What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-02-25 compared with 2020-03-05 · 21 added, 385 removed, 33 unchanged (92% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Principal Market

Our Class A common shares are listed on The Nasdaq Global Select Market under the symbol “KNSA.”

As of February 29, 2020, there were 25 holders of record of our Class A common shares, 11 holders of record of our Class B common shares, four holders of record of our Class A1 common shares and two holders of record of our Class B1 common shares.

Our Class A common shares are listed on The Nasdaq Global Select Market under the symbol “KNSA.”

As of January 31, 2021, there were 16 holders of record of our Class A common shares, five holders of record of our Class B common shares, four holders of record of our Class A1 common shares and two holders of record of our Class B1 common shares.

The actual number of shareholders is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

7 unchanged sentences

Recent Sales of Unregistered Securities

On February 4, 2019, we issued and sold an aggregate of 2,000,000 Class A1 common shares to existing investors at price of $18.26 per share, resulting in aggregate gross proceeds to us of approximately $36.5 million.

On May 18, 2020, we issued and sold an aggregate of 1,600,000 Class A1 common shares to existing investors at price of $18.25 per share, resulting in aggregate gross proceeds to us of approximately $29.2 million.

These securities were issued under Section 4(a)(2) of the Securities Act in a transaction not involving a public offering.

On March 8, 2019, in connection with our acquisition of the securities, or Securities, of Primatope Therapeutics, Inc., or Primatope, we issued an aggregate of 337,008 Class A common shares to the holders of all of the issued and outstanding Securities, having an aggregate value of approximately $5.9 million, as payment, in part, for (a) the Securities and (b) the achievement of certain milestones at or before the closing of the acquisition.

On June 6, 2020, we issued an aggregate of 59,469 Class A common shares to the former shareholders of Primatope, having an aggregate value of approximately less than $0.1 million, in connection with the release and issuance of the shares held back at the closing of the acquisition of Primatope, in accordance with the Primatope Agreement.

These securities were issued under Section 4(a)(2) and Rule 506 of the Securities Act in a transaction not involving a public offering.

On June 6, 2019, we issued an aggregate of 94,284 Class A common shares to the former shareholders of Primatope, having an aggregate value of approximately $1.5 million, as payment, in part, for the achievement of the final milestone after the closing of the acquisition.

On July 24, 2020, we issued and sold an aggregate of 1,428,572 Class A1 common shares to existing investors at a price of $21.00 per share, resulting in aggregate gross proceeds to us of approximately $30.0 million.

These securities were issued under Section 4(a)(2) of the Securities Act in a transaction not involving a public offering.

On September 4, 2020, we issued an aggregate of 16,634 Class A common shares to the former shareholders of Primatope, having an aggregate value of approximately $0.3 million, as payment, in part, for the achievement of a milestone in accordance with the Primatope Agreement.

These securities were issued under Section 4(a)(2) and Rule 506 of the Securities Act in a transaction not involving a public offering.

Use of Proceeds from Registered Securities

On May 29, 2018, we issued and sold 8,477,777 Class A common shares to the underwriters of our initial public offering, or IPO, and on June 22, 2018, we issued and sold an additional 1,006,425 Class A common shares pursuant to the exercise by the underwriters of their over-allotment option to purchase additional shares.

common shares were sold at a price to the public of $18.00 per share.

We received aggregate gross proceeds from the IPO inclusive of the underwriters’

over-allotment option of approximately $170.7 million and aggregate net proceeds of approximately $155.5 million after deducting underwriting discounts and commissions of approximately $12.0 million and other offering expenses.

The offer and sale of all of the shares in our IPO inclusive of the underwriters’

over-allotment option were registered under the Securities Act pursuant to a registration statement on Form S‑1 (File No.

On May 29, 2018, we issued and sold 8,477,777 Class A common shares to the underwriters in our initial public offering, or IPO, and on June 22, 2018, we issued and sold an additional 1,006,425 Class A common shares pursuant to the exercise by the underwriters of their over-allotment option to purchase additional shares.

Our Class A common shares were sold at a price to the public of $18.00 per share.

We received aggregate gross proceeds from the IPO inclusive of the underwriters’ over-allotment option of approximately $170.7 million and aggregate net proceeds of approximately $155.5 million after deducting underwriting discounts and commissions of approximately $12.0 million and other offering expenses.

The offer and sale of all of the shares in our IPO inclusive of the underwriters’ over-allotment option were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No.

333-224488), which was declared effective by the Securities and Exchange Commission, or SEC, on May 23, 2018, and a registration statement on Form S-1 to register additional shares (File No.

1 unchanged sentence

There has been no material change in our planned use of the net proceeds from the IPO as described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on May 24, 2018.

SELECTED FINANCIAL DATA.

As of December 31, 2020, we had used all of the net proceeds from our initial public offering.

SELECTED CONSOLIDATED FINANCIAL DATA.

You should read the following selected consolidated financial data together with our consolidated financial statements and the related notes included elsewhere in this Annual Report and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”

section of this Annual Report.

We have derived the consolidated statement of operations data for the years ended December 31, 2019 and 2018 and the consolidated balance sheet data as of December 31, 2019 and 2018 from our audited consolidated financial statements included elsewhere of this Annual Report.

We have derived the consolidated statement of operations data for the years ended December 31, 2020, 2019 and 2018 and the consolidated balance sheet data as of December 31, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this Annual Report.

Our historical results are not necessarily indicative of results that may be expected in any future period.

3 unchanged sentences

Research and development

General and administrative

Selling, general and administrative

Total operating expenses

1 unchanged sentence

Interest income

Loss before benefit for income taxes

Benefit for income taxes

Net loss per share attributable to common shareholders—basic and diluted (1)

Weighted average common shares outstanding—basic and diluted (1)

Loss before (provision) benefit for income taxes

(Provision) benefit for income taxes

Net loss per share attributable to common shareholders—basic and diluted (1)

Weighted average common shares outstanding—basic and diluted (1)

See Note 12 to our consolidated financial statements included elsewhere in this Annual Report for further details on the calculation of basic and diluted net loss per share attributable to common shareholders.

4 unchanged sentences

Accumulated deficit

Total shareholders’

Total shareholders’ equity

We define working capital as current assets less current liabilities.

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 on Form 10‑K, or 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 within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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 Securities and Exchange Commission, or SEC, our actual results could differ materially from the results, performance or achievements expressed in or implied by these forward-looking statements.

We are a biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutic medicines for patients with significant unmet medical need.

We have a pipeline of clinical-stage product candidates that are based on strong biologic rationale or validated mechanisms, target underserved conditions and offer the potential for differentiation.

These assets are designed to modulate immunological signaling pathways that are implicated across a spectrum of diseases.

Our product candidates include rilonacept, mavrilimumab, KPL‑716 and KPL‑404.

Our lead candidate is rilonacept, an interleukin‑1α, and interleukin‑1β, cytokine trap.

We are developing rilonacept for the potential treatment of recurrent pericarditis, a painful inflammatory cardiovascular disease with an estimated U.S.

prevalent population of approximately 40,000 patients seeking and receiving medical treatment.

We are conducting a global, double-blind, placebo‑controlled, randomized‑withdrawal design, pivotal Phase 3 clinical trial of rilonacept in subjects with recurrent pericarditis, named RHAPSODY.

We expect top-line data from this trial in the second half of 2020.

We presented final data from our open‑label Phase 2 proof‑of‑concept clinical trial in subjects with both symptomatic recurrent pericarditis as well as other patient subsets within pericarditis, including asymptomatic steroid‑dependent subjects with recurrent pericarditis and subjects with post‑pericardiotomy syndrome.

We received Breakthrough Therapy designation from the Food and Drug Administration, or FDA, for rilonacept for the treatment of recurrent pericarditis in 2019, and reported final data from our open label Phase 2 proof of concept clinical trial of rilonacept in a range of recurrent pericarditis populations at the American Heart Association Scientific Sessions in November 2019.

Mavrilimumab is a monoclonal antibody that antagonizes granulocyte-macrophage colony stimulating factor.

We are evaluating mavrilimumab for the potential treatment of giant cell arteritis, or GCA, a chronic inflammatory disease of the medium-to-large arteries with an estimated U.S.

prevalence of approximately 75,000 to 150,000 patients.

We are conducting a randomized, double‑blind, placebo‑controlled, global Phase 2 proof‑of‑concept trial for the study of mavrilimumab in GCA.

We expect top-line data from this trial in the second half of 2020.

In December 2019, we entered into a clinical collaboration with Kite Pharma, Inc., a Gilead Company, or Kite, to initiate a Phase 2 clinical trial evaluating the combination of Yescarta®

(axicabtagene ciloleucel) and mavrilimumab in relapsed or refractory large B-Cell lymphoma.

The objective of the Phase 2 trial is to determine the effect of mavrilimumab on the safety of Yescarta.

Treatment related induction of GM-CSF has been identified through clinical, translational and preclinical studies as a potential key signal associated with side effects of chimeric antigen receptor T, or CAR T, cell therapy.

Preclinical evidence suggest the potential for interruption of GM-CSF signaling to disrupt CAR T cell mediated inflammation without disrupting anti-tumor activity.

Kite will be the sponsor of this study and responsible for its conduct.

KPL‑716 is a monoclonal antibody that simultaneously inhibits the signaling of the cytokines interleukin 31, or IL-31, and oncostatin M, or OSM, by targeting their common receptor subunit, oncostatin M receptor beta, or OSMRβ.

We are conducting a randomized, double-blind, placebo-controlled, Phase 2a clinical trial of KPL-716 in subjects with prurigo nodularis, a chronic inflammatory skin condition with an estimated U.S.

prevalence of approximately 300,000 patients.

We expect data from this trial by the end of April 2020.

We are also conducting an exploratory Phase 2 clinical

trial in diseases characterized by chronic pruritus.

This randomized, double-blind, placebo-controlled trial is designed to identify chronic pruritic conditions where signaling through OSMRβ

may be playing a role and to investigate the efficacy, safety and tolerability of KPL-716 in reducing the moderate-to-severe pruritus experienced by these subjects.

We expect interim data from cohorts of this trial in the first half of 2020.

In August 2019, we reported interim data from our 12 week, repeated single dose cohort of the Phase 1b clinical trial in subjects with moderate-to-severe atopic dermatitis experiencing moderate-to-severe pruritus, which was designed to provide safety and exploratory data on disease response markers.

KPL-404 is a monoclonal antibody inhibitor of the CD40/CD40L interaction, a central control node of T‑cell‑dependent, B‑cell‑mediated humoral adaptive immunity.

In the first quarter of 2019, we acquired all of the outstanding capital stock of Primatope Therapeutics, Inc., or Primatope, the company that owned or controlled the intellectual property related to KPL‑404.

In the second half of 2019, we initiated a single-ascending-dose Phase 1 clinical trial of KPL-404 in healthy volunteers.

The first-in-human trial is designed to provide safety and pharmacokinetics data as well as data regarding receptor occupancy and T-cell dependent antibody response (TDAR) in these subjects.

We expect top-line data in the second half of 2020.

Our future success is dependent on our ability to develop, obtain regulatory approval for and successfully commercialize one or more of our product candidates.

We have not yet demonstrated our ability to successfully conduct and complete a Phase 3 or other pivotal clinical trial, obtain regulatory approvals, manufacture a commercial scale drug, or conduct sales and marketing activities.

We currently generate no revenue from sales of any products, and we may never be able to develop or commercialize a marketable product.

On May 23, 2018, our registration statement on Form S‑1 relating to our initial public offering, or IPO, was declared effective by the SEC.

On May 29, 2018, we completed our IPO of 8,477,777 Class A common shares at $18.00 per share for gross proceeds of $152.6 million.

In addition, on June 22, 2018, we completed the sale of 1,006,425 Class A common shares to the underwriters of the IPO following the exercise of their over‑allotment option to purchase additional shares at $18.00 per share for gross proceeds of $18.1 million.

The aggregate net proceeds to us from the IPO, inclusive of the over‑allotment option exercise, was $155.5 million after deducting underwriting discounts and commissions and other offering costs.

Upon the closing of the IPO, all convertible preferred shares then outstanding automatically converted into 5,546,019 Class A common shares, 1,070,502 Class B common shares, 12,995,954 Class A1 common shares and 16,057,618 Class B1 common shares.

On February 4, 2019, we completed a follow-on offering of 2,654,984 Class A common shares and concurrent private placement of 2,000,000 Class A1 common shares, both at $18.26 per share for aggregate gross proceeds of $85.0 million.

In addition, on March 1, 2019, we completed the sale of 161,126 Class A common shares to the underwriters of the follow-on offering following the exercise in part of their over-allotment option to purchase additional shares at $18.26 per share for gross proceeds of $2.9 million.

The aggregate net proceeds to us from the follow-on offering and concurrent private placement, inclusive of the over-allotment option exercise, was $83.0 million after deducting underwriting discounts and commissions and other offering costs.

We have incurred significant operating losses since inception.

Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates.

Our net losses were $161.9 million and $103.2 million for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019 and 2018, we had an accumulated deficit of $356.1 million and $194.2 million, respectively.

We expect to continue to incur significant operating losses for at least the next several years as we advance our product candidates through preclinical and clinical development and, ultimately, seek regulatory approval.

In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

We may also incur expenses in connection with the in‑licensing or acquisition of additional product candidates.

We expect to incur significant expenses in connection with our ongoing activities, particularly as we advance the clinical trials, preclinical activities of our product candidates, and prepare for commercial operations.

Additionally,

we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

As a result, until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through public or private securities offerings, debt financings or other sources, which may include licensing, collaborations or other strategic transactions or arrangements.

We may be unable to raise additional funds or enter into such other transactions or arrangements when needed on favorable terms, or at all.

If we fail to raise capital or enter into such transactions or arrangements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in‑licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability.

Even if we are able to generate product sales, we may not become profitable.

If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of December 31, 2019 and 2018, we had cash, cash equivalents and short‑term investments of $233.4 million and $307.3 million, respectively.

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 from the date of filing this Annual Report.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

See “—Liquidity and Capital Resources.”

Our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations.

Components of Our Results of Operations

To date, we have not generated any revenue from any products, and may never be able to develop and commercialize a marketable product.

If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.

Operating Expenses

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;

expenses incurred under agreements with contract research organizations, or CROs, that are primarily engaged in the oversight and conduct of our clinical trials and contract manufacturing organizations, or CMOs, 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;

allocated facilities‑related costs, depreciation and other expenses, which include rent and utilities.

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, CMOs 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 activities.

The table below summarizes our research and development expenses incurred by program:

(in thousands)

Mavrilimumab (1)

Unallocated research and development expenses

Total research and development expenses

(1) The amount for the year ended December 31, 2018 consists of $5.0 million related to a pass-through payment due upon the achievement of a specified clinical milestone event due under our license agreement with MedImmune, Limited, or MedImmune.

(2) The amount for the year ended December 31, 2019 includes expense of $10.0 million related to a milestone under our asset purchase agreement with Biogen MA, Inc., or Biogen, associated with the achievement of a specified clinical milestone event.

(3) The amount for the year ended December 31, 2019 includes expense of $18.0 million related to our acquisition of the issued and outstanding equity securities of Primatope and milestone achievements, paid in a combination of cash and Class A common shares (inclusive of escrow and holdback amounts) in accordance with the stock purchase option agreement with Primatope, or the Primatope Agreement.

The amount for the year ended December 31, 2018 includes expense of $0.8 million related to the extension of the option period under the Primatope Agreement.

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 planned clinical trials for rilonacept, mavrilimumab, KPL‑716 and KPL-404, as well as conduct other preclinical and clinical development including regulatory filings for our product candidates.

As a result, our related personnel costs will increase, including costs associated with share‑based compensation.

We also expect to incur additional expenses related to milestone and royalty 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.

The successful development and commercialization of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates.

This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;

establishing an appropriate safety and efficacy profile with Investigational New Drug, or IND, enabling and clinical studies;

successful patient enrollment in and the initiation and completion of clinical trials;

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities including the U.S.

Federal Drug Administration, or FDA;

the extent of any required post‑marketing approval commitments to applicable regulatory authorities;

establishing clinical and commercial manufacturing capabilities or making arrangements with third‑party manufacturers in order to ensure that we or our third‑party manufacturers are able to make product successfully;

development and timely delivery of clinical‑grade and commercial‑grade drug formulations that can be used in our clinical trials and for commercial launch;

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

significant and changing government regulation;

launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and benefits, travel and share‑based compensation expense for personnel in executive, business development, finance, human resources, legal, information technology, pre‑commercial and support personnel functions.

General and administrative expenses also include insurance and professional fees for legal, patent, consulting, accounting and audit services.

We expect that our general and administrative expenses will continue to increase in the future as we continue to prepare for potential commercialization activities and increase our headcount to support our business objectives.

anticipate that we will continue to incur significant costs associated with being a public company, including accounting, audit, legal, compliance and director and officer insurance costs as well as investor and public relations expenses.

Interest Income

Interest income consists of income recognized from investments in money market funds and U.S.

Treasury notes.

As an exempted company incorporated under the laws of Bermuda, we are principally subject to taxation in Bermuda.

Under the current laws of Bermuda, tax on a company’s income is assessed at a zero percent tax rate.

As a result, we have not recorded any income tax benefits from our losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards are currently available to us for those losses, while our assets remain in Bermuda.

Our wholly owned U.S.

subsidiary, Kiniksa Pharmaceuticals Corp., or Kiniksa US, and Primatope are subject to federal and state income taxes in the United States.

Our wholly owned subsidiary Kiniksa Pharmaceuticals (UK), Ltd., and its wholly owned subsidiaries, Kiniksa Pharmaceuticals (Germany) GmbH and Kiniksa Pharmaceuticals (France) SARL are subject to taxation in their respective countries.

Our benefit for income taxes relates to deferred tax attributes and net credits earned against taxable income generated by our wholly owned subsidiaries, primarily, Kiniksa US, under cost‑plus arrangements that they have with us.

As of December 31, 2019 and 2018, the Company had federal research and development tax credit carryforwards of approximately $0.2 million and $0 respectively, available to reduce future tax liabilities, which begin to expire in 2039.

As of December 31, 2019 and 2018, the Company had state research and development tax credit carryforwards of approximately $0.3 million and $0.1 million respectively, available to reduce future tax liabilities, which begin to expire in 2034.

Results of Operations

Comparison of the Years Ended December 31, 2019 and 2018

The following table summarizes our results of operations for the years ended December 31, 2019 and 2018:

(in thousands)

Operating expenses:

Research and development

General and administrative

Total operating expenses

Loss from operations

Interest income

Loss before benefit for income taxes

Benefit for income taxes

Research and Development Expenses

(in thousands)

Direct research and development expenses by program:

Unallocated research and development expenses:

Personnel related (including share-based compensation)

Total research and development expenses

Research and development expenses were $135.0 million for the year ended December 31, 2019, compared to $86.6 million for the year ended December 31, 2018.

The increase of $48.4 million was primarily due to a $27.1 million increase in external fees related to our development programs for our product candidates, as well as an increase of $21.2 million in unallocated research and development expenses.

The direct costs for our rilonacept program were $25.7 million for the year ended December 31, 2019, compared to $13.5 million for the year ended December 31, 2018, or an increase of $12.2 million.

During the year ended December 31, 2019, expenses incurred primarily related to conducting RHAPSODY, our global, pivotal Phase 3 clinical trial in recurrent pericarditis, including purchases of drug materials under our clinical supply agreement with Regeneron, compared to the year ended December 31, 2018, in which expenses incurred related to clinical research and development for our Phase 2 open label clinical trial and initiation of RHAPSODY.

The direct costs of our mavrilimumab program were $13.8 million for the year ended December 31, 2019, compared to $15.3 million for the year ended December 31, 2018, or a decrease of $1.5 million.

During the year ended December 31, 2019, expenses incurred related primarily to our global Phase 2 clinical trial in GCA and manufacturing process development related expenses, compared to the year ended December 31, 2018, in which expenses incurred related to $5.0 million pass-through payment due upon the achievement of a specified clinical milestone event due under our license agreement with MedImmune as well as expenses related to preparation for our planned global Phase 2 trial in GCA and manufacturing process development expenses.

The direct costs for our KPL‑716 program were $28.8 million for the year ended December 31, 2019, compared to $25.6 million for the year ended December 31, 2018, or an increase of $3.2 million.

During the year ended December 31, 2019, expenses incurred related primarily to a milestone payment of $10.0 million under our asset purchase agreement with Biogen associated with the achievement of a specified clinical milestone event as well as expenses incurred for our Phase 2a clinical trial in prurigo nodularis, our exploratory Phase 2 clinical trial in diseases characterized by chronic pruritus, our Phase 1b clinical trial, and manufacturing and development costs for our clinical drug supply, compared to the year ended December 31, 2018, in which expenses incurred related to manufacturing and development costs for our clinical drug supply, our Phase 1a/1b clinical trial, and our LOTUS-PN observational study.

The direct costs for our KPL‑404 program were $22.8 million for the year ended December 31, 2019, compared to $6.0 million for the year ended December 31, 2018, or an increase of $16.8 million.

During the year ended December 31, 2019, expenses incurred primarily related to $18.0 million of expense related to the acquisition of the issued and outstanding equity securities of Primatope and milestone achievements, comprised of upfront consideration of $10.0 million paid at closing and milestone payments of $5.0 million, which had been achieved as of the closing date, and $3.0 million, which was achieved after the closing during the year ended December 31, 2019, each paid in a combination of cash and Class A common shares (inclusive of escrow and holdback amounts) in accordance with the Primatope Agreement, as well as preclinical expenses and initiation of our Phase 1 trial.

During the year ended December 31, 2018,

expenses incurred primarily related to clinical research and development, including manufacturing development costs as well as $0.8 million related to the extension of the option period under our stock purchase option agreement with Primatope.

The Primatope acquisition was accounted for as an asset acquisition in 2019 as it did not meet the definition of a business.

We recorded the upfront payment, milestone payments and the accrued milestone 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 direct costs for our former KPL‑045 program were $1.9 million during the year ended December 31, 2019, compared to $5.7 million during the year ended December 31, 2018, or a decrease of $3.8 million.

In January 2020, we terminated our license agreement with Novo Nordisk and ceased development of KPL-045.

During the year ended December 31, 2019, expenses incurred related to preclinical research and development, including manufacturing development costs, compared to the year ended December 31, 2018, in which expenses incurred related primarily to clinical research and development, including manufacturing development costs.

Unallocated research and development expenses were $41.9 million for the year ended December 31, 2019 compared to $20.7 million for the year ended December 31, 2018.

The increase of $21.2 million in unallocated research and development expenses was due to an increase of $12.2 million in personnel-related costs, including share-based compensation, and an increase of $9.1 million in other costs, including research costs related to potential future programs and internal lab costs.

The increase in personnel-related costs was primarily due to additional personnel in our research and development functions to support our ongoing clinical trials, including development and manufacture of clinical supply and regulatory filings.

Personnel-related costs for the year ended December 31, 2019 and 2018 included share-based compensation of $5.7 million and $2.3 million, respectively.

General and Administrative Expenses

General and administrative expenses were $35.0 million for the year ended December 31, 2019 compared to $21.6 million for the year ended December 31, 2018.

The increase of $13.4 million was primarily due to increases of $11.7 million in personnel-related costs and $2.1 million in professional fees, partially offset by a decrease of $0.4 million in other general expenses.

The increase in personnel-related costs was due to additional personnel in our general and administrative functions, primarily in our commercial and corporate departments, including legal, finance and human resources.

Personnel-related costs for the year ended December 31, 2019 and 2018, included share-based compensation of $9.3 million and $3.4 million, respectively.

Professional fees increased due to costs related to commercial preparations, including market research as well as legal costs incurred in connection with maintaining and registering worldwide patents and costs associated with our ongoing business operations, as well as expenses for higher recruiting, accounting and other costs incurred as a public company for a full fiscal year.

Interest Income

Interest income was $6.0 million for the year ended December 31, 2019 compared to $4.7 million for the year ended December 31, 2018.

The increase was largely due to higher average invested balances.

Benefit for Income Taxes

For the year ended December 31, 2019, we recorded a benefit for income taxes of $2.0 million relating primarily to the impact of the Foreign Derived Intangible Income, or FDII, deduction for 2019 and 2018;

federal and state research and development tax credits.

FDII was enacted as part of the tax reform enacted by the United States in December 2017, generally referred to as the U.S.

Tax Cuts and Jobs Act, with additional proposed regulations and guidance issued in 2019.

Upon the completion of our assessment we have included the tax impact of FDII in our income tax expense for the year ended December 31, 2019, based on our understanding of the rules available at the time of the filing of this Annual Report.

However, the amounts recorded could be impacted in the future when the proposed regulations and guidance are finalized.

For the year ended December 31, 2018, we recorded an insignificant benefit for income taxes.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from any sources, including from product sales, and have incurred significant operating losses and negative cash flows from our operations.

Prior to the completion of our IPO in May 2018, we funded our operations primarily with proceeds from the sale of preferred shares, from which we had received net proceeds of $310.6 million.

On May 23, 2018, our registration statement on Form S‑1 relating to our IPO was declared effective by the SEC.

On May 29, 2018, we completed the IPO of 8,477,777 Class A common shares at $18.00 per share for gross proceeds of $152.6 million.

In addition, on June 22, 2018, we completed the sale of 1,006,425 Class A common shares to the underwriters of the IPO following the exercise of their over-allotment option to purchase additional shares at $18.00 per share, for gross proceeds of $18.1 million.

The aggregate net proceeds to us from the IPO, inclusive of the over-allotment option exercise, was $155.5 million after deducting underwriting discounts and commissions and other offering costs.

As of December 31, 2019, we had cash, cash equivalents and short-term investments of $233.4 million.

The following table summarizes our cash flows for each of the periods presented:

(in thousands)

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

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

Operating Activities

During the year ended December 31, 2019, operating activities used $158.4 million of cash, primarily resulting from our net loss of $161.9 million and net cash used by changes in our operating assets and liabilities of $17.0 million partially offset by non-cash charges of $20.5 million.

Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2019 consisted of a $15.0 million decrease in accrued milestones, a $4.7 million decrease in accounts payable, and a $1.3 million decrease in operating lease liabilities partially offset by a $1.0 million increase in prepaid expenses and other current assets, a $0.3 million increase in other long-term liabilities and a $4.6 million increase in accrued expenses.

The decrease in accrued milestones resulted from the payment of outstanding milestones for which the expense was recognized in prior years.

The decrease in accounts payable was primarily due to the timing of vendor invoicing and payments.

The increase in prepaid expenses and other current assets was due to increases in prepaid insurance expenses and prepaid expenses to CROs related to our clinical trials.

The decrease in operating lease liabilities is due to monthly payments for our right-of-use assets.

During the year ended December 31, 2018, operating activities used $81.0 million of cash, primarily resulting from our net loss of $103.2 million, partially offset by net non-cash charges of $3.9 million and net cash provided by

changes in our operating assets and liabilities of $18.3 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2018 consisted of a $14.3 million increase in accrued expenses and other liabilities and a $8.8 million increase in accounts payable, partially offset by a $4.8 million increase in prepaid expenses and other current assets.

The increase in accrued expenses was primarily due to our increased level of operating activities and the timing of vendor invoicing and payments, an increase in accrued milestones as well as an increase in accrued employee compensation expense.

The increase in accounts payable was primarily due to increased operating activities as well as the timing of vendor invoicing and payments.

The increase in prepaid expenses and other current assets was due to increases in prepaid insurance expenses, interest receivable and prepaid expenses to CMOs related to manufacturing development and CROs related to our clinical trials.

Investing Activities

During the year ended December 31, 2019, investing activities provided $49.2 million of cash, consisting of $541.2 million from proceeds of maturities of short-term investments partially offset by $488.8 million of purchases of short-term investments and $3.2 million of purchases of property and equipment.

During the year ended December 31, 2018, investing activities used $239.2 million of cash, consisting of $5.3 million of purchases of property and equipment and $402.0 million of purchases of short-term investments partially offset by $168.1 million from proceeds of maturities of short-term investments.

Financing Activities

During the year ended December 31, 2019, financing activities provided $84.1 million of cash, consisting of $83.0 million from proceeds from our issuance and sale of Class A common shares in a follow-on public offering, inclusive of the concurrent issuance and sale of Class A1 common shares in a private placement, and exercise in part of the underwriters’

over-allotment option to purchase additional Class A common shares and concurrent issuance after deduction of underwriting commissions and discounts and other offering costs.

During the year ended December 31, 2018, net cash provided by financing activities was $346.7 million, primarily consisting of proceeds of $159.2 million from our issuance and sale of Class A common shares, net of underwriting commissions and discounts upon completion of our IPO, inclusive of the over-allotment option exercise, $190.8 million in net proceeds from our issuance and sale of Series C preferred shares partially offset by $3.7 million of payments of other offering costs associated with our IPO, inclusive of the over-allotment option exercise.

Funding Requirements

Additionally, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

We expect to incur expenses as we:

continue to conduct our current clinical trials and/or initiate our planned clinical trials, for rilonacept, mavrilimumab, KPL‑716 and KPL-404 as applicable;

manufacture, or have manufactured on our behalf, our preclinical and clinical drug material and develop processes for late-stage and commercial manufacturing;

seek regulatory approvals for any product candidates that successfully complete clinical trials;

establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates, including rilonacept, for which we may obtain marketing approval and intend to commercialize on our own;

hire additional clinical, quality and research and development personnel;

expand our operational, financial and management systems and increase personnel globally to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

maintain, expand and protect our intellectual property portfolio;

in‑license or acquire other product candidates and technologies or their related businesses, if we determine to do so.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

We anticipate that we may require additional capital if we choose to pursue in‑licenses or acquisitions of other product candidates and technologies or their related businesses.

If we receive regulatory approval for rilonacept or our other product candidates, we expect to incur significant commercialization expenses related to product 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 will depend on and could increase significantly as a result of many factors, including:

the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials;

the costs, timing and outcome of regulatory review of our product candidates;

the costs, timing and ability to manufacture our product candidates to supply our clinical and preclinical development efforts and our clinical trials;

the costs of future activities, including product sales, medical affairs, marketing, manufacturing, pricing and reimbursement, distribution and compliance, for any of our product candidates for which we receive marketing approval;

the costs of manufacturing commercial‑grade product and necessary inventory to support commercial launch;

the ability to receive additional non‑dilutive funding;

the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property‑related claims;

our ability to establish and maintain licensing, collaboration or other strategic transactions and arrangements on favorable terms, if at all;

the extent to which we acquire or in‑license other product candidates, technologies and their related businesses;

the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, or other sources, including, licensing, collaboration, marketing, distribution or other strategic transactions or arrangements with third parties.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders’

ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect our shareholders’

rights as a common shareholder.

Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends.

In addition, debt financing would result in fixed payment obligations.

If we raise funds through licensing, collaboration, marketing, distribution or other strategic transactions or arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates or future revenue streams, or otherwise agree to terms that may not be favorable to us.

If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs for product candidates, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2019 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:

Payments Due by Period

(in thousands)

Manufacturing commitments (1)

Operating lease commitments (2)

Rilonacept long-term incentive plan (3)

(1) Amounts in the table reflect commitments for costs associated with our external CMOs, which we have engaged to manufacture clinical trial materials.

Manufacturing commitments include agreements that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased;

fixed, minimum or variable price provisions;

and the approximate timing of the transaction.

For obligations with cancellation provisions, the amounts included in the preceding table are limited to the non‑cancelable portion of the agreement terms or the minimum cancellation fee.

(2) Amounts in the table reflect minimum payments due under operating lease agreements entered into by our wholly owned U.S.

subsidiary Kiniksa US for office and laboratory space in Lexington, Massachusetts, which expires in 2021, and office space in San Diego, California, which expires in 2020.

(3) Amounts in the table reflect the cash awards granted to employees under the Rilonacept Long-Term Incentive Plan, or RLTIP, which become payable in such amounts if the performance goals defined in the RLTIP are achieved at target.

Our contracts with CMOs, CROs and other third parties for the manufacture of our product candidates and to support clinical trials and preclinical research studies and testing are generally cancelable by us upon prior notice.

Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included in the preceding table as the amount and timing of such payments are not known.

Under various agreements with third parties, we have agreed to make milestone payments, pay royalties, annual maintenance fees and to meet due diligence requirements based upon specified milestones.

We generally have not included any contingent payment obligations, such as milestones, royalties or due diligence, in the table above as the amount, timing and likelihood of such payments are not known.

We have not included any of the annual maintenance fee payments in the above table, as although the amount and timing are known, we cannot currently determine the final termination dates of the agreements and, as a result, we cannot determine the total amounts of such payments we will be required to make under the agreements.

Under our license agreement with Regeneron, we are obligated to make future regulatory milestone payments of $27.5 million in the aggregate.

Thereafter, we have agreed to evenly split profits on our sales of rilonacept with Regeneron after deducting certain commercialization expenses subject to specified limits.

Under our license agreement with MedImmune, we are obligated to make future clinical, regulatory and initial sales milestone payments of up to $57.5 million in aggregate for the first two indications we develop.

In addition, we are obligated to make clinical and regulatory milestone payments of up to $15,000 in the aggregate for each subsequent indication.

We are also obligated to make milestone payments to MedImmune of up to $85.0 million upon the achievement of annual net sales thresholds of up to, but excluding, $1.0 billion in annual net sales as well as additional milestone payments aggregating up to $1.1 billion upon the achievement of additional specified annual net sales thresholds starting at $1.0 billion and higher.

Commencing on the first commercial sale of licensed products, we are obligated 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.

We must pay such royalties on a product‑by‑product and country‑by‑country basis until the latest to occur of the expiration of licensed patents, the expiration of regulatory exclusivity or the tenth anniversary of the first commercial sale of such product in such country.

Under our asset purchase agreement with Biogen, we are obligated to make future milestone payments of up to $315.0 million upon the achievement of specified clinical and regulatory milestones as well as upon the achievement of annual net sales thresholds.

We have also agreed to pay certain obligations under third‑party contracts retained by Biogen that relate to KPL‑716.

Additionally, we are obligated 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.

In January 2020, we terminated our license agreement with Novo Nordisk, as such we are no longer obligated to make future milestone payments under the agreement.

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.

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.

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;

CMOs 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 patients and the completion of clinical trial milestones.

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 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.

Share‑Based Compensation

We measure all share-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period.

Forfeitures are accounted for as they occur.

We issue share-based awards with both service-based vesting conditions and performance-based vesting conditions.

Expense for awards with service-based vesting is recorded using the straight-line method, and expense for awards with performance-based vesting conditions is recognized using the accelerated-attribution method.

For share-based awards granted to consultants and non-employees, compensation expense is recognized over the vesting period of the awards, which is generally the period during which services are rendered by such consultants and non-employees until completed.

At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our Class A common shares and updated assumption inputs in the Black-Scholes option-pricing model.

We classified share-based compensation expense in the consolidated statements of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.

The fair value of each restricted share award was estimated on the date of grant based on the fair value of the Company’s Class A common shares or Class B common shares on that same date.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected share price volatility, the expected term of the award, the risk-free interest rate, and expected dividends (see Note 9).

Prior to May 2018, we were

a private company and, accordingly, lacked company-specific historical and implied volatility information.

Therefore, we estimate our expected share price volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our traded share price.

The expected term of our options has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

The expected term of options granted to non-employees is equal to the contractual term of the option award.

The risk-free interest rate is determined by reference to the U.S.

Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Expected dividend yield is based on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable future.

The fair value of each restricted share unit award is based on the closing price of our Class A common shares on the date of grant.

Restricted share unit awards with an associated performance condition are evaluated on a regular basis for probability of achievement, to determine the timing of recording share-based compensation expense to include in our consolidated statements of operations and comprehensive loss.

Emerging Growth Company Status

The Jumpstart Our Business Act permits an “emerging growth company”

such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

We have irrevocably elected to “opt out”

of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

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 of this Annual Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity