Company may terminate the agreement at any time with one year’s written notice. The Company may also terminate the agreement with three months’ written notice if the licensed product is determined to have certain safety concerns.

MedImmune License Agreement

In December 2017, the Company entered into a license agreement (as amended from time to time, the “MedImmune Agreement”) with MedImmune, Limited (“MedImmune”), pursuant to which MedImmune granted the Company an exclusive, sublicensable, worldwide license to certain intellectual property rights to make, use, develop and commercialize mavrilimumab. Under the MedImmune Agreement, the Company also acquired reference rights to relevant manufacturing and regulatory documents and MedImmune’s existing supply of mavrilimumab drug substance and product. The Company is obligated to use commercially reasonable efforts to develop and commercialize the licensed products.

The Company is obligated to make clinical, regulatory and initial sales milestone payments of up to $72,500 in aggregate for the first two indications, of which $57,500 remain as of March 31, 2022. In addition, the Company is obligated to make clinical and regulatory milestone payments of up to $15,000 in the aggregate for each subsequent indication. In July 2020, the Company entered into an amendment to the MedImmune Agreement to establish a new coronavirus field and defer the payment of certain development and regulatory milestones as applied to the new coronavirus field. The Company is obligated to make milestone payments to MedImmune of up to $85,000 upon the achievement of annual net sales thresholds up to, but excluding, $1,000,000 in annual net sales as well as additional

25

Table of Contents

KINIKSA PHARMACEUTICALS, LTD

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(Unaudited)

milestone payments aggregating up to $1,100,000 upon the achievement of additional specified annual net sales thresholds starting at $1,000,000 and higher. The Company has also agreed to pay tiered royalties on escalating tiers of annual net sales of licensed products starting in the low double-digit percentages and ending at twenty percent. Royalty rates are subject to reductions upon certain events.

The Company is solely responsible for all development, manufacturing, and commercial activities and costs of the licensed products, including clinical studies or other tests necessary to support the use of a licensed product. The Company is also responsible for costs related to the filing, prosecution and maintenance of the licensed patent rights.

The MedImmune Agreement will expire upon the expiration of the royalty term in the last country for the last indication, as defined in the agreement. Either party may terminate the agreement upon the other party’s insolvency or bankruptcy or for material breach of the agreement by the other party that remains uncured for 90 days. MedImmune has the right to terminate the agreement if the Company challenges any of the licensed patent rights. The Company may terminate the agreement at any time upon 90 days’ prior written notice.

During the three months ended March 31, 2022 and 2021, the Company did not record research and development expense in connection with milestone payments due under the MedImmune Agreement.

12.         Net Loss per Share

The rights, including the liquidation and dividend rights, of the holders of Class A, Class B, Class A1 and Class B1 common shares are identical, except with respect to voting, transferability and conversion (see the Notes to Consolidated Financial Statements to our Form 10-K). As the liquidation and dividend rights are identical, losses are allocated on a proportionate basis, and the resulting net loss per share attributed to common shareholders will, therefore, be the same for the Class A, A1, B and B1 common shares on an individual or combined basis.

Basic and diluted net loss per share attributable to common shareholders was calculated as follows:

Three Months Ended

March 31, 

    

2022

    

2021

Numerator:

  

  

Net loss attributable to common shareholders

$

(25,210)