Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the risks identified in Part I-Item 1A “Risk Factors” section of this Annual Report and our other filings with the SEC, our actual results could differ materially from the results, performance or achievements expressed in or implied by these forward-looking statements.
Overview
We are a biopharmaceutical company developing and commercializing novel therapies for diseases with unmet need, with a focus on cardiovascular indications. Our portfolio of assets is based on strong biologic rationale or validated mechanisms and offers the potential for differentiation.
ARCALYST is an IL-1α and IL-1β cytokine trap. In 2017, we licensed ARCALYST from Regeneron, which discovered and initially developed the drug. Our exclusive license to ARCALYST from Regeneron includes worldwide rights, excluding the Middle East and North Africa, for all applications other than those in oncology and local administration to the eye or ear. We received FDA approval of ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and children 12 years and older in March 2021. Recurrent pericarditis is a painful inflammatory cardiovascular disease with an estimated United States prevalent population of approximately 40,000 patients seeking and receiving medical treatment. ARCALYST is also approved in the United States for the treatment of CAPS, including FCAS and Muckle-Wells Syndrome in adults and children 12 years and older, and the maintenance of remission in DIRA in adults and children weighing 10 kg or more. ARCALYST is commercially available across the United States through a select network of specialty pharmacies. We are responsible for sales and distribution of ARCALYST in all approved indications in the United States, and evenly split profits on sales as well as third party proceeds with Regeneron. In 2022, we granted Huadong exclusive rights to develop and commercialize ARCALYST in the Huadong Territory. In 2023, Regeneron initiated a technology transfer of the manufacturing process for ARCALYST drug substance, and we are working to qualify Samsung as our replacement CDMO. In December 2024, we initiated a collaborative study agreement with The Mayo Clinic (together with Johns Hopkins University) to investigate the effects of ARCALYST in the treatment of cardiac sarcoidosis.
KPL-387 is an investigational, fully human immunoglobulin G2 monoclonal antibody that binds IL1-R1, inhibiting IL-1α and IL-1β mediated signaling. KPL-387 is an independently developed asset that we believe may expand the recurrent pericarditis market and provide an additional treatment option for patients, with the potential to add the convenience of monthly subcutaneous self-administration with a liquid formulation. In July 2025, we announced that the Phase 2 dose-focusing portion of the Phase 2/3 clinical trial of KPL-387 in recurrent pericarditis had begun recruiting. We expect data from the Phase 2 portion of the trial in the second half of 2026 and plan to use the totality of the data to determine further development strategy. In September 2025, we announced plans to conduct a supplemental Phase 2 transition to KPL-387 monotherapy dosing and administration study to evaluate the efficacy and safety of dosing regimens used to transition patients from standard therapies to KPL-387 monotherapy. In October 2025, the FDA granted Orphan Drug Designation to KPL-387 for the treatment of pericarditis.
KPL-1161 is an independently developed, pre-clinical, Fc-modified immunoglobulin G2 monoclonal antibody that binds IL-1R1, inhibiting IL-1α- and IL-1β-mediated signaling. KPL-1161 is a modified version of KPL-387 designed to have an increased drug half-life that we believe could support quarterly subcutaneous dosing. We are currently conducting preclinical activities with respect to this asset, with an expectation to initiate a Phase 1 first-in-human clinical trial by the end of 2026.
Abiprubart is an investigational monoclonal antibody inhibitor of CD40-CD154 costimulatory interaction, which we believe to be an attractive approach to address multiple autoimmune disease pathologies. We hold an exclusive worldwide license to abiprubart from BIDMC. We previously announced a Phase 2b clinical trial of abiprubart in Sjögren’s Disease. In February 2025, we announced our plans to discontinue development of abiprubart in the indication and to explore strategic alternatives for the asset.
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Components of Our Results of Operations
Product revenue, net
We have been generating product revenue from sales of ARCALYST since April 2021. ARCALYST is sold through a third party logistics provider that distributes primarily through a select network of specialty pharmacies (collectively, “customers”), which deliver the medication to patients by mail. ARCALYST is currently only approved for sale in the United States, and, therefore, we expect to derive substantially all of our product revenue from the United States for the foreseeable future.
Net revenue from product sales is recognized at the transaction price when the customer obtains control of our product, which occurs at a point in time, typically upon shipment of the product from the third party logistics provider.
Our net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, and specialty pharmacy and distributor fees. These adjustments represent variable consideration under ASC 606 and are estimated using the expected value method and are recorded when revenue is recognized on the sale of the product. These adjustments are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.
License and collaboration revenue
License and collaboration revenue includes amounts recognized related to upfront payments, royalty revenue, milestone payments and products sold under collaboration agreements.
In February 2022, we entered into the Huadong Collaboration Agreements with Huadong, pursuant to which we granted Huadong exclusive rights to develop and commercialize ARCALYST and mavrilimumab, in the Huadong Territory. In April 2025, we entered into a mutual termination agreement with Huadong pursuant to which we agreed to terminate the mavrilimumab Huadong Collaboration Agreement and release all claims related thereto. The ARCALYST Huadong Collaboration Agreement remains in effect. For more information, see “ Business –License and Acquisition Agreements—Out-Licensing Agreements—Huadong Collaboration Agreements ”.
Under the Huadong Collaboration Agreements, we received a total upfront cash payment of $22.0 million, which includes $12.0 million for the Huadong Territory license of ARCALYST and $10.0 million for the Huadong Territory license of mavrilimumab. In the fourth quarter of 2024, following the achievement of a regulatory milestone under the ARCALYST Huadong Collaboration Agreement, Huadong became obligated to make an additional cash payment of $20.0 million, which was received in the first quarter of 2025. In addition, we will be eligible to receive additional contingent sales-based milestones payments related to ARCALYST. Huadong will also be obligated to pay us tiered percentage royalties on ARCALYST ranging from the low-to-mid teens on annual net sales in the Huadong Territory, subject to certain reductions tied to ARCALYST manufacturing costs and certain other customary reductions, with an aggregate minimum floor. Royalties will be payable on a country-by-country or region-by-region basis until the later of (i) 12 years after the first commercial sale of ARCALYST in such country or region in the Huadong Territory, (ii) the date of expiration of the last valid patent claim of our patent rights or any joint collaboration patent rights that covers ARCALYST in such country or region in the Huadong Territory, and (iii) the expiration of the last regulatory exclusivity for ARCALYST in such country or region in the Huadong Territory. We recognized the $10.0 million related to the mavrilimumab license during the year ended December 31, 2022 and do not expect to recognize any additional license and collaboration revenue following the termination of the mavrilimumab Huadong Collaboration Agreement. We have recognized $0.2 million of revenue of the $32.0 million transaction price under the ARCALYST license agreement as of December 31, 2025, and will recognize the remaining revenue as materials are shipped.
In August 2022, we entered into the Genentech License Agreement, pursuant to which we granted Genentech exclusive worldwide rights to develop and commercialize the Genentech Licensed Products. For more information, see “ Business –License and Acquisition Agreements—Out-Licensing Agreements—Genentech License Agreement ”.
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Under the Genentech License Agreement, we received an upfront payment of $80.0 million for the license. Additionally, in 2023, we received a total of $35.0 million in additional payments from Genentech related to delivery of certain drug material to Genentech and Genentech’s achievement of a development milestone. In the fourth quarter of 2023, following the achievement of a development milestone related to a second indication under the Genentech License Agreement, Genentech became obligated to make an additional cash payment of $10.0 million, which was received in the first quarter of 2024. In the second quarter of 2024, we received $5.0 million following the achievement of a development milestone related to a third indication under the Genentech License Agreement. We will be eligible to receive up to a total of approximately $600.0 million in contingent payments, including specified development, regulatory and sales-based milestones, of which approximately $570.0 million remains as of December 31, 2025. We will also be eligible to receive tiered percentage royalties on a Genentech Licensed Product-by-Genentech Licensed Product basis ranging from low-double digits to mid-teens on annual net sales of each Genentech Licensed Product, subject to certain customary reductions, with an aggregate minimum floor, before fulfilling our upstream financial obligations. Royalties will be payable on a Genentech Licensed Product-by-Genentech Licensed Product and country-by-country basis until the latest to occur of the expiration of certain patents that cover a Genentech Licensed Product, the expiration of regulatory exclusivity for such Genentech Licensed Product, or the tenth anniversary of first commercial sale of such Genentech Licensed Product in such country. In 2024, we completed our remaining obligations under the Genentech License Agreement and we have recognized as revenue all of the consideration received.
Operating Expenses
Cost of Goods Sold
Cost of goods sold includes production and distribution costs of ARCALYST, amortization of the $20.0 million payment we made to Regeneron in the first quarter of 2021 upon achievement of a regulatory milestone and other miscellaneous product costs associated with ARCALYST. Cost of goods sold also includes labor and overhead costs associated with the production of ARCALYST associated with supply chain, quality, and regulatory activities, and the technology transfer of the manufacturing process for ARCALYST.
Collaboration expenses
Collaboration expenses consist of Regeneron’s share of the profit related to ARCALYST sales under the Regeneron Agreement and the cost of products sold under collaboration agreements. We evenly split 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 ARCALYST. Such costs include but are not limited to (i) our cost of goods sold for product used, sold or otherwise distributed for patient use by us; (ii) customary commercialization expenses, including the cost of our field force, and (iii) our cost to market, advertise and otherwise promote ARCALYST, with such costs identified in subsection (iii) subject to specified limits. With respect to the technology transfer of ARCALYST drug substance manufacturing initiated by Regeneron in March 2023, to the extent permitted by the Regeneron Agreement, the fully-burdened costs of each of us and Regeneron incurred in performing such technology transfer shall also be deducted from net sales of ARCALYST to determine profit. We also evenly split with Regeneron any proceeds received by us 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.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates. We expense research and development costs as incurred. These expenses may include:
● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
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● expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our clinical trials and CDMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs for our product candidates;
● other costs related to acquiring and manufacturing preclinical and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
● payments made in cash or equity securities under third party licensing, acquisition and other similar agreements;
● employee-related expenses, including salaries and benefits, travel and share-based compensation expense for employees engaged in research and development functions;
● costs related to compliance with regulatory requirements; and
● allocated facilities-related costs, which include rent and utilities, depreciation and other expenses.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CDMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license, acquisition and other similar agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery activities as well as for managing our preclinical and clinical development, process development and manufacturing clinical and preclinical materials.
Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will be substantial over the next several years as we conduct our ongoing and/or planned clinical trials for our product candidates, as well as conduct other preclinical and clinical development, and make regulatory filings for our product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of our current or future product candidates or when, if ever, we will realize revenue from the sale of our current or future product candidates. This uncertainty is due to the numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual Report.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, including share based compensation expense for personnel in selling, marketing, medical, executive, business development, finance, human
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resources, legal and support personnel functions. Selling, general and administrative expenses also include external commercialization, marketing, and professional fees for legal, patent, and accounting services.
We expect that our selling, general and administrative expenses will continue to increase in the future as we continue to expand our infrastructure related to the commercialization of ARCALYST and our other product candidates, if approved.
Other Income
Other income consists of interest income recognized from investments in money market funds, United States Treasury securities and other miscellaneous income offset by expenses related to investments.
Income Taxes
Prior to the Redomiciliation, our principal holding company was incorporated and principally subject to taxation in Bermuda. Following the Redomiciliation, our principal holding company is incorporated and principally subject to taxation in the United Kingdom. Under the previous laws of Bermuda, there is no corporate income tax levied on an exempted company’s income, resulting in an effective zero percent tax rate. As a result, we have not recorded any income tax benefits from our losses incurred in Bermuda during each of the reporting periods in which it was incorporated there, and no net operating loss carryforwards are currently available to us for those losses. Following the Redomiciliation, our income is subject to the enacted United Kingdom statutory corporate tax rate and net operating losses incurred have an indefinite carryforward. Our wholly owned subsidiaries (including any foreign branch offices thereof) are subject to taxation in their respective countries.
In the third quarter of 2022, Kiniksa Pharmaceuticals, Ltd. (“Kiniksa Bermuda”) transferred exclusive worldwide rights to develop and commercialize vixarelimab to Kiniksa Pharmaceuticals (UK), Ltd. (“Kiniksa UK”). In the fourth quarter of 2023, all rights, title and interest in, among other things, certain contracts, intellectual property rights, product filings and approvals and other information, plans and inventory owned insofar as they related exclusively or primarily to ARCALYST were allocated by Kiniksa UK to its Swiss branch office. In the first quarter of 2024, Kiniksa Bermuda transferred to Kiniksa Pharmaceuticals, GmbH (“Kiniksa Switzerland”) all rights, title and interest in, among other things, certain contracts, intellectual property rights, product filings and approvals and other information, plans and materials owned insofar as they related exclusively or primarily to abiprubart, mavrilimumab, KPL-387, KPL-1161 and other preclinical assets. In connection with each of the foregoing transfers and /or allocations, we recognized a step-up in basis and did not incur any material tax liabilities.
In the fourth quarter of 2024, Kiniksa UK contributed all of its rights, title and interest in, among other things, certain contracts, intellectual property rights, product filings and approvals and other information, plans and materials owned or controlled by Kiniksa UK insofar as they related exclusively or primarily to vixarelimab to Kiniksa Switzerland. In connection with the termination of Kiniksa UK rights and the contribution, we revalued the assets at fair market value and did not incur any material tax liabilities.
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Results of Operations
Comparison of the Years Ended December 31, 2025, 2024 and 2023
The following table summarizes our results of operations for the years ended December 31, 2025, 2024 and 2023:
2025/2024
2024/2023
Years Ended
Comparison
Comparison
December 31,
Increase/(Decrease)
Increase/(Decrease)
2025
2024
2023
$
%
$
%
(in thousands)
(in thousands, except percentages)
Revenue:
Product revenue, net
$
677,564
$
417,029
$
233,176
$
260,535
62%
$
183,853
79%
License and collaboration revenue
—
6,210
37,083
(6,210)
(100)%
(30,873)
(83)%
Total revenue
677,564
423,239
270,259
254,325
60%
152,980
57%
Operating expenses:
Cost of goods sold
77,673
60,910
33,407
16,763
28%
27,503
82%
Collaboration expenses
229,545
128,311
56,524
101,234
79%
71,787
127%
Research and development
96,853
111,623
76,097
(14,770)
(13)%
35,526
47%
Selling, general and administrative
196,272
168,011
129,427
28,261
17%
38,584
30%
Total operating expenses
600,343
468,855
295,455
131,488
28%
173,400
59%
Income (loss) from operations
77,221
(45,616)
(25,196)
122,837
(269)%
(20,420)
81%
Other income
11,647
9,464
8,544
2,183
23%
920
11%
Income (loss) before income taxes
88,868
(36,152)
(16,652)
125,020
(346)%
(19,500)
117%
Benefit (provision) for income taxes
(29,863)
(7,041)
30,736
(22,822)
324%
(37,777)
(123)%
Net income (loss)
$
59,005
$
(43,193)
$
14,084
$
102,198
(237)%
$
(57,277)
(407)%
Product Revenue, Net
We recognized net revenue from the sale of ARCALYST of $677.6 million, $417.0 million and $233.2 million for the years ended December 31, 2025, 2024 and 2023, respectively. The increases in 2025 and 2024 were primarily driven by an increase in patient enrollment.
License and Collaboration Revenue
We did not recognize any license and collaboration revenue for the year ended December 31, 2025. We reported $6.2 million of license and collaboration revenue for the year ended December 31, 2024 , primarily driven by the achievement of a $5.0 million development milestone related to a third indication under the Genentech License Agreement and $0.7 million of products sold under the ARCALYST Huadong Collaboration Agreements. We reported $37.1 million of license and collaboration revenue for the year ended December 31, 2023, related to the Genentech License Agreement primarily driven by the achievement of $25.0 million in development milestones related to two new indications, materials delivered and our ongoing recognition of the transaction price related to the in-progress Phase 2b clinical trial of vixarelimab in prurigo nodularis.
Cost of Goods Sold
We recognized cost of goods sold of $77.7 million, $60.9 million, and $33.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. The increase of $16.8 million in 2025 from 2024 related primarily to
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the increase in sales of ARCALYST. The increase of $27.5 million in 2024 from 2023 related primarily to the increase in sales of ARCALYST and a $12.6 million increase related to the technology transfer of the manufacturing process offset by a decrease in average cost per unit resulting from favorable production variances .
Collaboration Expenses
We recognized collaboration expenses of $229.5 million, $128.3 million and $56.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. The increase of $101.2 million in 2025 from 2024 relates primarily to increased revenue from sales of ARCALYST. The increase of $71.8 million in 2024 from 2023 relates primarily to an increase in revenue from the sales of ARCALYST driving higher profits under the Regeneron agreement and to a $10.0 million payment due to Regeneron related to a regulatory milestone achieved under the ARCALYST Huadong Collaboration Agreement.
Research and Development Expenses
2025/2024
2024/2023
Years Ended
Comparison
Comparison
December 31,
Increase/(Decrease)
Increase/(Decrease)
2025
2024
2023
$
%
$
%
(in thousands)
(in thousands, except percentages)
Direct research and development expenses by program:
ARCALYST
$
1,040
$
1,080
$
2,628
$
(40)
(4)%
$
(1,548)
(59)%
KPL-387
47,265
11,221
2,537
36,044
321%
8,684
342%
KPL-1161
4,198
581
—
3,617
623%
581
0%
Abiprubart
6,122
59,459
28,388
(53,337)
(90)%
31,071
109%
Vixarelimab
44
1,530
7,717
(1,486)
(97)%
(6,187)
(80)%
Unallocated research and development expenses:
Personnel related (including share-based compensation)
23,943
24,302
22,462
(359)
(1)%
1,840
8%
Other
14,241
13,450
12,365
791
6%
1,085
9%
Total research and development expenses
$
96,853
$
111,623
$
76,097
$
(14,770)
(13)%
$
35,526
47%
Research and development expenses were $96.9 million for the year ended December 31, 2025, compared to $111.6 million for the year ended December 31, 2024, or a decrease of $14.8 million. Research and development expenses were $111.6 million for the year ended December 31, 2024 compared to $76.1 million for the year ended December 31, 2023, or an increase of $35.5 million.
Direct costs for our KPL-387 program were $47.3 million, $11.2 million and $2.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. During the year ended December 31, 2025, expenses primarily related to the start-up of our Phase 2/3 clinical trial in recurrent pericarditis and manufacturing of clinical supply. During the year ended December 31, 2024, expenses primarily related to our Phase 1 study in normal healthy volunteers and manufacturing of clinical supply. During the year ended December 31, 2023, expenses primarily related to manufacturing of clinical supply.
Direct costs for our KPL-1161 program were $4.2 million and $0.6 million for the years ended December 31, 2025 and 2024, respectively. We did not incur any expenses related to KPL-1161 for the year ended December 31, 2023. For the years ended December 31, 2025 and 2024 expenses incurred primarily related to pre-clinical development.
Direct costs for our abiprubart program were $6.1 million, $59.5 million and $28.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. During the year ended December 31, 2025 expenses incurred primarily related to the close-out of our Phase 2b clinical trial in Sjögren’s Disease. During the year ended December 31, 2024 expenses incurred primarily related to a $18.5 million write-off of prepayments for future manufacturing we no
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longer expect to utilize, manufacturing of clinical material, continuation of cohort four and study wind-down activities of our Phase 2 clinical trial in RA and start-up costs of our Phase 2b clinical trial in Sjögren’s Disease. During the year ended December 31, 2023, expenses incurred primarily related to the manufacturing of clinical material, the continuation of the first two cohorts of the Phase 2 clinical trial of abiprubart in RA and Cohorts 3 and 4 of such trial.
Direct costs for our vixarelimab program were less than $0.1 million, $1.5 million and $7.7 million for the years ended December 31, 2025, 2024 and 2023, respectively. During the year ended December 31, 2024, expenses incurred were primarily related to the wind-down activities of our Phase 2b clinical trial in prurigo nodularis. During the year ended December 31, 2023 expenses incurred primarily related to our ongoing Phase 2b clinical trial of vixarelimab in prurigo nodularis.
Unallocated research and development expenses were $38.2 million, $37.8 million and $34.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. The increase of $0.8 million in unallocated research and development expenses in 2025 from 2024 was primarily due to an increase in pre-clinical development. The increase of $3.0 million in unallocated research and development expenses in 2024 from 2023 was primarily due to an increase in personnel to support our clinical trials. Personnel-related costs for the years ended December 31, 2025, 2024 and 2023 included share-based compensation of $6.6 million, $6.1 million and $5.5 million, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $196.3 million, $168.0 million and $129.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. The increase of $28.3 million in 2025 from 2024 was primarily due to an increase of $23.1 million in personnel-related costs largely attributable to an increase in headcount and an increase in sales and marketing expenses of $5.5 million . The increase of $38.6 million in 2024 from 2023 was primarily due to an increase of $18.9 million in personnel-related costs and an increase in sales and marketing expenses of $13.5 million, largely attributable to a full year of expenses associated with the expansion of our salesforce in 2023 and an increase in professional fees of $2.8 million largely attributable to the Redomiciliation. Personnel-related costs for the years ended December 31, 2025, 2024 and 2023 included share-based compensation of $28.2 million, $22.9 million and $19.8 million, respectively.
Other Income
Other income was $11.6 million, $9.5 million and $8.5 million for the years ended December 31, 2025, 2024 and 2023. The year-over-year increases were driven primarily by higher interest income generated by increased average holdings of cash, cash equivalents, and short-term investments.
Benefit (Provision) for Income Taxes
For the year ended December 31, 2025, we recorded an income tax provision of $29.9 million relating primarily to income earned in Switzerland, the United States, and the UK; valuation allowance on Swiss losses and revaluation of Swiss deferred tax assets for enacted rate changes; offset by benefits related to share-based compensation, and United States federal and state R&D Credits.
For the year ended December 31, 2024, we recorded an income tax provision of $7.0 million relating primarily to income earned in Switzerland and the United States, offset by Foreign-Derived Intangible Income (“FDII”) deduction and United States federal and state R&D Credits utilized.
For the year ended December 31, 2023, we recorded an income tax benefit of $30.7 million relating to a non-cash deferred tax benefit of $33.8 million primarily associated with Kiniksa UK’s allocation of its ARCALYST assets to its Swiss branch office and the release of the valuation allowance on United States deferred tax assets offset by the establishment of a partial valuation allowance on our UK deferred tax assets. The net benefit in the net deferred tax asset was offset by current income tax expense of $3.1 million primarily associated with income earned in the UK and the United States.
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Liquidity and Capital Resources
As of December 31, 2025, our principal source of liquidity was cash, cash equivalents and short-term investments, which totaled $414.1 million. Our net income (losses) were $59.0 million, ($43.2) million and $14.1 million for the years ended December 31, 2025, 2024 and 2023, respectively. We expect our cash balance and our expected cash inflows from operations to allow us to meet our current operating plan.
Under various agreements with third parties, we have agreed to make milestone payments, pay royalties, pay annual maintenance fees and to meet due diligence requirements, each based upon specified events. Pursuant to the Regeneron Agreement, we have entered into a supply agreement with Regeneron to purchase both clinical and commercial product. We have committed to minimum payments to Regeneron of $24.6 million, all of which are due within one year. We have entered into lease agreements for office and laboratory space, and vehicles, with total future lease payments of $10.5 million, $3.5 million of which are due within one year. In connection with our ongoing technology transfer of ARCALYST drug substance manufacturing, we have entered into a Master Services Agreement and a Product Specific Agreement with Samsung. Our commitments under such agreements, which includes the purchase of raw materials and related service fees, obligates us to minimum payments of $147.7 million, $18.9 million of which are due within one year. As December 31, 2025, we have capitalized $20.9 million of production cost into inventory as semi-finished goods related to drug substance manufactured at Samsung. We have additionally entered into agreements with several CDMOs to provide us with preclinical and clinical trial materials for our non-ARCALYST assets, which obligate us to minimum payments of $3.4 million, all of which are due within one year. We have long-term incentive plans for our employees that may result in cash award payments of $23.1 million, based upon the achievement of certain regulatory milestones, none of which are expected to be achieved in the next year.
Under various agreements with third parties, we are entitled to receive upfront payments, milestone payments, and royalties, each based upon specified milestones. In 2024, we received $15.0 million in development milestone payments from Genentech related to a second and third indication under the Genentech License Agreement. In 2025, we received a $20.0 million milestone payment related to Huadong’s achievement of a regulatory milestone under the ARCALYST Huadong Collaboration Agreement, $10.0 million of which was paid to Regeneron in 2025 as part of the Regeneron Agreement.
These agreements impact our short-term and long-term liquidity and capital needs. As of December 31, 2025, we had cash, cash equivalents and short-term investments of $414.1 million.
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Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Years Ended
December 31,
2025
2024
2023
(in thousands)
Net cash provided by operating activities
$
137,985
$
25,689
$
13,301
Net cash provided by (used in) investing activities
(188,993)
37,672
(29,557)
Net cash provided by financing activities
33,023
12,266
1,495
Net increase (decrease) in cash and cash equivalents
$
(17,985)
$
75,627
$
(14,761)
Operating Activities
Net cash provided by operations was $138.0 million for the year ended December 31, 2025, compared to $25.7 million for the year ended December 31, 2024. The increase in cash provided by operating activities is primarily due to an increase in net contribution from higher ARCALYST sales, offset by a decrease in cash received from licensing agreements of $5.0 million.
Net cash provided by operations was $25.7 million for the year ended December 31, 2024, compared to $13.3 million for the year ended December 31, 2023. The increase in cash provided by operating activities is primarily due to an increase in net contribution from higher ARCALYST sales, offset by a decrease in cash received from licensing agreements of $20.0 million.
Investing Activities
Net cash used in investing activities was $189.0 million for the year ended December 31, 2025, compared to net cash provided by investing activities of $37.7 million for the year ended December 31, 2024 as part of managing our cash and short-term investment portfolio mix as we deployed higher levels of investable cash into treasury securities with longer-terms.
Net cash provided by investing activities was $37.7 million for the year ended December 31, 2024, compared to net cash used in investing activities of $29.6 million for the year ended December 31, 2023 as part of managing our cash and short-term investment portfolio mix.
Financing Activities
During the years ended December 31, 2025, 2024 and 2023, net cash provided by financing activities was $33.0 million, $12.3 million and $1.5 million, respectively, consisting of proceeds from the exercise of employee share options and our 2018 Employee Share Purchase Plan (the “2018 ESPP”).
Funding Requirements
We expect to incur significant expenses in connection with our ongoing and planned activities as we continue to commercialize ARCALYST and advance our current and future product candidates through preclinical and clinical development, seek regulatory approval and commercialize one or more of our current or future product candidates, if approved. We may also incur expenses in connection with collaboration, licensing or other strategic transactions. Further, we may incur expenses related to milestone, royalty and other payments payable to third parties with whom we have entered into license, acquisition and other similar agreements to acquire the rights to our product candidates. For more information on our near and long-term funding requirements, see “ Risk Factors – General Risk Factors – We have a history of operating losses and may require substantial additional financing in the future. ”
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We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. The future viability of our company is dependent on our ability to fund our operations through sales of ARCALYST and/or raise additional capital, such as through debt or equity offerings, as needed. We anticipate that we may require additional capital if we choose to pursue collaboration, licensing or other strategic transactions. We expect to continue to incur significant expenses related to product manufacturing, including technology transfer costs, sales, marketing and distribution of ARCALYST. In addition, if we obtain regulatory approval for any of our current or future product candidates, pursue additional indications or additional territories for our products or any of our current or future product candidates, we expect to incur significant expenses related to product development and manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.
Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic products, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements may be impacted by a number of factors, including those described in Part I, Item 1A. “ Risk Factors ” in this Annual Report.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
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.
We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. Once a contract is determined to be within the scope of ASC 606, we determine the performance obligations that are distinct. We recognize as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon receipt of the product by 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.
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Product Revenue, Net
Net revenue from product sales is recognized at the transaction price when the specialty pharmacy or specialty distributors obtains control of our products, which occurs at a point in time, typically upon shipment of the product from the third party logistics provider.
Our net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, and specialty pharmacy and distributor fees. These adjustments represent variable consideration under ASC 606 and are estimated using the expected value method and are recorded when revenue is recognized on the sale of the product. These adjustments are established by us as our best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.
As of December 31, 2025, a 10% change in our product revenue allowance and reserve would not result in a material change in our net revenue.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
● vendors, including research laboratories, in connection with preclinical development activities;
● CROs and investigative sites in connection with preclinical studies and clinical trials;
● third parties in the connection with the achievement of milestones due under license acquisition and other similar agreements; and
● CDMOs in connection with drug substance and drug product formulation and manufacturing of materials.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of participants and the completion of clinical trial milestones. Non-refundable prepayments determined to be used within one year for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses. Non-refundable prepayments or minimum balance requirements associated to clinical trials determined to not be used within one year are classified as other long-term assets. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services
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performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
As of December 31, 2025, we have accrued $6.6 million of estimated research and development expenses.
Income Taxes
We file tax returns based upon our interpretation of tax laws and regulations, and we record estimates in our financial statements based upon these interpretations at the applicable tax rates in the jurisdictions in which we operate. Our tax returns are routinely subject to examination by taxing authorities, which could result in future tax, interest, and penalty assessments. Inherent uncertainties also exist in estimates of many tax positions due to the complexity of tax laws. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances such as changes to existing tax law, the issuance of regulations by taxing authorities, new information obtained during a tax examination, or resolution of a tax examination. We believe our estimates for uncertain tax positions are both appropriate and sufficient to pay assessments that may result from examinations of our tax returns; however, given the uncertainty of positions that could be taken by taxing authorities during the examinations of our tax returns, the ultimate outcome of any tax matters may result in liabilities that are greater than amounts accrued. We recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in our tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the benefit (provision) for income taxes. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe, based upon the weighting of both positive and negative evidence available, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected, cumulative recent earnings and considering prudent and feasible tax planning strategies. Significant judgment is required in assessing both positive and negative evidence available and, to the extent that a reversal of any portion of our valuation allowance against our deferred tax assets is deemed appropriate, a tax benefit will be recorded in our income tax benefit (provision) in the period of such reversal.
We believe our estimates for our uncertain tax positions and the valuation allowances against certain deferred tax assets recognized in our financial statements are appropriate based upon our assessment of the factors mentioned above.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our annual consolidated financial statements included elsewhere in this Annual Report.
I TEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates. As of December 31, 2025, our cash, cash equivalents and short-term investments consisted of money market funds and United States Treasury securities. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of United
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States interest rates. Such interest rates have and in the future may be subject to significant volatility. However, because of the short-term nature of the instruments in our portfolio, an immediate 100 basis point change in market interest rates would not have a material impact on the fair market value of our investment portfolio or on our financial position or results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.