What changed in this filing

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Item 9A. Controls and Procedures

2021-02-25 compared with 2020-03-05 · 586 added, 536 removed, 594 unchanged (65% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.

Our management, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, evaluated, as of the end of the period covered by this Annual Report, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.

In designing and evaluating our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Management’s Report on Internal Control over Financial Reporting for the Fiscal Year Ended December 31, 2019.

Management’s Report on Internal Control over Financial Reporting for the Fiscal Year Ended December 31, 2020.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control –

Integrated Framework (2013)”

issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective.

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Item 15 in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting, (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of the year ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Report of Independent Public Accounting Firm

OTHER INFORMATION.

On March 2, 2020, our Board of Directors established that our 2020 Annual Meeting of Shareholders, or our 2020 Annual Meeting, will be held on Tuesday, June 30, 2020.

Because the date of our 2020 Annual Meeting differs by more than thirty days from the anniversary date of the Company’s 2019 Annual Meeting of Shareholders held on May 29, 2019, the deadlines for shareholder proposals pursuant to Rule 14a-8 under the Exchange Act, and shareholder proposals for director nominations outside of Rule 14a-8, as listed in our 2019 Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2019, are no longer applicable.

Pursuant to Rule 14a-5(f) of the Exchange Act and our amended and restated bye-laws (our “Bye-laws”), we are hereby providing notice of the revised deadlines for such proposals within this Item 9B of this Annual Report.

To be considered for inclusion in this year’s proxy statement and related materials under Rule 14a-8 for our 2020 Annual Meeting, shareholder proposals must be in writing and be received by us no later than March 15, 2020, and comply with all applicable rules and regulations promulgated by the SEC under the Exchange Act.

In addition, shareholders intending to present a proposal at our 2020 Annual Meeting for director nominations, but not include such nomination in this year’s proxy statement and related materials for our 2020 Annual Meeting, must give notice thereof to us in writing no later than March 15, 2020 and comply with all applicable provisions of our Bye-laws (including any

additional information specified in therein).

The March 15, 2020 deadline will also apply in determining whether notice of a shareholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c)(1) of the Exchange Act.

Any shareholder proposal for inclusion in our proxy statement and related materials or shareholder notice of intention to present a proposal for director nomination outside of our proxy statement and related materials to be brought before the 2020 Annual Meeting should be sent to:

our Secretary c/o Kiniksa Pharmaceuticals Corp.

at our offices at 100 Hayden Avenue, Lexington, MA 02421.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Except to the extent provided below, t he information required to be disclosed by this Item will be set forth in our proxy statement for our 2020 Annual Meeting to be filed with the SEC within 120 days of December 31, 2019, and is incorporated into this Annual Report by reference.

Except to the extent provided below, the information required to be disclosed by this Item will be set forth in our proxy statement for our 2021 Annual Meeting to be filed with the SEC within 120 days of December 31, 2020, and is incorporated into this Annual Report by reference.

We have adopted a written code of business conduct and ethics that applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.

Our code of business conduct and ethics is available in the “Investors & Media”

section of our website at www.kiniksa.com under “Corporate Governance”.

Our code of business conduct and ethics is available in the “Investors & Media” section of our website at www.kiniksa.com under “Corporate Governance”.

We intend to post on our website all disclosures that are required by law or the Nasdaq rules concerning any amendments to, or waivers from, any provision of the code.

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The information required to be disclosed by this Item will be set forth in our proxy statement for our 2021 Annual Meeting to be filed with the SEC within 120 days of December 31, 2020, and is incorporated into this Annual Report by reference.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)(1) Financial Statements.

See the “Index to Consolidated Financial Statements”

on page F-1 below for the list of financial statements filed as part of this report.

See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part of this report.

(a)(2) Financial Statement Schedules.

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Specimen Share Certificate evidencing the Class A common shares

Second Amended and Restated Investors’

Rights Agreement, dated as of February 9, 2018

Second Amended and Restated Investors’ Rights Agreement, dated as of February 9, 2018

Description of Kiniksa Pharmaceuticals, Ltd.

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License Agreement, dated as of December 21, 2017, by and between the Registrant and MedImmune, Limited

Amendment No.

1 to the License Agreement, effective as of July 9, 2020, by and between Kiniksa Pharmaceuticals, Ltd.

and MedImmune Limited

Clinical Supply Agreement, dated as of September 27, 2017, by and between the Registrant and Regeneron Pharmaceuticals, Inc.

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and Shire Human Genetic Therapies, Inc.

Recognition and Attornment Agreement and Amendment of Sublease by and between Kiniksa Pharmaceuticals Corp.

and 92 Hayden Avenue Trust dated as of November 6, 2020

Form of Indemnification Agreement for Non-Fund-Designated Directors

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2018 Incentive Award Plan, and the form of share option grant notice and option agreement, form of restricted share grant notice and restricted share agreement, and form of restricted share unit grant notice and restricted share unit agreement thereunder

2018 Employee Share Purchase Plan

Offering Document under the 2018 Employee Share Purchase Plan

2018 Incentive Award Plan;

Sub-Plan for UK Employees, and the form of share option grant notice for UK participants

Form of Restricted Share Unit Grant Notice and Restricted Share Unit Agreement Thereunder for UK Participants under the 2018 Incentive Award plan;

Sub-Plan for UK Employees

2018 Incentive Award Plan forms of share option grant notice and share option agreement for German participants, restricted share grant notice and restricted share agreement for German participants, and restricted share unit grant notice and restricted share unit agreement for German participants

2018 Employee Share Purchase Plan

Offering Document under the 2018 Employee Share Purchase Plan (effective July 1, 2019)

Offering Document under the 2018 Employee Share Purchase Plan (effective January 1, 2021)

Kiniksa Pharmaceuticals, Ltd.

Rilonacept Long-Term Incentive Plan

Performance Restricted Share Unit and Performance Cash Award Grant Notice and Agreement under the Rilonacept Long-Term Incentive Plan

Restricted Share Unit Grant Notice and Agreement under the Rilonacept Long-Term Incentive Plan

Forms of Performance Restricted Share Unit and Performance Cash Award Grant Notice and Performance Restricted Share Unit and Performance Cash Award Agreement thereunder and Restricted Share Unit Grant Notice and Restricted Share Unit Agreement thereunder for UK participants and German participants under the Rilonacept Long-Term Incentive Plan

Non-Employee Director Compensation Program

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Restricted Share Agreement, dated as of September 18, 2015, by and between the Registrant and Stephen Mahoney

Letter Agreement, dated November 13, 2019, between Kiniksa Pharmaceuticals, Ltd.

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and Qasim Rizvi

10.26†

Kiniksa Pharmaceuticals, Ltd.

Rilonacept Long-Term Incentive Plan

Performance Restricted Share Unit and Performance Cash Award Grant Notice and Agreement under the Rilonacept Long-Term Incentive Plan

Restricted Share Unit Grant Notice and Agreement under the Rilonacept Long-Term Incentive Plan

Amended and Restated Employment Agreement, dated as of May 29, 2018, by and between Kiniksa Pharmaceuticals Corp.

and Thomas Beetham

Restricted Share Agreement, dated as of September 18, 2015, by and between Kiniksa Pharmaceuticals, Ltd.

and Thomas Beetham

Subsidiaries of the Registrant

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Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Office r

Rule 13a‑14(a) / 15d‑14(a) Certification of Chief Financial Officer

Rule 13a-14(a) / 15d-14(a) Certification of Interim Chief Financial Officer

Section 1350 Certification of Chief Executive Officer

Section 1350 Certification of Chief Financial Officer

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Extension Definition Linkbase Document

XBRL Taxonomy Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Section 1350 Certification of Interim Chief Financial Officer

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Extension Definition Linkbase Document

Inline XBRL Taxonomy Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith

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KINIKSA PHARMACEUTICALS, LTD.

March 5, 2020

February 25, 2021

Chief Executive Officer and Chairman of the Board of Directors

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Chief Executive Officer and Chairman of the Board of Directors (principal executive officer)

March 5, 2020

/s/ Chris Heberlig

Chief Financial Officer (principal financial officer)

March 5, 2020

Chris Heberlig

February 25, 2021

/s/ Mark Ragosa

Interim Chief Financial Officer (principal financial officer)

February 25, 2021

/s/ Michael R.

VP, Finance and Chief Accounting Officer (principal accounting officer)

March 5, 2020

February 25, 2021

Lead Independent Director

March 5, 2020

February 25, 2021

/s/ Stephen R.

March 5, 2020

February 25, 2021

/s/ Richard S.

March 5, 2020

February 25, 2021

/s/ Thomas R.

March 5, 2020

February 25, 2021

/s/ Tracey L.

March 5, 2020

February 25, 2021

/s/ Kimberly J.

March 5, 2020

February 25, 2021

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Convertible Preferred Shares and Shareholders’

Equity (Deficit)

Consolidated Statements of Convertible Preferred Shares and Shareholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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To the Board of Directors and Shareholders of Kiniksa Pharmaceuticals, Ltd.

Opinion on the Financial Statements

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kiniksa Pharmaceuticals, Ltd.

and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive loss, of convertible preferred shares and shareholders' equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of convertible preferred shares and shareholders' equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, the Company will require additional financing to fund future operations.

Management’s plans in regard to this matter are described in Note 1.

Management’s evaluation of the events and conditions and management’s plans to mitigate this matter is also described in Note 1.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Research and Development Costs

As described in Notes 2 and 6 to the consolidated financial statements, the Company has entered into various research and development contracts with companies both inside and outside of the United States.

When billing terms under these contracts do not coincide with the timing of when the work is performed, management is required to make estimates of outstanding obligations to those third parties as of the end of the reporting period.

Within accrued expenses, total accrued research and development expenses amounted to $16.9 million as of December 31, 2020, which include accruals for these estimated research and development obligations.

Accrual estimates are based on a number of factors, including management’s assessment of progress towards completion of the research and development activities, invoicing to date under the contracts, communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced, and the costs included in the contracts.

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.

The principal considerations for our determination that performing procedures relating to accrued research and development costs is a critical audit matter are (i) the significant judgment by management in determining the accrued costs, which in turn led to (ii) significant auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence for these accrued costs and the factors related to management’s assessment of progress towards completion of the research and development activities, invoicing to date under the contracts and communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to accrued research and development costs, including controls over the review of contracts, accumulating information on actual costs incurred during the period, and assessment of progress towards completion of the research and development activities.

These procedures also included, among others (i) testing management’s process for estimating accrued research and development costs, (ii) evaluating the appropriateness of the methodology used by management to determine the estimate, (iii) evaluating the reasonableness of the factors related to management’s assessment of progress towards completion of the research and development activities, invoicing to date under the contracts and communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced by testing specific tasks and the associated cost incurred for services the Company has not yet been invoiced for or otherwise notified of the actual cost at period end, and (iv) testing the completeness and accuracy of the data inputs to the estimate, including total costs included within executed contracts and actual billed expenses under these contracts.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 5, 2020

We have served as the Company’s auditor since 2016.

February 25, 2021

We have served as the Company’s auditor since 2016.

KINIKSA PHARMACEUTICALS, LTD.

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Short-term investments

Restricted cash

Prepaid expenses and other current assets

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Operating lease right-of-use assets

Restricted cash

Deferred offering costs

Non-current restricted cash

Other long-term assets

Deferred tax assets

Liabilities and Shareholders’

Liabilities and Shareholders’ Equity

Current liabilities:

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Accrued expenses

Accrued milestones

Operating lease liabilities

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Total current liabilities

Noncurrent liabilities:

Noncurrent operating lease liabilities

Non-current liabilities:

Non-current operating lease liabilities

Other long-term liabilities

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Commitments and contingencies (Note 13)

Shareholders’

Shareholders’ equity:

Class A common shares, par value of $ 0.000273235 per share;

19,245,201 shares and 15,797,220 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively

31,777,420 shares and 19,245,201 shares issued and outstanding as of December 31, 2020 and 2019, respectively

Class B common shares, par value of $ 0.000273235 per share;

4,638,855 shares issued and outstanding as of December 31, 2019 and December 31, 2018

2,355,458 shares and 4,638,855 shares issued and outstanding as of December 31, 2020 and 2019, respectively

Class A1 common shares, $ 0.000273235 par value;

14,995,954 and 12,995,954 shares issued and outstanding as of December 31, 2019 and December 31, 2018, respectively

18,024,526 shares and 14,995,954 issued and outstanding as of December 31, 2020 and 2019, respectively

Class B1 common shares, $ 0.000273235 par value;

16,057,618 shares issued and outstanding as of December 31, 2019 and December 31, 2018

16,057,618 shares issued and outstanding as of December 31, 2020 and 2019

Additional paid-in capital

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Accumulated deficit

Total shareholders’

Total liabilities and shareholders’

Total shareholders’ equity

Total liabilities and shareholders’ equity

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

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Research and development

General and administrative

Selling, general and administrative

Total operating expenses

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Interest income

Loss before benefit for income taxes

Benefit for income taxes

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

Weighted average common shares outstanding—basic and diluted

Loss before (provision) benefit for income taxes

(Provision) benefit for income taxes

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

Weighted average common shares outstanding—basic and diluted

Comprehensive loss:

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KINIKSA PHARMACEUTICALS, LTD.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’

EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

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Conversion of convertible preferred shares to common shares

( 35,670,093 )

Issuance of Class A common shares upon completion of initial public offering, net of underwriting discounts and commissions and offering costs

Exercise of options and issuance of shares under the employee share purchase plan

Issuance of Class A common shares under incentive award plans and employee share purchase plan

Share-based compensation expense

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Class A common shares issued or to be issued in connection with a milestone payment due to Primatope Therapeutics, Inc.

Exercise of options and issuance of shares under the employee share purchase plan

Issuance of Class A common shares under incentive award plans and employee share purchase plan

Share-based compensation expense

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Balances at December 31, 2019

Issuance of Class A common shares upon completion of follow-on offerings, inclusive of the over-allotment option exercise, net of underwriting discounts and commissions and other offering costs

Issuance of Class A1 common shares upon completion of private placements, net of placement agent fees

Issuance of Class A common shares in connection with the release of escrow from the acquisition of all issued and outstanding equity securities of Primatope Therapeutics, Inc.

Issuance of Class A common shares under incentive award plans and employee share purchase plan

Share-based compensation expense

Unrealized loss on short-term investments and currency translation adjustments

Balances at December 31, 2020

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

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Share-based compensation expense

Class A common shares issued or to be issued as consideration for Primatope, including milestone payments

Class A common shares issued as consideration for Primatope, including milestone payments

Loss on disposal of property and equipment

Non-cash lease expense

Accretion of discounts on short-term investments

Amortization (accretion) of discounts on short-term investments

Deferred income taxes

Changes in operating assets and liabilities:

Prepaid expenses and other assets

Prepaid expenses and other short-term assets

Other long-term assets

Accounts payable

Accrued expenses and other liabilities

Accrued expenses and other short-term liabilities

Accrued milestones

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Proceeds from issuance of Series C convertible preferred shares, net of issuance costs

Proceeds from issuance of Class A common shares upon completion of initial public offering, net of underwriting commissions and discounts, inclusive of the over-allotment option exercise

Proceeds from issuance of Class A common shares from follow-on offering, net of underwriting commissions and discounts, inclusive of the over-allotment option exercise

Proceeds from issuance of Class A1 common shares from private placement, net of underwriting commissions and discounts

Proceeds from issuance of Class A common shares upon completion of initial public offering, net of underwriting discounts and commissions, inclusive of the over-allotment option exercise

Proceeds from issuance of Class A common shares from follow-on offerings, net of underwriting discounts and commissions, inclusive of the over-allotment option exercise

Proceeds from issuance of Class A1 common shares from private placements, net of placement agent fees

Payments of offering costs

Proceeds from exercise of options and employee share purchase plan

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

Net cash provided by financing activities

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

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

Cash, cash equivalents and restricted cash at beginning of period

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Supplemental disclosure of non-cash investing and financing activities:

Right-of-use asset obtained in exchange for operating lease obligation

Deferred offering costs included in accrued expenses and accounts payable

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Kiniksa Pharmaceuticals, Ltd.

(the “Company”) is a biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutic medicines for patients suffering from debilitating diseases with significant unmet medical need.

The Company was incorporated in July 2015 as a Bermuda exempted company.

The Company has a pipeline of product candidates across various stages of development.

The Company is subject to risks and uncertainties common to early‑stage companies in the biotechnology industry.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s technology will be obtained, that any products developed will obtain necessary government regulatory approval or that any products, if approved, will be commercially viable.

The Company’s pipeline of product candidates are designed to modulate immunological signaling pathways that are implicated across a spectrum of diseases.

The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry and global health, societal, economic and market conditions, including from the impact from the coronavirus disease 2019 (“COVID-19”) pandemic.

For example, while the U.S.

Food and Drug Administration (the “FDA”), accepted the supplemental Biologics License Application (“sBLA”) for rilonacept in recurrent pericarditis with priority review and assigned a Prescription Drug User Fee Act (“PDUFA”) goal date of March 21, 2021, the Company has not yet demonstrated its ability to obtain regulatory approvals.

The Company does not currently generate revenue from sales of any products, and it may never be able to develop or commercialize a marketable product.

The Company has not yet successfully completed any Phase 3 or other pivotal clinical trials, obtained any regulatory approvals, manufactured a commercial‑scale drug, or conducted sales and marketing activities.

The Company operates in an environment of rapid technological innovation and substantial competition from pharmaceutical and biotechnological companies.

In addition, the Company is dependent upon the services of its employees, consultants and service providers.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Upon approval from the FDA , if any, of rilonacept for recurrent pericarditis, the Company will assume the sales and distribution of rilonacept for the approved indications for the treatment of cryopyrin-associated periodic syndrome (“CAPS”), specifically familial cold autoinflammatory syndrome and muckle-wells syndrome, and for the treatment of deficiency of IL-1 receptor antagonist (“DIRA”) in the United States and would evenly split profits on sales with Regeneron, after deducting certain commercialization expenses subject to specified limits.

The Company has never obtained any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.

The Company operates in an environment of rapid technological innovation and substantial competition from pharmaceutical and biotechnology companies.

In addition, the Company is dependent upon the services of its employees, consultants and other third parties, including contract research organizations (“CROs”), and contract manufacturing organizations (“CMOs”).

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Risk and Uncertainties Related to COVID-19

In addition to risks and uncertainties common to the Company’s industry, the Company is subject to global societal, healthcare, economic and market conditions, including from the impact of the COVID-19 pandemic and measures taken in response to the pandemic or the easing of such measures, which continue to evolve.

In December 2019, COVID-19 surfaced in Wuhan, China.

The virus spread globally, and was declared a pandemic by the World Health Organization.

The impact of this pandemic has been and will likely continue to be extensive on many aspects of society, which has resulted in and will likely continue to result in significant disruptions to healthcare systems, the global economy, as well as businesses and capital markets around the world.

In an effort to halt the spread of the COVID-19 pandemic, federal and state governments in the United States and the governments of other countries around the globe have implemented various measures in response to the pandemic, including significant restrictions on businesses and travel as well as social-distancing measures and the easing of such measures.

In response to the COVID-19 pandemic and measures introduced by federal and state governments in the United States, the Company implemented workplace protocols in the jurisdictions where it has facilities.

While the majority of the Company’s employees are able to carry out their responsibilities working outside of the Company’s physical locations, for the Company’s essential workers and those choosing to return to the Company’s offices to carry out their responsibilities, the Company implemented additional safety measures, including occupancy limits, restricting business travel, providing and requiring the use of personal protective equipment, self-screening prior to accessing the Company’s facilities, among other things.

As these measures implemented by federal and state governments in the

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

United States in response to the pandemic continue to evolve, the Company continues to monitor the developments, restrictions and requirements in jurisdictions where it has offices, and plans to update the protocols for its offices as applicable.

The COVID-19 pandemic, and measures undertaken in response to the pandemic, or the easing of any of such measures, may cause significant disruptions in the Company’s business or operations as well as in the business and operations of the Company’s CMOs, CROs and other third parties with whom the Company conducts business or otherwise engages now or in the future, including as a result of staffing shortages or reprioritizations, production slowdowns or stoppages, and disruptions in delivery systems.

The COVID-19 pandemic may also adversely impact the Company’s preclinical studies and clinical trials, which could impede, delay, limit or prevent the clinical development of the Company’s product candidates and ultimately lead to the delay or denial of regulatory approval of its product candidates, which would materially adversely affect the Company’s business and operations, including its ability to generate revenue.

Moreover, the COVID-19 pandemic is impacting the global economy, and the U.S.

economy in particular, with the potential for the economic downturn to be severe and prolonged.

A severe or prolonged economic downturn could result in continued disruptions in the financial markets, which could adversely impact the Company’s ability to raise additional capital when needed or on acceptable terms, if at all.

While the Company continuously looks to identify business-critical activities and to develop contingencies and mitigation strategies for those activities to potentially minimize the impact of the COVID-19 pandemic on its business and operations, there can be no assurance that it will be able to identify all such activities or that any identified contingencies and mitigation strategies will be effective.

Further, the COVID-19 pandemic, and measures undertaken in response to the pandemic continue to rapidly evolve.

There is uncertainty relating to the potential effect of the pandemic on the Company’s business and operations.

The extent of the impact on the Company’s business and operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate spread of the disease, duration of the pandemic, business and travel restrictions and social distancing measures, and the effectiveness of these and other actions taken to contain and treat the disease as well as the impact of the easement of any such restrictions, measures and actions.

Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly owned subsidiaries, Kiniksa Pharmaceuticals Corp.

(“Kiniksa US”), Primatope Therapeutics, Inc.

(“Primatope”) and Kiniksa Pharmaceuticals (UK), Ltd.

(“Kiniksa UK”) as well as the subsidiaries of Kiniksa UK, Kiniksa Pharmaceuticals (Germany) GmbH (“Kiniksa Germany”) and Kiniksa Pharmaceuticals (France) SARL (“Kiniksa France”), after elimination of all significant intercompany accounts and transactions.

In assessing the consolidation requirement for variable interest entities (“VIE”s), the Company focuses on identifying whether it has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits from the VIE.

In the event that the Company is the primary beneficiary of a VIE, the assets, liabilities, and results of operations of the VIE would be included in the Company’s consolidated financial statements.

(“Kiniksa US”), Primatope Therapeutics, Inc.

(“Primatope”) and Kiniksa Pharmaceuticals (UK), Ltd.

(“Kiniksa UK”) as well as the subsidiaries of Kiniksa UK, Kiniksa Pharmaceuticals (Germany) GmbH (“Kiniksa Germany”), Kiniksa Pharmaceuticals (France) SARL (“Kiniksa France”), and Kiniksa Pharmaceuticals GmbH (“Kiniksa Switzerland”), after elimination of all significant intercompany accounts and transactions.

At December 31, 2020 and 2019 and during the years then ended, the Company was not the primary beneficiary of a VIE.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.

Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses and the valuation of common shares and share‑based awards.

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

expenses during the reporting period.

Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

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The financial results of the Company's global activities are reported in U.S.

dollars (“USD”) and its foreign subsidiaries generally utilize their respective local currency to be their functional currency.

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dollars (“USD”) and its foreign subsidiaries generally utilize their respective local currency to be their functional currency.

Transactions in other currencies are recorded in the functional currency at the rate of exchange prevailing when the transactions occur.

Monetary assets and liabilities denominated in other currencies are re-measured into the functional currency at the rate of exchange in effect at the balance sheet date.

Exchange gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income in the period in which they occur.

For our foreign subsidiaries where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resulting translation adjustments are reported as a component of accumulated other comprehensive income (loss) within shareholders' equity (deficit).

Exchange rate gains and losses arising from re-measurement of foreign currency-denominated monetary assets and liabilities are included in income or losses in the period in which they occur.

For the Company’s foreign subsidiaries where the local currency is the functional currency, assets and liabilities denominated in local currencies are translated into USD at end-of-period exchange rates and the resulting translation adjustments are reported as a component of accumulated other comprehensive gain (loss) within shareholders' equity (deficit).

Reverse Share Split

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Initial Public Offering

On May 23, 2018, the Company’s registration statement on Form S‑1 relating to its initial public offering of its Class A common shares (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”).

On May 23, 2018, the Company’s registration statement on Form S-1 relating to its initial public offering of its Class A common shares (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”).

On May 29, 2018, the Company completed the IPO of 8,477,777 Class A common shares at $ 18.00 per share for gross proceeds of $ 152,600 .

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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.

In connection with the closing of the IPO, the Company amended and restated its bye‑laws (the “Amended & Restated Bye‑Laws”).

Follow-on Offering and Private Placement

In connection with the closing of the IPO, the Company amended and restated its bye-laws (the “Amended & Restated Bye-Laws”).

Follow-on Offerings and Private Placements

On February 4, 2019, the Company completed a follow-on offering of 2,654,984 Class A common shares at a public offering price of $ 18.26 and a concurrent private placement of 2,000,000 Class A1 common shares at an offering price of $ 18.26 per share for aggregate gross proceeds of $ 85,000 .

In addition, on March 1, 2019, the Company 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 a public offering price of $18.26 per share for gross proceeds of $2,942.

The aggregate net proceeds to the Company from the follow-on offering and concurrent private placement, inclusive of the over-allotment option exercise, was $82,988 after deducting underwriting discounts and commissions and other offering costs

In accordance with Accounting Standards Update (“ASU”) 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205‑40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue

In addition, on March 1, 2019, the Company

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as a going concern within one year after the date the consolidated financial statements are issued.

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 a public offering price of $ 18.26 per share for gross proceeds of $ 2,942 .

The aggregate net proceeds to the Company from the follow-on offering and concurrent private placement, inclusive of the over-allotment option exercise, was $ 82,988 after deducting underwriting discounts and commissions, placement agent fees and other offering costs.

On May 18, 2020, the Company completed a follow-on offering of 2,760,000 Class A common shares, inclusive of the exercise of the underwriters’ overallotment option at a public offering price of $ 18.25 and a concurrent private placement of 1,600,000 Class A1 common shares at an offering price of $ 18.25 per share for aggregate gross proceeds of $ 79,570 .

The aggregate net proceeds to the Company from the follow-on offering and concurrent private placement, inclusive of the over-allotment option exercise, was $ 74,495 after deducting underwriting discounts and commissions, placement agent fees and other offering costs.

On July 24, 2020, the Company completed a follow-on offering of 5,952,381 Class A common shares, at a public offering price of $ 21.00 and a concurrent private placement of 1,428,572 Class A1 common shares at an offering price of $ 21.00 per share for aggregate gross proceeds of $ 155,000 .

The aggregate net proceeds to the Company from the follow-on offering and concurrent private placement was $ 146,037 after deducting underwriting discounts and commissions, placement agent fees and other offering costs.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

As of December 31, 2020, the Company had an accumulated deficit of $ 517,473 .

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The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

The Company will need to finance its operations through public or private securities offerings, debt financings or other sources, which may include licensing, collaborations or other strategic transactions or arrangements.

The Company will need to finance its operations through public or private securities offerings, debt financings, government funding or grants, or other sources, which may include licensing, collaborations or other strategic transactions or arrangements.

Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all.

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Treasury notes, amounts held in money market accounts and cash on deposit at commercial banks.

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Short-Term Investments

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Treasury notes.

Such investments included in short‑term investments on the Company’s consolidated balance sheets are considered available‑for‑sale debt securities and are reported at fair value with unrealized gains and losses included as a component of shareholders’

equity (deficit).

Such investments which are included in short-term investments on the Company's consolidated balance sheets are considered available-for-sale debt securities and are reported at fair value with unrealized gains and losses included as a component of shareholders’ equity (deficit).

Realized gains and losses, if any, on short-term investments are included in interest income.

The Company evaluates its short-term investments with unrealized losses for other-than-temporary impairment.

When assessing short‑term investments for other‑than‑temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general.

If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,”

the Company reduces the investment to fair value through a charge to the consolidated statement of operations and comprehensive loss.

When assessing short-term investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions in general.

If any adjustment to fair value reflects a decline in the value of the investment that the Company considers to be “other than temporary,” the Company reduces the investment to fair value through a charge to the consolidated statement of operations and comprehensive loss.

No such adjustments were necessary during the periods presented.

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Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and short-term investments.

At December 31, 2019 and 2018, substantially all of the Company’s cash, cash equivalents and short-term investments were held at two financial institutions.

The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit

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quality, in amounts that may exceed federally insured limits.

At December 31, 2020 and 2019, substantially all of the Company’s cash, cash equivalents and short-term investments were held at two financial institutions.

The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits.

The Company has not experienced any losses related to its cash, cash equivalents and short-term investments and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Restricted Cash

In conjunction with the Company’s lease agreement entered into in March 2018 (see Note 5), the Company maintains a letter of credit for the benefit of the landlord.

As of December 31, 2019 and 2018, the underlying cash balance of $210 securing this letter of credit, was classified as non‑current in its consolidated balance sheet.

In conjunction with the Company’s lease agreement entered into in March 2018, the Company maintains a letter of credit for the benefit of the landlord.

A letter of credit to secure the lease is not required under the 2020 Agreement (see Note 5).

As of December 31, 2020 and 2019, the underlying cash balance of $ 210 securing this letter of credit, was classified as current and non-current, respectively, in its consolidated balance sheet.

Property and Equipment

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Shorter of estimated useful life or lease term

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Impairment of Long-Lived Assets

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To date, the Company has not recorded any impairment losses on long-lived assets.

Prior to the regulatory approval of the Company’s product candidates, the Company incurs expenses for the manufacture of drug product that could potentially be available to support the commercial launch of those products.

Until the date at which regulatory approval has been received or is otherwise considered probable, the Company records all such costs as research and development expenses.

There were no capitalized inventory costs recorded as of December 31, 2020 and 2019.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process common equity financings as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of convertible preferred shares or in shareholders’

equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering.

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated.

After consummation of the equity financing, these costs are recorded as a reduction to the carrying value of convertible preferred shares or in shareholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering.

Should an in-process equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss.

As of December 31, 2018, the Company recorded deferred offering costs of $433 related to the follow-on offering of its Class A common shares and private placement of its Class A1 Common Shares.

The follow-on offering and concurrent private placement

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were finalized in February 2019, and all prior deferred costs were recorded as a reduction to the carrying value.

There were no deferred offering costs recorded as of December 31, 2019.

There were no deferred offering costs recorded as of December 31, 2020 and 2019.

Fair Value Measurements

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

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

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

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

The Company’s restricted cash, which is held in a money market fund, is carried at fair value, determined based on Level 1 inputs in the fair value hierarchy described above (see Note 3).

The Company’s cash equivalents and short-term investments, consisting of money market accounts and U.S.

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

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

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

The Company’s restricted cash, which is held in a money market fund, is carried at fair value, determined based on Level 1 inputs in the fair value hierarchy described above (see Note 3).

The Company’s cash equivalents and short-term investments, consisting of money market accounts and U.S.

Treasury notes, are carried at fair value, determined based on Level 1 and 2 inputs in the fair value hierarchy described above (see Note 3).

The carrying values of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”), which set forth the principles for recognition, measurement, presentation and disclosure of lease arrangements to enhance the transparency and comparability of financial reporting related to the arrangements.

ASU 2016-02, including subsequently issued amendments, is collectively referred to as Accounting Standards Codification, Leases (Topic 842) (“ASC 842”).

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

ASU 2016-02, including subsequently issued amendments, is collectively referred to as Accounting Standards Codification, Leases (Topic 842) (“ASC 842”).

The Company adopted the new standard on January 1, 2019 using the modified retrospective transition approach as applied to leases existing as of the adoption date.

The standard will be applied to all leases entered into after the initial adoption date.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a “lease”

as defined by ASC 842.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a “lease” as defined by ASC 842.

A lease is an arrangement, or part of an arrangement, that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

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Leases are classified as operating or finance leases based on the terms of the lease agreement and certain characteristics of the identified asset.

Right-of-use (“ROU”) assets and lease liabilities are recognized at lease commencement date based on the present value of the minimum future lease payments.

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Right-of-use (“ROU”) assets and lease liabilities are recognized at lease commencement date based on the present value of the minimum future lease payments.

Most leases with a term greater than one year are recognized on the balance sheet as ROU assets with corresponding lease liabilities and, if applicable, long-term lease liabilities.

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In which case, the Company would account for each lease component and the related non-lease component together as a single component.

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The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the arrangement consideration to the lease component only.

The lease component results in an operating right-of-use asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense.

Upon the adoption of ASC 842, the Company recorded operating lease right-of-use assets of $ 3,682 and operating lease liabilities of $ 3,917 for its leases which were in effect and had commenced prior to January 1, 2019 and had original lease terms of more than 12 months.

Segment Information

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.

The Company’s singular focus is on developing and delivering therapeutic medicines for patients suffering from debilitating diseases with significant unmet medical need.

Research and Development Costs

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Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including personnel expenses, share-based compensation expense, allocated facility-related and depreciation expenses, third-party license fees and external costs of outside vendors engaged to conduct preclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials.

Non‑refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses.

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.

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.

Milestone and other payments made to third-parties with respect to in-process research and development, in accordance with the Company’s license, acquisition and other similar agreements are expensed when determined to be probable and estimable.

Milestone and other payments made to third parties with respect to in-process research and development, in accordance with the Company’s license, acquisition and other similar agreements are expensed when determined to be probable and estimable.

Research Contract Costs and Accruals

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The Company records accruals for estimated ongoing research and development costs.

When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs.

Significant judgments and estimates are made in determining the accrued

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balances at the end of any reporting period.

When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations to those third parties as of the end of the reporting period.

Any accrual estimates are based on a number of factors, including the Company’s knowledge of the progress towards completion of the research and development activities, invoicing to date under the contracts, communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced, and the costs included in the contracts.

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.

Actual results could differ materially from the Company's estimates.

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The Company charges patent-related costs in connection with filing and prosecuting patent applications to operations as incurred as their realization is uncertain.

These costs are classified as general and administrative expenses.

These costs are classified as selling, general and administrative expenses.

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Share-Based Compensation

The Company measures all share-based awards granted to employees and directors based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period.

Forfeitures are accounted for as they occur.

The Company measures all share-based awards granted to employees and directors based on their fair value on the date of grant.

The Company issues 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.

The Company recognizes compensation expense for awards with service conditions on a straight-line basis over the requisite service period.

For awards with performance conditions, the Company recognizes compensation expense when the achievement of the performance milestone is probable and estimable through the vest date.

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 the Company's Class A common shares and updated assumption inputs in the Black-Scholes option-pricing model.

The Company classifies share-based compensation expense in its 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 is 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).

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Therefore, it estimates its expected share price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.

The expected term of the Company’s options has been determined utilizing the “simplified”

method for awards that qualify as “plain-vanilla”

The expected term of the Company’s options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.

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

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Expected dividend yield is based on the fact that the Company has never paid cash dividends on common shares and does 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 the Company’s 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 in the Company’s consolidated statements of operations and comprehensive loss.

The fair value of each restricted share unit award is based on the closing price of the Company’s 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 in the Company’s consolidated statements of operations and comprehensive loss.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and economic events other than those with shareholders.

For the years ended December 31, 2020, 2019 and 2018 the Company’s other comprehensive loss was comprised of unrealized gain (loss) on short-term investments and currency translation adjustments, net of tax.

The Company accounts 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 the Company’s 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 (provision) benefit for income taxes.

The Company assesses the likelihood that its deferred tax assets will

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Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in shareholders’

equity (deficit) that result from transactions and economic events other than those with shareholders.

For the year ended December 31, 2019 and 2018, the Company’s other comprehensive loss was comprised of unrealized gain (loss) on short-term investments and currency translation adjustments, net of tax.

Changes in deferred tax assets and liabilities are recorded in the benefit for income taxes.

The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, 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.

be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, 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 and considering prudent and feasible tax planning strategies.

As an exempted company incorporated under the laws of Bermuda, the Company is 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, the Company has not recorded any income tax benefits from losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards will be available to the Company for those losses.

The Company’s wholly owned U.S.

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

The Company’s wholly owned subsidiary Kiniksa UK., and its wholly owned subsidiaries, Kiniksa Germany and Kiniksa France are subject to taxation in their respective countries.

The Company’s benefit for income taxes primarily relates to net credits earned against taxable income generated by its wholly owned subsidiaries, primarily, Kiniksa US, under cost‑plus arrangements that they have with the Company.

The benefit for income taxes is impacted by the Foreign Derived Intangible Income, or (“FDII”), deduction and U.S.

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 the Company’s assessment, the Company has included the tax impact of FDII in its income tax expense for the year ended December 31, 2019, based on its understanding of the rules available at the time of this filing.

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

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

As a result, the Company has no t recorded any income tax benefits from losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards will be available to the Company for those losses.

The Company’s wholly owned U.S.

subsidiaries, Kiniksa US and Primatope, are subject to federal and state income taxes in the United States.

The Company’s wholly owned subsidiary Kiniksa UK, and its wholly owned subsidiaries, Kiniksa Germany, Kiniksa France, and Kiniksa Switzerland, are subject to taxation in their respective countries.

Certain of the Company’s subsidiaries, primarily Kiniksa US, operate under cost-plus arrangements.

The Company’s U.S.

provision for income taxes relates to current tax expense associated with the taxable income in the United States of its wholly owned subsidiary, Kiniksa US, as well as the recognition of a valuation allowance.

The current income tax expense is a result of the taxable income earned by Kiniksa US under its cost-plus arrangement offset in part by tax benefits from the U.S.

federal and state research and development credits.

The Company has recorded an immaterial foreign provision for income taxes related to income in non-U.S.

subsidiaries.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized.

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The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

In 2019, the Company identified an uncertain tax position related to historic research and development credits as a result of a R&D study performed (see Note 11).

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

In 2020, the Company recognized an uncertain tax position related to research and development credits (see Note 11).

Net Loss per Share

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Diluted net loss per share attributable to common shareholders is computed by dividing the diluted net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares.

For purpose of this calculation, outstanding options, unvested restricted common shares and convertible preferred shares are considered potential dilutive common shares.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Account Standards Update (“ASU”), No.

2016-02, Leases (Topic 842) (“ASU 2016-02”) .

The standard, including subsequently issued amendments, collectively referred to as Accounting Standards Codification (“ASC”) 842, established principles of recognition, measurement, presentation and disclosure of lease arrangements applicable to lessees and lessors in order to enhance the transparency and compatibility of financial reporting related to the arrangements, including with respect to the amount, timing and uncertainty of cash flows arising from a lease.

The Company adopted new accounting guidance regarding the accounting for leases as of January 1, 2019 using a modified retrospective transition approach that was applied to leases existing as of, or entered into prior to, January 1, 2019.

See Note 2, Summary of Significant Accounting Policies, “Leases”

for a discussion of the Company’s policy with respect to this standard and Note 5, “Leases”

for a discussion of the Company’s adoption of this standard and its impact on its consolidated financial statements and related disclosures.

Upon the adoption of ASC 842, the Company recorded operating lease right-of-use assets of $3,682 and operating lease liabilities of $3,917 for its leases which were in effect and had commenced prior to January 1, 2019 and had original lease terms of more than 12 months.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—

Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”) , which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract.

ASU 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software.

Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract.

The standard became effective for the Company beginning on January 1, 2020.

The Company is currently evaluating the potential impact that ASC 350-40 may have on its consolidated financial statements and related disclosures .

In June 2016, the FASB, issued ASU 2016-13, Financial Instruments:

Credit Losses (Topic 326)(“ASU 2016-13)”

, as clarified in ASU 2019-04 and ASU 2019-05.

The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary

For purpose of this calculation, outstanding share options, unvested restricted common shares and unvested restricted share units are considered potential dilutive common shares.

KINIKSA PHARMACEUTICALS, LTD.

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

impairments on investment securities are recorded.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB, issued ASU 2016-13, Financial Instruments:

Credit Losses (Topic 326) , as clarified in ASU 2019-04 and ASU 2019-05.

The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded.

The standard became effective for the Company beginning on January 1, 2020.

The Company does not anticipate the adoption of this ASU to have a material impact on its consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740)(“ASU 2019-12”) .

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”) , which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract.

The standard became effective for the Company beginning on January 1, 2020.

The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740)(“ASU 2019-12”) .

The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740 Income Taxes and clarifying existing guidance to facilitate consistent application.

The standard will become effective for the Company beginning on January 1, 2021.

The standard became effective for the Company beginning on January 1, 2021.

The Company is currently evaluating the new standard to determine the potential impact of ASU 2019-12 on its consolidated financial statements and related disclosures.

The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Fair Value of Financial Assets and Liabilities

Short‑term investments as of December 31, 2019 and 2018 consisted of U.S.

Treasury notes all of which are due within six months.

As of December 31, 2019 and 2018, the fair value of short‑term investments was $186,452 and $235,328, respectively.

As of December 31, 2019, the amortized cost was $186,415 and gross unrealized gain was $37.

As of December 31, 2018, the amortized cost was $235,332 and gross unrealized loss was $4.

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

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Fair Value Measurements

as of December 31, 2020 Using:

Restricted cash —

money market funds

Cash equivalents —

money market funds

Cash equivalents —

Restricted cash — money market funds

Cash equivalents — money market funds

Cash equivalents — U.S.

Treasury notes

Short-term investments —

Short-term investments — U.S.

Treasury notes

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as of December 31, 2019 Using:

Restricted cash —

money market funds

Cash equivalents —

money market funds

Cash equivalents —

Restricted cash — money market funds

Cash equivalents — money market funds

Cash equivalents — U.S.

Treasury notes

Short-term investments —

Short-term investments — U.S.

Treasury notes

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The money market funds were valued using quoted prices in active markets, which represent a Level 1 measurement in the fair value hierarchy.

The Company’s cash equivalents and short-term investments as of December 31, 2019 and 2018 consisted of U.S.

The Company's cash equivalents and short-term investments as of December 31, 2020 and 2019 included U.S.

Treasury notes, which are not traded on a daily basis and, therefore, represent a Level 2 measurement in the fair value hierarchy at each period end.

Cash equivalents and short-term investments as of December 31, 2020 and 2019 consisted of U.S.

Treasury notes which investments were each due within six months of such date.

December 31, 2020

Cash equivalents — U.S.

Treasury notes

Short-term investments — U.S.

Treasury notes

December 31, 2019

Cash equivalents — U.S.

Treasury notes

Short-term investments — U.S.

Treasury notes

As of December 31, 2020, the Company held 17 securities that were in an unrealized loss position.

The aggregate fair value of securities held by the Company in an unrealized loss position was $ 107,753 at December 31, 2020.

As of December 31, 2019, the Company held seven securities that were in an unrealized loss position.

The aggregate fair value of securities held by the Company in an unrealized loss position was $ 43,107 at December 31, 2019.

As of both December 31, 2020 and 2019, these securities were held by the Company in an unrealized loss position for

KINIKSA PHARMACEUTICALS, LTD.

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

less than 12 months.

The Company determined that there was no material change in the credit risk of these securities.

As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of December 31, 2020 and 2019.

Property and Equipment, Net

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Total property and equipment, net

As of December 31, 2019, construction in progress is primarily comprised of lab equipment which the Company anticipates will be placed into service in 2020.

As of December 31, 2020, construction in progress is primarily comprised of leasehold improvements which the Company anticipates will be placed into service in 2021.

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $ 2,405 , $ 2,068 and $ 286 , respectively.

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the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

For lease agreements entered into or reassessed after the Company’s adoption of ASC 842, the Company will combine lease and non-lease components.

Kiniksa US’s leases have remaining lease terms of less than 2 years.

On July 24, 2015, Kiniksa US entered into an operating lease in Wellesley Hills, Massachusetts for office space that comprised the former headquarters for Kiniksa US.

In March 2016, effective August 1, 2016, Kiniksa US entered into an expansion and extension on its lease, which expanded its leased space to a total of 10,800 square feet.

On March 31, 2017, Kiniksa US renewed this lease and extended the lease term to August 2018.

Monthly lease payments, inclusive of base rent and ancillary charges, were $27.

On March 13, 2018, Kiniksa US entered into an operating lease in Lexington, Massachusetts for office and laboratory space that comprises the new headquarters for Kiniksa US and on June 26, 2018, Kiniksa US entered into an amendment to the lease expanding the rentable space to a total of 27,244 square feet.

On November 7, 2018, Kiniksa US entered into an amendment (the “Third Amendment”) to the lease expanding the rentable space to a total of 55,924 square feet which were occupied in phases through December 2019.

The lease expires on July 31, 2021.

For lease agreements entered into or reassessed after the Company’s adoption of ASC 842, the Company will combine lease and non-lease components.

Kiniksa US’s leases have remaining lease terms of less than 2 years .

On March 13, 2018, Kiniksa US entered into an operating lease in Lexington, Massachusetts for office and laboratory space that comprises the headquarters for Kiniksa US and on June 26, 2018, Kiniksa US entered into an amendment to the lease expanding the rentable space to a total of 27,244 square feet.

On November 6, 2020, Kiniksa US entered into an amendment (the “Fourth Amendment”) to extend the term of the sublease by one month to August 31, 2021 and entered into a Recognition and Attornment Agreement and Amendment of Sublease (the “2020 Agreement”) directly with the prime landlord to continue to lease the space upon the expiration of the Fourth Amendment through August 31, 2023.

Monthly lease payments include base rent, as well as, ancillary charges such as the share of operating expenses and real estate taxes.

Base rent under the Third Amendment is $138 per month as of December 2019.

Base rent under the Third Amendment and Fourth Amendments were $ 139 per month and increased to $ 153 per month in November 2020 with subsequent increases to $ 233 per month in September 2021 and $ 240 per month in September 2022 through the end of the lease.

Further, a letter of credit to secure the lease is not required under the 2020 Agreement.

On December 21, 2018, Kiniksa US entered into an operating lease in San Diego, California for office space comprising a total of 4,400 square feet.

The lease commenced on January 1, 2019 and expires on December 31, 2020.

Monthly lease payments for base rent are $13.

Additional fees for ancillary charges such as the share of operating expenses, parking and real estate taxes are not included in the base rent.

The components of lease cost consisted of operating lease costs and variable lease costs were $1,443 and $152 for the year end ended December 31, 2019.

As of December 31, 2019, the weighted-average lease term was 1.47 years and the discount rate was 7.16%.

The lease commenced on January 1, 2019 and expires on January 31, 2021.

On July 17, 2020, Kiniksa US entered into an amendment to extend the lease through January 31, 2022.

Monthly lease

KINIKSA PHARMACEUTICALS, LTD.

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

payments for base rent are $ 13 and increase to $ 14 in February 2021 in accordance with the extension.

Additional fees for ancillary charges such as the share of operating expenses, parking and real estate taxes are not included in the base rent.

On December 1, 2020, Kiniksa UK entered into an operating lease in London, UK for office space comprising a total of 164 square meters.

The lease commenced on December 1, 2020 and expires on November 30, 2025 with an option to terminate on November 30, 2023.

Quarterly lease payments for base rent are £ 20 as of December 2020 and will increase periodically until the termination of the lease.

Additional fees for ancillary charges such as the share of operating expenses, parking and real estate taxes are not included in the base rent.

The lease also includes a requirement to restore the property to original condition and is estimated to be approximately £ 22 .

Operating lease cost

Variable lease cost

Total lease cost

Weighted-average remaining lease term (years)

Weighted-average discount rate

Maturities of operating leases liabilities were as follows:

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Present value of lease liabilities

Prior to the adoption of the new lease accounting standard, undiscounted future minimum rents payable as of December 31, 2018 under non-cancelable leases with the initial term exceeding one year were as follows:

As of December 31,

2022 and thereafter

Total future minimum lease payments

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Accrued Expenses

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Convertible Preferred Shares

As of December 31, 2017, the Company’s bye-laws, as amended and restated, designated 22,885,492 authorized shares to be issued as convertible preferred shares with a par value of $0.000273235 per share, of which 17,128,120 shares were further designated as Series A convertible preferred shares (the “Series A preferred shares”) and 5,757,372 shares were further designated as Series B convertible preferred shares (the "Series B preferred shares").

In February 2018, the Company’s bye-laws were further amended and restated to, among other things, effect an increase in the number of authorized convertible preferred shares with a par value of $0.000273235 per share to 35,670,093 shares, of which 12,784,601 shares were further designated as Series C convertible preferred shares (the "Series C preferred shares").

As of December 31, 2017, the Company’s bye-laws, as amended and restated, designated 22,885,492 authorized shares to be issued as convertible preferred shares with a par value of $ 0.000273235 per share, of which 17,128,120 shares were further designated as Series A convertible preferred shares (the “Series A preferred shares”) and 5,757,372 shares were further designated as Series B convertible preferred shares (the "Series B preferred shares").

In February 2018, the Company’s bye-laws were further amended and restated to, among other things, effect an increase in the number of authorized convertible preferred shares with a par value of $ 0.000273235 per share to 35,670,093 shares, of which 12,784,601 shares were further designated as Series C convertible preferred shares (the "Series C preferred shares").

The holders of convertible preferred shares had liquidation rights in the event of a deemed liquidation that, in certain situations, was not solely within the control of the Company.

Therefore, the Series A, Series B and Series C convertible preferred shares (collectively, the “Preferred Shares”) were classified outside of shareholders' equity.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

In October 2015, the Company issued and sold 8,028,809 Series A preferred shares at a price of $4.6707 per share (the “Series A Original Issue Price”) for proceeds of $37,398, net of issuance costs of $102.

In September 2016, the Company issued and sold an additional 9,099,311 Series A preferred shares at a price of $4.6707 per share for proceeds of $42,499, net of issuance costs of $1.

In March 2017, the Company issued and sold 5,757,372 Series B preferred shares at a price of $6.9475 per share (the “Series B Original Issue Price”) for proceeds of $39,873, net of issuance costs of $127.

In February 2018, the Company issued and sold 12,784,601 Series C preferred shares at a price of $15.6438 per share (the “Series C Original Issue Price”) for proceeds of $190,822, net of issuance costs of $9,178.

In May 2018, upon the completion of the Company’s IPO (which qualified as a “Qualified IPO”

under the Company’s bye‑laws, as amended and restated), all of the outstanding Preferred Shares were 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 in accordance with the Company’s bye‑laws, as amended and restated.

Therefore, the Series A, Series B and Series C convertible preferred shares (collectively, the “Preferred Shares”) were classified outside of shareholders' equity (deficit).

In February 2018, the Company issued and sold 12,784,601 Series C preferred shares at a price of $ 15.6438 per share (the “Series C Original Issue Price”) for proceeds of $ 190,822 , net of issuance costs of $ 9,178 .

In May 2018, upon the completion of the Company’s IPO (which qualified as a “Qualified IPO” under the Company’s bye-laws, as amended and restated), all of the outstanding Preferred Shares were 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 in accordance with the Company’s bye-laws, as amended and restated.

In connection with the completion of its IPO in May 2018, the Company amended and restated its bye-laws to, among other things, authorize the issuance of undesignated preferred shares.

As of December 31, 2019, no preferred shares were designated or issued.

As of December 31, 2020 and 2019, no preferred shares were designated or issued .

Prior to the conversion to common shares, the holders of the Preferred Shares had the following rights and preferences:

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The holders of Series B preferred shares were entitled to the number of votes per Series B preferred share equal to the number of whole Class A common shares into which the Series B preferred shares were convertible at the time of such vote (which was one vote for each Class A common share).

The holders of Series C preferred shares were entitled to the number of votes per Series C preferred share equal to the number of whole Class A common shares into which the Series C preferred shares were convertible at the time of such vote (which was one vote for each Class A common share).

Except as provided by law or by the other provisions of the Company’s bye‑laws, holders of Preferred Shares voted together with the holders of common shares as a single class.

The holders of Preferred Shares, voting together as a single class, were entitled to elect two directors of the Company.

The holders of Preferred Shares, voting together with the holders of common shares as a single class, were entitled to elect the remaining directors of the Company, except for the one director that the holders of Class A common shares and Class B common shares, voting together as a single class were entitled to elect.

Each Series A preferred share was convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, in such manner as permitted by Bermuda law, into such number of fully paid and non‑assessable Class B common shares determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion.

Each Series B preferred share was convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, in such manner as permitted by Bermuda law, into such number of fully paid and non‑assessable Class A common shares determined by dividing the Series B Original Issue Price by the

The holders of Series C preferred shares were entitled to the number of votes per Series C preferred share equal to the number of whole Class A common shares into which the Series

KINIKSA PHARMACEUTICALS, LTD.

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

Series B Conversion Price (as defined below) in effect at the time of conversion.

C preferred shares were convertible at the time of such vote (which was one vote for each Class A common share).

Except as provided by law or by the other provisions of the Company’s bye-laws, holders of Preferred Shares voted together with the holders of common shares as a single class.

The holders of Preferred Shares, voting together as a single class, were entitled to elect two directors of the Company.

Each Series A preferred share was convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, in such manner as permitted by Bermuda law, into such number of fully paid and non-assessable Class B common shares determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion.

Each Series B preferred share was convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, in such manner as permitted by Bermuda law, into such number of fully paid and non-assessable Class A common shares determined by dividing the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion.

Each Series C preferred share was convertible, at the option of the holder, at any time and from time to time, and without the payment of additional consideration by the holder thereof, in such manner as permitted by Bermuda law, into such number of fully paid and non-assessable Class A common shares determined by dividing the Series C Original Issue Price by the Series C Conversion Price (as defined below) in effect at the time of conversion.

2 unchanged sentences

Therefore, each Series A preferred share was convertible into one Class B common share, each Series B preferred share was convertible into one Class A common share and each Series C preferred share was convertible into one Class A common share.

Further, upon either (i) the closing of the sale of Class A common shares or Class B common shares to the public at a price of at least $15.6438 per share (subject to appropriate adjustment in the event of any share dividend, share split, combination or other similar recapitalization with respect to the applicable class of common shares) in an initial public offering resulting in at least $100,000 of gross proceeds to the Company (a “Qualified IPO”) or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the outstanding Preferred Shares, voting together as a single class on an as if converted to Class A common shares basis, all outstanding Series A preferred shares would automatically be converted, in such manner as permitted pursuant to Bermuda law, into Class B common shares at the then effective conversion rate, and all outstanding Series B and Series C preferred shares would automatically be converted, in such manner as permitted pursuant to Bermuda law, into Class A common shares at the then effective conversion rate.

Further, upon either (i) the closing of the sale of Class A common shares or Class B common shares to the public at a price of at least $ 15.6438 per share (subject to appropriate adjustment in the event of any share dividend, share split, combination or other similar recapitalization with respect to the applicable class of common shares) in an initial public offering resulting in at least $ 100,000 of gross proceeds to the Company (a “Qualified IPO”) or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of a majority of the outstanding Preferred Shares, voting together as a single class on an as if converted to Class A common shares basis, all outstanding Series A preferred shares would automatically be converted, in such manner as permitted pursuant to Bermuda law, into Class B common shares at the then effective conversion rate, and all outstanding Series B and Series C preferred shares would automatically be converted, in such manner as permitted pursuant to Bermuda law, into Class A common shares at the then effective conversion rate.

Notwithstanding the foregoing, in the event of a mandatory conversion of preferred shares as a result of a Qualified IPO, (a) holders of Series A preferred shares could elect to receive Class B1 common shares in lieu of Class B common shares and (b) holders of Series B and Series C preferred shares could elect to receive Class A1 common shares in lieu of Class A common shares.

The holders of the Preferred Shares were entitled to receive noncumulative dividends when and if declared by the Company’s board of directors.

The Company was not permitted to declare, pay or set aside any dividends on any other class or series of shares of the Company, other than dividends on common shares payable in common shares, unless the holders of the Preferred Share first received, or simultaneously received, a dividend on each outstanding Preferred Share equal to (i) in the case of a dividend on any class of common shares or any class or series convertible into common shares, that dividend per Preferred Share as would have equaled the product of (a) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common shares and (b) the number of common shares issuable upon conversion of a share of the applicable series of Preferred Shares, or (ii) in the case of a dividend on any class or series that was not convertible into common shares, at a rate per Preferred Share determined by (a) dividing the amount of the dividend payable on each share of such class or series of shares by the original issue price of such class or series (subject to appropriate adjustment in the event of any bonus share, share dividend, share split, combination of or other similar recapitalization with respect to such class or series) and (b) multiplying such fraction by an amount equal to the applicable Series A, Series B or Series C Original Issue Price.

No cash dividends were declared or paid on the Preferred Shares.

Liquidation Preference

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or deemed liquidation event (as defined below), the holders of Preferred Shares then outstanding were entitled to be paid out of the assets of the Company available for distribution to its shareholders, on a pari passu basis, before any payment was made to the holders of common shares by reason of their ownership thereof, an amount per share equal to the greater of (i) one times the applicable Original Issue Price, plus any dividends declared but unpaid thereon, and (ii) such amount per share

The holders of the Preferred Shares were entitled to receive noncumulative dividends when and if declared by the Company’s board of directors.

KINIKSA PHARMACEUTICALS, LTD.

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

as would have been payable had all Preferred Shares been converted into common shares immediately prior to such liquidation, dissolution, winding up or deemed liquidation event.

Preferred Share equal to (i) in the case of a dividend on any class of common shares or any class or series convertible into common shares, that dividend per Preferred Share as would have equaled the product of (a) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common shares and (b) the number of common shares issuable upon conversion of a share of the applicable series of Preferred Shares, or (ii) in the case of a dividend on any class or series that was not convertible into common shares, at a rate per Preferred Share determined by (a) dividing the amount of the dividend payable on each share of such class or series of shares by the original issue price of such class or series (subject to appropriate adjustment in the event of any bonus share, share dividend, share split, combination of or other similar recapitalization with respect to such class or series) and (b) multiplying such fraction by an amount equal to the applicable Series A, Series B or Series C Original Issue Price.

No cash dividends were declared or paid on the Preferred Shares.

Liquidation Preference

Thereafter, the remaining assets of the Company available for distribution to its shareholders would have been distributed among the holders of common shares, pro rata based on the number of shares held by each such holder.

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Unless a majority of the holders of the then outstanding Preferred Shares elected otherwise, a deemed liquidation event would include a merger or consolidation (other than one in which shareholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring company or corporation) or a sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Company.

The Company’s bye‑laws, as amended and restated, did not provide redemption rights to the holders of Preferred Shares.

The Company’s bye-laws, as amended and restated, did not provide redemption rights to the holders of Preferred Shares.

Common Shares

As of December 31, 2017, the Company’s bye‑laws, as amended and restated, authorized the Company to issue 43,918,239 total shares with a par value of $0.000273235, of which 5,507,938 and 3,568,353 shares were designated as Class A and Class B common shares, respectively.

In February 2018, the Company’s bye‑laws were further amended and restated to, among other things, effect an increase in the number of authorized common shares to 44,746,463 shares, of which 5,507,938 shares were designated as Class A common shares and 3,568,353 shares were designated as Class B common shares.

The remaining 11,956,456 shares that were not designated as common shares or Preferred Shares as of December 31, 2017 could have been designated to any class at any time in the future by the Company’s board of directors.

As of December 31, 2017, the Company’s bye-laws, as amended and restated, authorized the Company to issue 43,918,239 total shares with a par value of $ 0.000273235 , of which 5,507,938 and 3,568,353 shares were designated as Class A and Class B common shares, respectively.

In February 2018, the Company’s bye-laws were further amended and restated to, among other things, effect an increase in the number of authorized common shares to 44,746,463 shares, of which 5,507,938 shares were designated as Class A common shares and 3,568,353 shares were designated as Class B common shares.

The remaining 11,956,456 shares that were not designated as common shares or Preferred Shares as of

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

December 31, 2017 could have been designated to any class at any time in the future by the Company’s board of directors.

No Class A1 common shares or Class B1 common shares were designated as of December 31, 2017.

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

On May 23, 2018, the Company’s registration statement on Form S-1 relating to the IPO was declared effective by the SEC.

On May 29, 2018, the Company completed the IPO of 8,477,777 Class A common shares at a public offering price of $ 18.00 per share for gross proceeds of $ 152,600 .

1 unchanged sentence

The aggregate net proceeds to the Company from the IPO, inclusive of the over-allotment option exercise, was $ 155,536 after deducting underwriting discounts and commissions and other offering costs.

In May 2018, upon completion of the IPO (which qualified as a “Qualified IPO”

under the Company’s bye ‑laws, as amended and restated), all outstanding Preferred Shares were 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 in accordance with the Company’s bye‑laws, as amended and restated.

In May 2018, upon completion of the IPO (which qualified as a “Qualified IPO” under the Company’s bye -laws, as amended and restated), all outstanding Preferred Shares were 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 in accordance with the Company’s bye-laws, as amended and restated.

In connection with the completion of the IPO in May 2018, the Company increased the authorized capital of the Company to $ 54,647 consisting of 200,000,000 shares of $ 0.000273235 par value per share and, among other things, amended the description of different classes of shares under the Amended & Restated Bye-Laws.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The rights of the holders of the Company’s Class A common shares, Class B common shares, Class A1 common shares and Class B1 common shares are identical, except with respect to voting, transferability and conversion, as described below.

As of December 31, 2017, the voting, dividend and liquidation rights of the holders of the Company’s common shares were subject to and qualified by the rights, powers and preferences of the holders of the Preferred Shares as set forth above.

In May 2018, following the conversion of the Preferred Shares into common shares, the voting, dividend and liquidation rights of the holders of the Company’s common shares were then subject to and qualified by the rights, powers and preferences of the holders of the preferred shares, if any.

The aggregate net proceeds to the Company from the follow-on offering and concurrent private placement, inclusive of the over-allotment option exercise, was $ 82,988 after deducting underwriting discounts and commissions, placement agent fees and other offering costs.

As of December 31, 2020, no preferred shares were designated or issued .

1 unchanged sentence

Each Class B common share entitles the holder to ten votes on all matters submitted to the shareholders for a vote.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The holders of Class A and Class B common shares, voting together as a single class, are entitled to elect the directors of the Company.

Holders of Class A1 common shares and Class B1 common shares have no voting rights.

As of December 31, 2017, the holders of the Class A and Class B common shares, voting together as a single class, were entitled to elect one director of the Company.

The holders of the Class A and Class B common shares, voting together with the holders of the Preferred Shares, voting together as a single class, were entitled to elect the remaining directors of the Company, except for the two directors of the Company that the holders of the Preferred Shares, voting together as a single class, were entitled to elect.

In May 2018, following the conversion of the Preferred Shares into common shares, the holders of Class A and Class B common shares, voting together as a single class, are entitled to elect the directors of the Company.

Common shareholders are entitled to receive dividends, as may be declared by the Company’s board of directors.

As of December 31, 2017, any such dividends would have been subject to the preferential dividend rights of the holders of the Preferred Shares.

In May 2018, following the conversion of the Preferred Shares into common shares, any such dividends would be subject to the rights, powers and preferences of the preferred shares, if any.

As of December 31, 2019, no preferred shares were designated or issued.

The common shareholders are entitled to receive dividends, as may be declared by the Company’s board of directors.

Through December 31, 2020, no cash dividends have been declared or paid.

Each Class B common share shall automatically convert into one Class A common share upon certain transfers of such shares by the holder thereof (subject to certain exceptions).

Each Class B common share is convertible, at the holder’s election into one Class A common share or one Class B1 common share.

Each Class A1 common share is convertible into one Class A common share at the holder’s election (subject to certain exceptions).

Each Class B common share is convertible, at the holder’s election into one Class A common share or one Class B1 common share.

Each Class A1 common share is convertible into one Class A common share at the holder’s election (subject to certain exceptions).

Each Class B1 common share shall automatically convert into one Class A common share upon certain transfers of such shares by the holder thereof (subject to certain exceptions).

Each Class B1 common share is convertible into one Class A common share or one Class B common share at the holder’s election (subject to certain exceptions).

There are no conversion rights associated with the Class A common shares.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Share-Based Compensation

2018 Incentive Award Plan

In May 2018, the Company’s board of directors and shareholders approved the 2018 Incentive Award Plan (the “2018 Plan”), which became effective on May 23, 2018.

The 2018 plan provides for the grant of incentive options, nonqualified options, share appreciation rights, restricted shares, dividend equivalents, restricted share units and other share- or cash- based awards.

Upon the effectiveness of the 2018 Plan, the Company ceased granting awards under its 2015 Equity Incentive Plan (as amended, the “2015 Plan”

together with the 2018 Plan, the “Plans”).

In May 2018, the Company’s board of directors and shareholders approved the 2018 Incentive Award Plan (the “2018 Plan”), which became effective on May 23, 2018.

The 2018 Plan provides for the grant of incentive share options, nonqualified share options, share appreciation rights, restricted shares, dividend equivalents, restricted share units and other share- or cash- based awards.

Upon the effectiveness of the 2018 Plan, the Company ceased granting awards under its 2015 Equity Incentive Plan (as amended, the “2015 Plan” together with the 2018 Plan, the “Plans”).

A total of 4,466,500 Class A common shares were initially reserved for issuance under the 2018 Plan.

The number of Class A common shares that may be issued under the 2018 Plan will automatically increase on each January 1, beginning in 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the lesser of (i) 4% of the Class A common shares outstanding (on an as‑converted basis) on the final day of the immediately preceding calendar year and (ii) a smaller number of Class A common shares determined by the Company’s board of directors.

In 2019, the board of directors approved an increase of 1,979,586 shares, equal to 4% of the as-converted Class A common shares outstanding on December 31, 2018.

No more than 27,915,000 Class A common shares may be issued under the 2018 Plan upon the exercise of incentive options.

The Class A common shares underlying any awards issued under the 2018 Plan or the 2015 Plan that on or after the effective date of the 2018 Plan expire, lapse unexercised or are terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited under the 2018 Plan or the 2015 Plan will be added back to the Class A common shares available for issuance under the 2018 Plan.

The number of Class A common shares that may be issued under the 2018 Plan will automatically increase on each January 1, beginning in 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the lesser of (1) 4 % of the Class A common shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (2) a smaller number of Class A common shares determined by the Company’s board of directors.

In December 2019, the board of directors approved the automatic increase as of January 1, 2020 of 2,197,505 shares, equal to 4 % of the as-converted Class A common shares outstanding on December 31, 2019.

No more than 27,915,000 Class A common shares may be issued under the 2018 Plan upon the exercise of incentive share options.

The Class A common shares underlying any awards issued under the 2018 Plan or the 2015 Plan that on or after the effective date of the 2018 Plan expire, lapses unexercised or are terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised, or forfeited under the 2018 Plan or the 2015 Plan will be added back to the Class A common shares available for issuance under the 2018 Plan.

As of December 31, 2020, 1,618,474 shares remained available for future grant.

Rilonacept Long-Term Incentive Plan

In December 2019, the compensation committee of the Company’s board of directors approved the Company’s Rilonacept Long-Term Incentive Plan (“RLTIP”) under the Company’s 2018 Plan to incentivize eligible employees of the Company or any of its subsidiaries to achieve U.S.

Food and Drug Administration (“FDA”) approval for the commercial sale and marketing of rilonacept for the treatment of recurrent pericarditis in the United States (“RLTIP Milestone”).

The RLTIP provides for the potential to receive a cash award and two grants of restricted share unit (“RSU”) awards covering Class A common shares under the 2018 Plan.

The target award value for each of the cash award and the two RSU awards will be equal to one-third of a participant’s annual target bonus for the year of grant, as determined in accordance with the RLTIP.

Depending on the date-range within which the RLTIP Milestone is achieved (such date the “Achievement Date”) occurs, the RLTIP provides for (i) an earnout percentage that can be achieved as to 100%, 50%, 25% or 0% and (ii) an upside earnout percentage that can be achieved as to 50%, 25% or 0%.

No awards will be earned or vest, and the second RSU award will not be granted, in the event the Achievement Date does not occur by a specified date.

The cash award is eligible to be earned and vested upon the Achievement Date with respect to an amount determined in accordance with the RLTIP based on the earnout percentage.

The number of Class A common shares issuable under the first RSU award (“First RSU Award”) as a result of the RLTIP Milestone will be determined in accordance with the RLTIP based on the earnout percentage, and such RSUs will vest on the first anniversary of the Achievement Date, subject to continued employment on such date.

The second RSU award will be granted on the Achievement Date with respect to a number of shares determined in accordance with the RLTIP, based on both the earnout percentage and the upside earnout percentage, and will vest on the second anniversary of the Achievement Date, subject to continued employment through such date.

2015 Equity Incentive Plan

Until May 23, 2018 (the effective date of the 2018 Plan), the 2015 Plan provided for the Company to grant incentive share options, nonqualified share options, share grants and other share-based awards to employees and non-employees to purchase the Company’s Class A common shares.

On the effective date of the 2018 Plan, the Company ceased granting awards under the 2015 Plan.

At that time, the 4,691,213 Class A common shares subject to outstanding awards under the 2015 Plan remained reserved for issuance under the plan pursuant to such awards and the

KINIKSA PHARMACEUTICALS, LTD.

1 unchanged sentence

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

2015 Equity Incentive Plan

Until May 23, 2018 (the effective date of the 2018 Plan), the 2015 Plan provided for the Company to grant qualified incentive options, nonqualified options, share grants and other share‑based awards to employees and non‑employees to purchase the Company’s Class A common shares.

On the effective date of the 2018 Plan, the Company ceased granting awards under the 2015 Plan.

At that time, the 4,691,213 shares of Class A common shares subject to outstanding awards under the 2015 Plan remained reserved for issuance under the plan pursuant such awards and the 92,170 Class A common shares that had been available for future grant under the 2015 Plan were no longer authorized and reserved for issuance or available for future grant under the 2015 Plan.

As of December 31, 2019, there were 4,125,923 shares of Class A common shares subject to outstanding awards under the 2015 Plan and reserved for issuance under the 2015 Plan pursuant such awards.

On May 23, 2018, the effective date of the 2018 Plan, the Company ceased granting awards under the 2015 Plan and no Class A common shares were available for future grant under the 2015 Plan in connection with the 2018 Plan becoming effective.

The exercise price for incentive options was determined by the Company’s board of directors.

All incentive options granted to any person possessing 10% or less of the total combined voting power of all classes of shares could not have an exercise price of less than 100% of the fair market value of the Class A common shares on the grant date.

All incentive options granted to any person possessing more than 10% of the total combined voting power of all classes of shares could not have an exercise price of less than 110% of the fair market value of the Class A common shares on the grant date.

The option term for incentive awards could not be greater than 10 years.

Incentive options granted to persons possessing more than 10% of the total combined voting power of all classes of shares could not have an option term of greater than five years.

92,170 Class A common shares that had been available for future grant under the 2015 Plan were no longer authorized and reserved for issuance or available for future grant under the 2015 Plan.

As of December 30, 2020, there were 2,794,056 Class A common shares subject to outstanding awards under the 2015 Plan and reserved for issuance thereunder pursuant to such awards.

The 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it.

Class A common shares subject to awards granted under the 2015 Plan that expire, lapse unexercised or are terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised, or forfeited become available for issuance under the 2018 Plan.

The exercise price for share options granted under the 2015 Plan was determined by the Company’s board of directors.

All incentive share options granted to any person possessing 10 % or less of the total combined voting power of all classes of shares could not have an exercise price of less than 100 % of the fair market value of the Class A common shares on the grant date.

All incentive share options granted to any person possessing more than 10 % of the total combined voting power of all classes of shares could not have an exercise price of less than 110 % of the fair market value of the Class A common shares on the grant date.

The option term for incentive share options could not be greater than 10 years .

Incentive share options granted to persons possessing more than 10 % of the total combined voting power of all classes of shares could not have an option term of greater than five years .

The vesting period for equity-based awards was determined by the board of directors, which was generally four to six years .

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For awards granted to employees with six year vesting terms, 16 % of the option vests on the first anniversary of the grant date and the remaining shares vest based on a predetermined vesting schedule for five years thereafter.

Shares that are expired, terminated, surrendered or canceled under the 2015 Plan without having been fully exercised become be available for future awards under the 2018 Plan.

Share Option Grants During the Years Ended December 31, 2019 and 2018

During the years ended December 31, 2019 and 2018, the Company granted options to purchase 3,605,388 and 3,114,139 Class A common shares, respectively, to employees and directors.

The Company recorded share‑based compensation expense for options granted to employees and directors of $13,322 and $5,464 during the years ended December 31, 2019 and 2018, respectively.

During the years ended December 31, 2019 and 2018, the Company granted options to purchase 3,200 and 4,000 Class A common shares, respectively, to non‑employees.

The Company recorded share‑based compensation expense for options granted to non‑employees of $94 and $130 during the years ended December 31, 2019 and 2018, respectively.

2018 Employee Share Purchase Plan

In May 2018, the Company’s board of directors and shareholders approved the 2018 Employee Share Purchase Plan (the “2018 ESPP”), which became effective on May 23, 2018.

A total of 670,000 Class A common shares were initially reserved for issuance under the 2018 ESPP.

The number of Class A common shares that may be issued under the 2018 ESPP will automatically increase on each January 1, beginning in 2019 and continuing for each fiscal year

The number of Class A common shares that may be issued under the 2018 ESPP will automatically increase on each January 1, beginning in 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the lesser of (1) 1 % of the Class A common shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (2) a smaller number of Class A common shares determined by the Company’s board of directors, provided that no more than 6,420,000 Class A common shares may be issued under the 2018 ESPP.

In December 2020, the board of directors approved an increase as of January 31, 2021 of 130,000 shares.

As of December 31, 2020, 518,794 Class A common shares were available for future issuance under the 2018 ESPP.

KINIKSA PHARMACEUTICALS, LTD.

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

until, and including, the fiscal year ending December 31, 2028, equal to the lesser of (i) 1% of the Class A common shares outstanding (on an as‑converted basis) on the final day of the immediately preceding calendar year and (ii) a smaller number of Class A common shares determined by the Company’s board of directors, provided that no more than 6,420,000 Class A common shares may be issued under the 2018 ESPP.

As of December 31, 2019, 598,334 Class A common shares were available for future issuance under the 2018 ESPP.

In December 2019, the Company’s board of directors determined that the January 1, 2020 automatic increase in shares available under the 2018 ESPP would be zero shares.

Share Options

The following table summarizes option activity for the year ended December 31, 2020:

Outstanding as of December 31, 2019

( 1,324,429 )

( 1,003,182 )

Outstanding as of December 31, 2020

Share options exercisable as of December 31, 2020

Share options unvested as of December 31, 2020

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s common shares for those share options that had exercise prices lower than the fair value of the Company’s common shares.

During the year ended December 31, 2020, share option holders exercised 1,324,429 share options for Class A common shares with an intrinsic value of $ 18,271 for total cash proceeds to the Company of $ 6,058 .

During the year ended December 31, 2019, share option holders exercised 150,253 share options for Class A common shares with an intrinsic value of $ 1,776 for total cash proceeds to the Company of $ 590 .

During the year ended December 31, 2018, share option holders exercised 25,683 share options for Class A common shares with an intrinsic value of $ 411 for total cash proceeds to the Company of $ 87 .

The weighted-average grant-date fair value per share of share options granted during the years ended December 31, 2020, 2019 and 2018 was $ 11.38 , $ 9.36 and $ 11.96 , respectively.

The total fair value of share options vested during the years ended December 31, 2020, 2019 and 2018 was $ 17,931 , $ 13,997 and $ 2,255 , respectively.

Option Valuation

The assumptions that the Company used to determine the grant‑date fair value of options granted to employees and directors under the 2015 Plan and the 2018 Plan (collectively, the “Plans”) during the years ended December 31, 2019 and 2018 were as follows, presented on a weighted‑average basis:

The assumptions that the Company used to determine the grant-date fair value of share options granted to employees and directors under the 2015 Plan and the 2018 Plan during the years ended December 31, 2019 and 2018 were as follows, presented on a weighted-average basis:

Risk-free interest rate

2 unchanged sentences

Expected dividend yield

The assumptions that the Company used to determine the fair value of options granted to non-employees were as follows, presented on a weighted-average basis:

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

During the year ended December 31, 2020, the Company did not grant share options to non-employees.

During the year ended December 31, 2019 and 2018, the assumptions that the Company used to determine the fair value of share options granted to non-employees were as follows, presented on a weighted-average basis:

Risk-free interest rate

2 unchanged sentences

Expected dividend yield

Through December 31, 2017, all options granted by the Company under the 2015 Plan were for the purchase of Class A common shares.

Until May 23, 2018 (the effective date of the 2018 Plan), the 2015 Plan provided for the Company to grant qualified incentive share options, nonqualified share options, share grants and other share‑based awards to employees, directors, and consultants to purchase the Company’s Class A common shares.

On May 23, 2018, the Company ceased granting awards under the 2015 Plan.

At that time, shares of Class A common shares subject to outstanding awards under the 2015 Plan remained reserved for issuance under the plan pursuant such awards and shares of Class A common shares that had been available for future grant under the 2015 Plan were no longer authorized and reserved for issuance or available for future grant under the 2015 Plan.

However, the 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it.

Class A common shares subject to awards granted under the 2015 Plan that are forfeited, lapse unexercised or are settled in cash become available for issuance under the 2018 Plan.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The following table summarizes option activity for the year ended December 31, 2019:

Outstanding as of December 31, 2018

Outstanding as of December 31, 2019

Options exercisable as of December 31, 2019

Options unvested as of December 31, 2019

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common shares for those options that had exercise prices lower than the fair value of the Company’s common shares.

During the year ended December 31, 2019, option holders exercised 150,253 options for Class A common shares with an intrinsic value of $1,776 for total cash proceeds to the Company of $590.

During the year ended December 31, 2018, option holders exercised 25,683 options for Class A common shares with an intrinsic value of $411 for total cash proceeds to the Company of $87.

The weighted-average grant-date fair value per share of options granted during the years ended December 31, 2019 and 2018 was $9.36 and $11.96, respectively.

The total fair value of options vested during the years ended December 31, 2019 and 2018 was $13,997 and $2,255, respectively.

Restricted Shares

Under terms of the Class A and Class B restricted share agreements covering the Class A and Class B common shares, the restricted shares vest over a four‑year period during which time the Company has the right to repurchase up to all unvested shares at the amount paid if the relationship between the recipient and the Company ceases.

Subject to the continued employment (or other engagement of the recipient by the Company as described in the restricted share agreements), all of the restricted common shares became fully vested within four years of the date of issuance.

Rilonacept Long-Term Incentive Plan

A restricted share unit (“RSU”) represents the right to receive shares of the Company’s Class A common shares upon vesting of the RSU.

The fair value of each RSU is based on the closing price of the Company’s Class A common shares on the date of grant.

Food and Drug Administration (“FDA”) approval for the commercial sale and marketing of rilonacept for the treatment of recurrent pericarditis in the United States (“RLTIP Milestone”).

The RLTIP provides for the potential to receive a cash award and two grants of RSU awards covering Class A common shares under the 2018 Plan.

The target award value for each of the cash award and the two RSU awards will be equal to one-third of a participant’s annual target bonus in the year of grant , as determined in accordance with the RLTIP.

Depending on the date-range within which the RLTIP Milestone is achieved (such date the “Achievement Date”) occurs, the RLTIP provides for (i) an earnout percentage that can be achieved as to 100 %, 50 %, 25 % or 0 % and (ii) an upside earnout percentage that can be achieved as to 50 %, 25 % or 0 %.

No awards will be earned or vest, and the second RSU award will not be granted, in the event the Achievement Date does not occur by a specified date.

The cash award is eligible to be earned and vested upon the Achievement Date with respect to an amount determined in accordance with the RLTIP based on the earnout percentage.

Restricted Share Units

In December 2019, the Company granted RSUs with service conditions (“Time-Based RSUs”) that vest in one installment on December 31, 2020, subject to the recipient’s continued employment through that date.

During the years ended December 31, 2020 and 2019, the Company also granted the First RSU Award to eligible employees as part of the RLTIP, which becomes eligible to vest upon the Achievement Date and will vest upon the first anniversary of such date, subject to the recipient’s continued employment through that date.

In the event the RLTIP Milestone is not achieved, the First RSU Award will not vest.

KINIKSA PHARMACEUTICALS, LTD.

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

The following table summarizes restricted share activity for the year ended December 31, 2019:

Unvested restricted shares outstanding as of December 31, 2018

Unvested restricted shares outstanding as of December 31, 2019

The aggregate fair value of restricted shares that vested during the years ended December 31, 2019 and 2018 was $12,154 and $15,182, respectively.

Restricted Share Units

An RSU represents the right to receive one share of the Company’s Class A common share upon vesting of the RSU.

The fair value of each RSU is based on the closing price of the Company’s Class A common shares on the date of grant.

In December 2019, the Company granted RSUs with service conditions that vest in one installment provided that the recipient remains employed with the Company (“Time-Based RSUs”) through December 31, 2020.

During the year ended December 31, 2019, the Company also granted the First RSU Award as part of the RLTIP, which becomes eligible to vest upon the Achievement Date and will vest upon the first anniversary of such date, subject to the recipient’s continued employment through that date.

In the event the RLTIP Milestone is not achieved, none of the First RSU Award will vest.

The grant-date fair value of the Time-Based RSUs granted in 2019 was $1,250 and will be recognized on a straight-line basis through the vest date for these shares.

For the year ended December 31, 2019, the Company recognized $65 in Time-Based RSU expense.

The grant-date fair value of the First RSU Award was $2,994 and will be recognized when the RLTIP Milestone is deemed probable of achievement through the date the First RSU Award will vest.

During the year ended December 31, 2019, the Company did not recognize compensation expense related to the First RSU Award, as achievement of the RLTIP Milestone was determined to be not probable.

The following table summarizes RSU activity for the year ended December 31, 2019:

On December 31, 2020, all outstanding Time-Based RSUs vested and 56,369 class A common shares were issued and remaining shares of 24,332 were withheld for tax purposes.

For the year ended December 31, 2020, the Company recognized $ 980 in compensation expense related to the Time-Based RSUs.

For the year ended December 31, 2019, the Company did not recognize any compensation expense related to the Time-Based RSU.

The grant-date fair value of the First RSU Award remaining as of December 31, 2020 was $ 2,754 and will be recognized when the RLTIP Milestone is deemed probable of achievement through the date the First RSU Award will vest.

During the years ended December 31, 2020 and 2019, the Company did not recognize any compensation expense related to the First RSU Award, as achievement of the RLTIP Milestone was determined to be not probable.

The following table summarizes RSU activity, including the Time-Based RSUs and First RSU Awards under the RLTIP, for the year ended December 31, 2020:

Unvested RSUs as of December 31, 2019

Unvested RSUs as of December 31, 2020

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Share-Based Compensation

1 unchanged sentence

Research and development expenses

General and administrative expenses

As of December 31, 2019, total unrecognized compensation cost related to the unvested option-based awards was $44,185, which is expected to be recognized over a weighted average remaining period of 3.1 years.

As of December 31, 2019, total unrecognized compensation cost related to the unvested Time-Based RSUs was $1,185, which is expected to be recognized over a weighted average remaining period of 1.0 year.

Selling, general and administrative expenses

During the year ended December 31, 2020, the Company recorded compensation expense for share options and RSUs granted to employees and directors of $ 20,860 .

During the year ended December 31, 2020, the Company recorded compensation expense for share options granted to non-employees of $ 15 .

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of December 31, 2020, total unrecognized compensation expense related to the unvested share option awards was $ 64,715 which is expected to be recognized over a weighted average remaining period of 2.79 years.

As of December 31, 2020, the Company has recognized all of the compensation expense related to the Time-Based RSUs and none remain unvested.

As of December 31, 2020, total unrecognized compensation cost related to the First RSU Award was $ 2,754 which will be recognized when the RLTIP Milestone is deemed probable of achievement through the date the First RSU Award vests.

1 unchanged sentence

Biogen Asset Purchase Agreement

In September 2016, the Company entered into an asset purchase agreement (the “Biogen Agreement”) with Biogen MA Inc.

(“Biogen”) to acquire all of Biogen’s right, title and interest in and to certain assets used in or relating to KPL‑716 and other antibodies covered by certain patent rights, including patents and other intellectual property rights, clinical data, know‑how, and clinical drug supply.

In addition, Biogen granted to the Company a non‑exclusive, sublicensable, worldwide license to certain background patent rights related to the KPL‑716 program.

In September 2016, the Company entered into an asset purchase agreement (the "Biogen Agreement") with Biogen MA Inc.

("Biogen") to acquire all of Biogen's right, title and interest in and to certain assets used in or relating to vixarelimab and other antibodies covered by certain patent rights, including patents and other intellectual property rights, clinical data, know-how, and clinical drug supply.

In addition, Biogen granted to the Company a non-exclusive, sublicensable, worldwide license to certain background patent rights related to the vixarelimab program.

The Company is obligated to use commercially reasonable efforts to develop and commercialize such acquired products.

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Under the Biogen Agreement, the Company is obligated to make milestone payments to Biogen of up to $ 179,000 upon the achievement of specified clinical and regulatory milestones in multiple indications in various territories, including milestone payments of $ 4,000 and $ 10,000 paid during the year ended December 31, 2017 and the year ended December 31, 2019, respectively, each payment was associated with the achievement of a specified clinical milestone event.

No milestones were achieved or paid during the year ended December 31, 2020.

Additionally, the Company could be obligated to make up to an aggregate of up to $ 150,000 of payments upon the achievement of specified annual net sales milestones and to pay tiered royalties on escalating tiers of annual net sales of licensed products starting in the high single-digit percentages and ending below the teens.

The Company also agreed to pay certain obligations under third‑party contracts retained by Biogen that relate to the KPL‑716 program.

The Company also agreed to pay certain obligations under third-party contracts retained by Biogen that relate to the vixarelimab program.

Under these retained contracts, the Company paid a one-time upfront sublicense fee of $ 150 and is obligated to pay insignificant annual maintenance fees as well as clinical and regulatory milestone payments of up to an aggregate of $ 1,575 .

The Company made insignificant payments in connection with the retained contracts during the years ended December 31, 2019 and 2018.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The Biogen Agreement will terminate upon the expiration of all payment obligations with respect to the last product in all countries in the territory.

The Company has the right to terminate the agreement with 90 days’

prior written notice.

The Company has the right to terminate the agreement with 90 days ’ prior written notice.

Both parties may terminate by mutual written consent or in the event of material breach of the agreement by the other party that remains uncured for 90 days (or 30 days for payment-related breaches).

During the year ended December 31, 2020, the Company recorded research and development expense of $ 106 primarily related to a milestone occurring in the first quarter of 2020 and the annual maintenance fee both in connection with the retained contracts.

During the year ended December 31, 2019, the Company recorded research and development expense of $ 10,347 primarily related to milestone payments associated with the achievement of a specified clinical milestone event as well as other payments in connection with the retained contracts due under the Biogen Agreement.

The Company did not incur any research and development expense, other than insignificant payments in connection with the retained contracts, under the Biogen Agreement during the year ended December 31, 2018

Novo Nordisk License Agreement

In August 2017, the Company entered into a license agreement (the “Novo Nordisk Agreement”) with Novo Nordisk A/S (“Novo Nordisk”), pursuant to which the Company was granted an exclusive, sublicensable, worldwide license under certain intellectual property rights controlled by Novo Nordisk to make, use, develop and commercialize KPL‑045 for all indications.

In consideration for the license, the Company made an upfront payment of $1,500 to Novo Nordisk.

The Company accounted for the acquisition of technology as an asset acquisition because it did not meet the definition of a business.

The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in‑process research and development and had no alternative future use.

In January 2020, the Company terminated the Novo Nordisk Agreement in accordance with the terms and conditions of the agreement.

Under the Novo Nordisk Agreement, the Company was required to make a payment of $150 upon completion of the technology transfer by Novo Nordisk.

The technology was transferred during the year ended December 31, 2018 and, as a result, this payment was made and was recorded in the Company’s consolidated statement of operations for the year ended December 31, 2018.

In addition, the Company was obligated to make milestone payments upon the achievement of specified clinical, regulatory and initial sales milestones and upon the achievement of annual net sales thresholds including a payment of $1,000 upon the earlier to occur of a specified regulatory milestone and January 2020, unless the Novo Nordisk Agreement is earlier terminated by either party.

As of December 31, 2019 and December 31, 2018, the Company determined that the payment related to the milestone was not probable and, therefore, no amount was recorded in the Company’s consolidated statement of operations and comprehensive loss during years ended December 31, 2019 and 2018.

Under the Novo Nordisk Agreement, the Company was solely responsible for all development, regulatory and commercial activities and costs.

The Company is also responsible for costs related to filing, prosecuting and maintaining the licensed patent rights.

The Company did not record any research and development expense during the year ended December 31, 2019 in connection with milestone payments due under the Novo Nordisk Agreement.

During the year ended December 31, 2018, the Company recorded research and development expense of $154, in connection with milestone payments due under the Novo Nordisk Agreement.

The Company did no t incur any research and development expense, other than insignificant payments in connection with the retained contracts, under the Biogen Agreement during the year ended December 31, 2018.

KINIKSA PHARMACEUTICALS, LTD.

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Primatope Stock Purchase Option Agreement

In September 2017, the Company entered into a stock purchase option agreement (the “Primatope Agreement”) with Primatope Therapeutics, Inc.

(“Primatope”), pursuant to which the Company was granted a license to certain intellectual property rights owned or controlled by Primatope to research, develop, and manufacture the preclinical antibody, KPL‑404.

The agreement provided the Company with an exclusive call option to purchase 100% of the equity securities of Primatope.

Upon execution of the agreement, the Company made $500 in upfront payments for the initial option period through April 2018 (the “Initial Option Period”).

The Primatope Agreement allowed for up to three extensions of the Initial Option Period through January 2019 (including the initial option period, the “Option Period”) for total extension payments of up to $800.

In September 2017, the Company entered into a stock purchase option agreement (the “Primatope Agreement”) with Primatope Therapeutics, Inc.

The agreement provided the Company with an exclusive call option to purchase all of the outstanding securities of Primatope.

Upon execution of the agreement, the Company made $ 500 in upfront payments for the initial option period through April 2018 (the “Initial Option Period”).

Through December 31, 2018, the Company made payments totaling $ 800 to extend the Option Period to January 15, 2019.

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The Company determined that the call option represented a variable interest in Primatope and that Primatope is a VIE.

However, as the Company had no ability to control the board of directors or direct the ongoing activities of Primatope during the Option Period, the Company did not have power over the activities that most significantly impact Primatope’s economic performance and was not the primary beneficiary of Primatope.

As a result, the Company did not consolidate the assets, liabilities, and results of operations of Primatope.

In January 2019, the Company exercised the call option and in March 2019, the Company acquired all of the issued and outstanding equity securities of Primatope (the “Primatope Acquisition”) in exchange for $18,000 comprised of upfront consideration of $10,000 at closing and milestone payments of $5,000,which had been achieved as of the closing date, and in June 2019, the Company made the final milestone payment of $3,000, which was achieved during the year ended December 31, 2019 following the closing, 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 a result, the Company did not consolidate the assets, liabilities, and results of operations of Primatope prior to 2019.

In January 2019, the Company exercised the call option and in March 2019, the Company acquired all of the outstanding securities of Primatope (the “Primatope Acquisition”).

The aggregate amount of upfront and contingent payments the Company paid to the former Primatope shareholders to acquire the Company was comprised of (1) $ 15,000 paid at closing in March 2019, comprised of upfront consideration of $ 10,000 and milestone payments of $ 5,000 , which had been achieved as of the closing date, and (2) $ 3,000 paid in June 2019 for the final milestone payment, which was achieved following the closing during the six months ended June 30, 2019, each paid in a combination of cash and Class A common shares (inclusive of escrow and holdback share amounts) in accordance with the Primatope Agreement.

At the closing of the Primatope Acquisition, Primatope became a wholly owned subsidiary of the Company and the acquisition was accounted for as an asset acquisition as it did not meet the definition of a business.

The Company released the escrow and issued the shares that were held back at closing in June 2020 and issued the shares that were held back at the final milestone payment in September 2020.

The Company recorded the upfront payment and milestone payments 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.

During the year ended December 31, 2019, the Company did not incur any research and development expense directly in connection with milestone or other payments related to the Primatope Acquisition or the Primatope Agreement.

During the years ended December 31, 2020, the Company did not incur any research and development expense directly in connection with milestone or other payments related to the Primatope Acquisition or the Primatope Agreement.

During the year ended December 31, 2019, the Company recorded research and development expense of $ 18,000 related to the Primatope Acquisition.

2 unchanged sentences

As a result of the Primatope Acquisition, the Company acquired the rights to an exclusive license to certain intellectual property rights controlled by Beth Israel Deaconess Medical Center, Inc.

(“BIDMC”) to make, use, develop and commercialize KPL-404 (the “BIDMC Agreement”).

Under the BIDMC Agreement, the Company is solely responsible for all development, regulatory and commercial activities and costs.

The Company is also responsible for costs related to filing, prosecuting and maintaining the licensed patent rights.

Under the BIDMC Agreement, the Company is obligated to pay an insignificant annual maintenance fee as well as clinical and regulatory milestone payments of up to an aggregate of $1,200 to BIDMC.

The Company is also obligated to pay a low single-digit royalty on annual net sales of products licensed under the agreement.

Under the BIDMC Agreement, the Company is obligated to pay an insignificant annual maintenance fee as well as clinical and regulatory milestone

KINIKSA PHARMACEUTICALS, LTD.

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

During the year ended December 31, 2019, the Company recorded research and development expense of $10 in connection with the BIDMC Agreement.

payments of up to an aggregate of $ 1,200 to BIDMC.

The Company is also obligated to pay a low single-digit royalty on annual net sales of products licensed under the agreement.

During the years ended December 31, 2020 and 2019, the Company recorded research and development expense of $ 10 and $ 10 , respectively in connection with the BIDMC Agreement.

Regeneron License Agreement

In September 2017, the Company entered into a license agreement (the “Regeneron Agreement”) with Regeneron Pharmaceuticals, Inc.

(“Regeneron”), pursuant to which the Company has been granted an exclusive, sublicensable license under certain intellectual property rights controlled by Regeneron to develop and commercialize rilonacept in certain fields and territories.

In September 2017, the Company entered into a license agreement (the “Regeneron Agreement”) with Regeneron Pharmaceuticals, Inc.

The Company is obligated to use commercially reasonable efforts to develop and commercialize such licensed products.

2 unchanged sentences

The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use.

Under the Regeneron Agreement, the Company is also obligated to make payments to Regeneron of up to an aggregate of $27,500 upon the achievement of specified regulatory milestones.

Upon commercialization of the licensed products, the parties will share profits equally for all commercial products, after deducting certain commercialization expenses subject to specified limits.

Under the Regeneron Agreement, the Company is also obligated to make payments to Regeneron of up to an aggregate of $ 27,500 upon the achievement of specified regulatory milestones, which includes a $ 7,500 milestone achieved and paid in the fourth quarter of 2020 and a $ 20,000 milestone which may be met in the first quarter of 2021.

Upon approval from the FDA, if any, of the sBLA for rilonacept in recurrent pericarditis, the Company will assume the sales and distribution of rilonacept for the approved indications of CAPS and DIRA in the United States and the Company would evenly split profits on sales of commercial products with Regeneron, after deducting certain commercialization expenses subject to specified limits.

During the year ended December 31, 2020, the Company recorded research and development expense of $ 7,500 in connection with the achievement of a specified regulatory milestone event.

The Company did no t incur any research and development expense directly related to milestones due under the Regeneron Agreement during the year ended December 31, 2019 and 2018.

Under the Regeneron Agreement, the Company is solely responsible for all development and commercialization activities and costs in its territories.

1 unchanged sentence

The parties also entered into a clinical supply agreement under which Regeneron agreed to manufacture the developed product during the clinical phase.

During the year ended December 31, 2020, the Company did not incur any research and development expense related to the purchase of drug materials under this agreement.

During the years ended December 31, 2019 and 2018, the Company recorded research and development expense of $ 6,854 and $ 1,835 , respectively, related to the purchase of drug materials under this agreement.

As of December 31, 2019, the Company has non‑cancelable purchase commitments under the clinical supply agreement (see Note 13).

As of December 31, 2020, the Company had non-cancelable purchase commitments under the clinical supply agreement (see Note 13).

The Regeneron Agreement will expire when the Company is no longer developing or commercializing any licensed product under the Regeneron Agreement.

Either party may terminate the agreement upon the other party’s insolvency or bankruptcy or for material breach of the agreement by the other party that remains uncured for 90 days (or 30 days for payment‑related breaches).

Regeneron has the right to terminate the agreement if the Company suspends its development or commercialization activities for a consecutive 12 month period or does not grant a sublicense to a third-party to perform such activities, or if the Company challenges any of the licensed patent rights.

The Company may terminate the agreement at any time that is 18 months after the effective date of the agreement with 180 days’

written notice or with one years’

written notice if the Company terminates the agreement following U.S.

marketing approval of a rilonacept product developed by the Company.

The Company may also terminate the agreement with three month’s written notice if the products are determined to have certain safety concerns.

The Company did not incur any research and development expense directly related to milestone payments due under the Regeneron Agreement during the year ended December 31, 2019 and 2018.

MedImmune License Agreement

In December 2017, the Company entered into a license agreement (the “MedImmune Agreement”) with MedImmune, Limited (“MedImmune”), pursuant to which MedImmune granted the Company an exclusive,

The Company may

KINIKSA PHARMACEUTICALS, LTD.

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

sublicensable, worldwide license to certain intellectual property rights to make, use, develop and commercialize mavrilimumab.

Under the MedImmune Agreement, the Company also acquired reference rights to relevant manufacturing and regulatory documents and MedImmune’s existing supply of mavrilimumab drug substance and product.

terminate the agreement at any time that is 18 months after the effective date of the agreement with 180 days ’ written notice or with one year ’s written notice if the Company terminates the agreement following U.S.

marketing approval of a rilonacept product developed by the Company.

The Company may also terminate the agreement with three months ’ written notice if the products are determined to have certain safety concerns.

MedImmune License Agreement

In December 2017, the Company entered into a license agreement (as amended from time to time, the “MedImmune Agreement”) with MedImmune, Limited (“MedImmune”), pursuant to which MedImmune granted the Company an exclusive, sublicensable, worldwide license to certain intellectual property rights to make, use, develop and commercialize mavrilimumab.

The Company is obligated to use commercially reasonable efforts to develop and commercialize the licensed products.

2 unchanged sentences

The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use.

In addition, the Company is obligated to make clinical, regulatory and initial sales milestone payments of up to $72,500 in aggregate for the first two indications, including, a $5,000 pass‑through payment due upon the achievement of a specified clinical milestone event which was met in the fourth quarter of 2018.

In addition, the Company is obligated to make clinical, regulatory and initial sales milestone payments of up to $ 72,500 in aggregate for the first two indications, including, a $ 5,000 pass-through payment due upon the achievement of a specified clinical milestone event which was achieved in the fourth quarter of 2018.

Also included is a milestone payment of $ 10,000 due upon the earlier to occur of a specified regulatory milestone and December 31, 2018, unless the MedImmune Agreement is earlier terminated by either party.

As of December 31, 2018 and 2017, the Company determined that the payment related to this milestone was probable and, therefore, recognized research and development expense and an accrued milestone of $10,000 during the year ended December 31, 2017.

During the year ended December 31, 2019, the Company made both the $ 5,000 and $ 10,000 previously accrued milestone payments in accordance with the MedImmune Agreement.

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

In July 2020, the Company entered into an amendment to the MedImmune Agreement to establish a new coronavirus field and defer the payment of certain development and regulatory milestones as applied to the new coronavirus field.

The Company is obligated to make milestone payments to MedImmune of up to $ 85,000 upon the achievement of annual net sales thresholds up to, but excluding, $ 1,000,000 in annual net sales as well as additional milestone payments aggregating up to $ 1,100,000 upon the achievement of additional specified annual net sales thresholds starting at $ 1,000,000 and higher.

4 unchanged sentences

The MedImmune Agreement will expire upon the expiration of the royalty term in the last country for the last indication, as defined in the agreement.

Either party may terminate the agreement upon the other party’s insolvency or bankruptcy or for material breach of the agreement by the other party that remains uncured for 90 days.

Either party may terminate the agreement upon the other party’s insolvency or bankruptcy or for material breach of the agreement by the other party that remains uncured for 90 days .

MedImmune has the right to terminate the agreement if the Company challenges any of the licensed patent rights.

The Company may terminate the agreement at any time upon 90 days’

prior written notice.

During the year ended December 31, 2019, the Company did not record research and development expense in connection with the milestone payments due under the MedImmune Agreement.

During the year ended December 31, 2018, the Company recorded research and development expense $5,000, related primarily to a pass-through payment due upon the achievement of specified clinical milestone events due under the MedImmune Agreement.

Kite Clinical Collaboration Agreement

In December 2019, we entered into a clinical collaboration (the “Kite Agreement”) with Kite Pharma, Inc., a Gilead Company (“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

The Company may terminate the agreement at any time upon 90 days ’ prior written notice.

During the years ended December 31, 2020 and 2019, the Company did no t record research and development expense in connection with milestone payments due under the MedImmune Agreement.

During the year ended December 31, 2018, the Company recorded research and development expense and an accrued milestone of $ 5,000

KINIKSA PHARMACEUTICALS, LTD.

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

sponsor of this study and responsible for its conduct.

Under the Kite Agreement, Kite and the Company shall share a portion of the costs incurred in conducting the study.

The Kite Agreement will expire on the one-year anniversary of the date that Kite provides the clinical study report to the Company or unless otherwise terminated in accordance with the Kite Agreement.

The Company evaluated the agreement and determined all costs and expenses will be recognized as incurred as research and development expenses.

During the year ended December 31, 2019, the Company did not record any research and development expense in connection with the Kite Agreement.

related to a pass-through payment due upon the achievement of a specified clinical milestone event due under the MedImmune Agreement.

Kite Clinical Collaboration

In December 2019, the Company entered into a clinical collaboration (the “Kite Agreement”) with Kite Pharma, Inc., a Gilead Company (“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 granulocyte-macrophage colony stimulating factor (“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 (“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.

In August 2020, Kite as the sponsor of the study which had not begun to enroll, informed the Company that the clinical collaboration was being discontinued under a portfolio strategy review and terminated the agreement in accordance with its terms and conditions.

During the years ended December 31, 2020 and 2019, the Company did no t record any research and development expense in connection with the Kite Agreement.

As a company incorporated in Bermuda, the Company is 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, the Company has not recorded any income tax benefits from its losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards will be available to the Company for those losses.

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

As a result, the Company has no t recorded any income tax benefits from its losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards will be available to the Company for those losses.

In July 2020, the IRS issued final regulations regarding Foreign Derived Intangible Income (“FDII”), which was enacted as part of the U.S.

Tax Cuts and Jobs Act in December 2017.

The final FDII requirements outlined in the 2020 guidance did not materially impact the Company’s income taxes.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted to provide economic relief to those impacted by the COVID-19 pandemic.

The CARES Act made various tax law changes, including, among other things:

(i) modifications to the federal net operating loss rules, including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and eliminating the 80% of taxable income limitations in years 2018-2020;

(ii) enhanced recoverability of alternative minimum tax credit carryforwards;

and (iii) delayed payment of employer payroll taxes.

On December 27, 2020 updates to the CARES Act were enacted which provided the temporary allowance of a full deduction for business meals paid or incurred between December 31, 2020 and January 1, 2023.

The Company will continue to monitor for any updates but currently the only material impact to the Company’s tax provision is the ability to defer employer payroll taxes for which the Company will not get a deduction until the amounts are paid.

In August 2015, the Company entered into agreements with its wholly owned subsidiary, Kiniksa US, under which Kiniksa US provides management and research and development services to the Company for which the Company pays costs plus a service fee.

On March 9, 2019, the Company entered into an agreement with Primatope to license certain intellectual property rights related to KPL-404.

Kiniksa US and Primatope are subject to tax in the United States for federal and state tax purposes.

The Company has a wholly owned subsidiary in Europe, Kiniksa UK (formed in December 2018).

Kiniksa UK has two wholly owned subsidiaries in Europe, Kiniksa Germany (formed in February 2019), and Kiniksa France (formed in June 2019).

Each are subject to taxation in their respective countries.

Income (loss) before benefit for income taxes consisted of the following:

Foreign (U.S., U.K., Germany, France)

In connection with its launch readiness activities, the Company transferred all of its rights, title and interest in, among other things, certain contracts (including the Regeneron Agreement), intellectual property rights, product filings and approvals and other information, plans and materials owned or controlled by the Company insofar as they related exclusively or primarily to rilonacept to Kiniksa UK in January 2021 pursuant to an asset transfer agreement between the Company and Kiniksa UK for the consideration described therein.

KINIKSA PHARMACEUTICALS, LTD.

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

The components of the Company’s income tax benefit for the years ended December 31, 2019 and 2018 are as follows:

Loss before benefit (provision) for income taxes consisted of the following:

Foreign (U.S., U.K., Germany, France, Switzerland)

The components of the Company’s income tax (provision) benefit were as follows:

Current income tax provision:

Foreign (U.K., Germany, France, Switzerland)

Total current income tax provision

Deferred income tax benefit:

Total deferred income tax benefit

Total benefit (provision) for income taxes

A reconciliation of the Bermuda statutory income tax rate of 0% to the Company’s effective income tax rate is as follows:

Deferred income tax (provision) benefit:

Foreign (U.K., Germany, France, Switzerland)

Total deferred income tax (provision) benefit

Total (provision) benefit for income taxes

A reconciliation of the Bermuda statutory income tax rate of 0 % to the Company’s effective income tax rate is as follows:

Bermuda statutory income tax rate

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Effective income tax rate

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Net deferred tax assets consisted of the following:

Deferred tax assets:

Research and development tax credit carryforwards

Depreciation and amortization

Share-based compensation

Accrued expenses and other

Operating lease liability

Accrued bonus

Accrued expenses and other liabilities

Net operating losses

1 unchanged sentence

Valuation allowance

Deferred tax liabilities:

Depreciation and amortization

Right of use asset

Net deferred tax assets

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As of December 31, 2020 and 2019, the Company had federal research and development tax credit carryforwards of approximately $ 1,383 and $ 228 respectively, available to reduce future tax liabilities, which begin to expire in 2040.

1 unchanged sentence

As required by ASC 740, the Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets.

As a result of significant cumulative tax benefits associated with share-based compensation taxable events recognized in 2020, the Company has significant negative evidence in the form of cumulative losses and thus management has determined that it is more likely than not that the Company will not utilize the deferred tax assets in the United States.

As such, the Company recorded a valuation allowance against its U.S.

deferred tax assets at December 31, 2020 of $ 9,307 .

In prior years, the Company recorded a valuation allowance against certain state research and development tax credits only.

In order to utilize state research and development tax credits, the Company will need taxable income in the jurisdiction of where the credit was generated.

The Company currently has no taxable income in certain state jurisdictions and thus management has determined that it is more likely than not that the Company will not recognize the benefits of state research and development tax credits generated in those jurisdictions, and as a result, a valuation allowance of $330 and $49 has been established at December 31, 2019 and 2018, respectively.

The Company currently has no taxable income in certain state jurisdictions and thus management had determined that it is more likely than not that the Company will not recognize the benefits of state research and development tax credits generated in those jurisdictions.

A valuation allowance of $ 330 had been established at December 31, 2019.

Utilization of the state research and development tax credits may be subject to substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that could occur in the future.

1 unchanged sentence

In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the shares of a corporation by more than 50% over a three-year period.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2019 and 2018 were due primarily to an increase in state research and development tax credits and net operating losses from Primatope which are more likely than not to expire unutilized and were as follows:

Changes in the valuation allowance for deferred tax were as follows:

Valuation allowance at beginning of year

Increases recorded to through the balance sheet

Increases recorded through the balance sheet

Increases recorded to income tax provision

Valuation allowance at end of year

The valuation allowance increased by $281 in 2019 primarily as a result of additional California Research and Development (“R&D”) credits and the net operating loss carryovers at Primatope which may not be realized.

The remaining deferred tax assets will be fully utilized in the United States based on future income generated under the cost‑plus arrangement in place.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The valuation allowance increased by $ 8,977 in 2020 primarily as a result of the recognition of a valuation allowance against all U.S.

deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position.

1 unchanged sentence

The amount of unrecognized tax benefits is $ 837 and $ 528 as of December 31, 2020 and 2019, respectively.

The net increase relates to new tax positions on Research and Development credits as a result of the R&D study performed in 2019.

A roll forward of the Company’s uncertainties in its income tax provision liability is presented below:

The net increase relates to new tax positions on research and development credits generated in 2020, offset by positions which are no longer outstanding due to the statute of limitations closing.

A roll forward of the Company’s uncertainties in its income tax provision liability is presented below:

Gross balance at the beginning of year

Gross increases based on current period tax positions

Gross decreases based on tax positions of the prior periods

Unrecognized tax benefits at the end of the year

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

The Company had recorded immaterial interest on the tax positions during the year ended December 31, 2019 and no interest or penalties for the year ended December 31, 2018.

The Company files income tax returns in the United States and certain state jurisdictions.

Kiniksa US’s federal and state income tax returns are subject to tax examinations for the tax years ended December 31, 2016 and subsequent years.

The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.

The Company had recorded immaterial interest on the tax positions during the year ended December 31, 2020, 2019 and 2018.

The Company files income tax returns in the United States as well as in certain state and in certain country jurisdictions.

Kiniksa US’s federal and state income tax returns are subject to tax examinations for the tax years ended December 31, 2017 and subsequent years.

To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period.

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As the liquidation and dividend rights are identical, losses are allocated on a proportionate basis and the resulting net loss per share attributed to common shareholders will, therefore, be the same for both Class A and Class B common shares on an individual or combined basis.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Net loss attributable to common shareholders

Weighted average common shares outstanding—basic and diluted

Net loss per share attributable to common shareholders—

basic and diluted

The Company’s unvested restricted shares and restricted share units have been excluded from the computation of basic net loss per share attributable to common shareholders.

The Company’s potentially dilutive securities, which include options, unvested restricted shares and unvested RSUs, have been excluded from the computation of diluted net loss per share attributable to common shareholders as the effect would be to reduce the net loss per share attributable to common shareholders.

Weighted average common shares outstanding—basic and diluted

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

The Company’s unvested restricted shares and restricted share units have been excluded from the computation of basic net loss per share attributable to common shareholders.

The Company’s potentially dilutive securities, which include share options, unvested restricted shares and unvested RSUs, have been excluded from the computation of diluted net loss per share attributable to common shareholders as the effect would be to reduce the net loss per share attributable to common shareholders.

Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common shareholders is the same.

1 unchanged sentence

As of December 31,

Options to purchase common shares

Unvested restricted shares

Unvested restricted share units

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Share options to purchase common shares

Unvested restricted common shares

Unvested RSUs

Commitments and Contingencies

6 unchanged sentences

During the year ended December 31, 2020, the Company granted a cash award and the First RSU Award to employees under the RLTIP.

The cash award vests upon the achievement of the RLTIP Milestone, subject to the recipient’s continued employment.

The First RSU Award becomes eligible to vest upon the achievement of the RLTIP Milestone, and will vest upon the first anniversary of such date, subject to the recipient’s continued employment through that date.

As of December 31, 2019, the Company estimates cash payments of $2,083 under the RLTIP.

The cash award vests upon the achievement of the RLTIP Milestone, subject to the recipient’s continued employment.

The First RSU Award becomes eligible to vest upon the achievement of the RLTIP

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Milestone, and will vest upon the first anniversary of such date, subject to the recipient’s continued employment through that date.

As of December 31, 2020, the Company estimates, but has not accrued the cash payments of $ 2,013 under the RLTIP.

In the event the RLTIP Milestone is not achieved, the cash award will not be paid and the First RSU Award will not vest.

10 unchanged sentences

This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.

The Company provides matching contributions of 100% of the first 3% of each participant’s salary contributed, plus 50% for each of the next 2% contributed.

Employees are immediately and fully vested in their own contributions and the Company’s match.

The Company provides matching contributions of 100 % of the first 3 % of each participant’s salary contributed, plus 50 % for each of the next 2 % contributed.

Employees are immediately and fully vested in their own contributions and the Company’s match.

During the years ended December 31, 2020, 2019 and 2018, the Company contributed $ 993 , $ 851 and $ 315 , respectively, to the plan.

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 9A. Controls and Procedures