What changed in this filing

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Item 9A. Controls and Procedures

2022-02-24 compared with 2021-02-25 · 393 added, 440 removed, 740 unchanged (53% 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 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.

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 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, 2021.

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.

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Based on this assessment, our management concluded that, as of December 31, 2021, 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, 2021 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.

Not applicable.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

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

and Stephen Mahoney

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

Asset Purchase Agreement, dated September 7, 2016, by and between the Registrant and Biogen MA Inc., as amended

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Restricted Share Agreement, dated as of September 16, 2015, by and between the Registrant and Sanj K.

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.

and Stephen Mahoney

Employment agreement, dated August 20, 2018, by and between Kiniksa Pharmaceuticals Corp.

and Qasim Rizvi

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

Commercial Supply Agreement, dated February 26, 2021, by and between Kiniksa Pharmaceuticals (UK) Ltd.

and Regeneron Pharmaceuticals, Inc.

Amendments Nos.

1 and 2 to the License Agreement, dated September 25, 2017, by and between Kiniksa Pharmaceuticals Ltd.

and Regeneron Pharmaceuticals, Inc.

Employment Agreement, effective as of April 1, 2021, by and between the Company and Mark Ragosa

Amended and Restated Employment Agreement, effective as of January 3, 2022, by and between Eben Tessari and Kiniksa Pharmaceuticals Corp.

Change in Control Agreement, effective as of January 3, 2022, by and between Michael Megna and Kiniksa Pharmaceuticals Corp.

Amended and Restated Employment Agreement, effective as of February 1, 2022, by and between Ross Moat and Kiniksa Pharmaceuticals (UK), Ltd.

Letter Agreement, dated as of February 1, 2022, by and between Ross Moat and Kiniksa Pharmaceuticals, Ltd.

Employment Agreement, effective as of April 1, 2021, by and between Arian Pano and Kiniksa Pharmaceuticals Corp.

Separation Agreement, effective as of February 3, 2022, by and between Arian Pano and Kiniksa Pharmaceuticals Corp.

Exclusive License Agreement, dated as of November 1, 2013, by and between The Beth Israel Deaconess Medical Center and Primatope Therapeutics Inc.

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 Interim Chief Financial Officer

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

Section 1350 Certification of Chief Executive Officer

Section 1350 Certification of Interim Chief Financial Officer

Section 1350 Certification of Chief Financial Officer

Inline XBRL Instance Document

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*** Submitted electronically herewith

Indicates management contract or compensatory plan

Confidential treatments of certain provisions has been granted by the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended

Portions of the exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv)

Portions of the exhibit have been redacted in compliance with Regulation S-K Item 601(a)(6)

FORM 10-K SUMMARY

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/s/ Mark Ragosa

Interim Chief Financial Officer (principal financial officer)

Chief Financial Officer (principal financial officer)

February 24, 2022

/s/ Michael R.

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

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

February 24, 2022

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 238 )

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Loss

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

Consolidated Statements of Shareholders’ Equity

Consolidated Statements of Cash Flows

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

Opinion on the Financial Statements

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

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).

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”).

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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 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 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.

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.

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 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.

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

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

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.

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.

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.

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

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 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.

As discussed in Note 1 to the consolidated financial statements, the Company is dependent on its ability to fund operations through sales of Arcalyst and/or raise additional capital, as needed.

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

Critical Audit Matters

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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.

These procedures 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

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Restricted cash

Accounts receivable, net

Prepaid expenses and other current assets

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Operating lease right-of-use assets

Non-current restricted cash

Other long-term assets

Intangible asset, net

Deferred tax assets

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Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Accumulated deficit

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(In thousands, except share and per share amounts)

Product revenue, net

Operating expenses:

Cost of goods sold

Collaboration expenses

Research and development

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KINIKSA PHARMACEUTICALS, LTD.

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

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands, except share amounts)

Convertible Preferred Shares

Common Shares

(Series A, B and C)

(Class A, B, A1 and B1)

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Income (Loss)

Equity (Deficit)

Balances at December 31, 2018

Issuance of Series C convertible preferred shares, net of issuance costs of $ 9,178

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

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

Balances at December 31, 2018

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

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Balances at December 31, 2020

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, 2021

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

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

Depreciation expense

Depreciation and amortization expense

Share-based compensation expense

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Changes in operating assets and liabilities:

Prepaid expenses and other short-term assets

Prepaid expenses and other current assets

Accounts receivable, net

Other long-term assets

Accounts payable

Accrued expenses and other short-term liabilities

Accrued expenses and other current liabilities

Accrued milestones

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Proceeds from the maturities of short-term investments

Intangible assets acquired

Net cash provided by (used in) investing activities

Cash flows from financing activities:

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 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

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

Deferred offering costs included in accrued expenses and accounts payable

Property and equipment 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”) is a global 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’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.

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.

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.

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

The Company is subject to risks and uncertainties common to early, commercial stage companies in the biopharmaceutical industry and global health, societal, economic and market conditions, including from the impact from the coronavirus disease 2019 (“COVID-19”) pandemic, the Company’s limited experience obtaining regulatory approvals, the potential failure by the Company to successfully complete research and development of its current or future product candidates, potential inability to adequately protect its technology, that any current or future product candidates will obtain necessary government regulatory approval, that ARCALYST will continue to be commercially viable, that any of the Company’s current or future product candidates, if approved, will be commercially viable, potential competition, and the Company’s dependence on third parties.

Risks and Uncertainties Related to COVID-19

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.

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

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

While the Company 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.

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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.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Principles of Consolidation

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(“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.

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.

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

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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 share-based awards.

Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the recognition of revenue, the capitalization of inventory, the accrual for research and development expenses and the valuation of share-based awards.

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

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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.

dollars (“USD”) and its foreign subsidiaries other than Kiniksa UK 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.

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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

On May 11, 2018, the Company effected a 1-for- 2.73235 reverse share split of its authorized, designated, issued and outstanding common shares and preferred shares.

Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse share split.

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 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 .

In addition, on June 22, 2018, the Company completed the sale of 1,006,425 Class A common shares to the underwriters of the IPO following the exercise of their over-allotment option to purchase additional shares at $ 18.00 per share for gross proceeds of $ 18,116 .

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.

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 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

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, 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

KINIKSA PHARMACEUTICALS, LTD.

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

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 .

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.

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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.

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, 2021, the Company had an accumulated deficit of $ 675,397 .

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As of December 31, 2021, the Company had cash, cash equivalents and short-term investments of $ 182,201 .

Based on its current operating plan, the Company expects that its cash, cash equivalents and short-term investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the issuance date of these consolidated financial statements.

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

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.

Based on its current operating plan, the Company expects that its cash, cash equivalents and short-term investments will be sufficient to fund its operations and capital expenditure requirements for at least twelve months from the issuance date of these consolidated financial statements.

The future viability of the Company beyond that point is dependent on its ability to fund its operations through sales of ARCALYST and/or raise additional capital, as needed.

If the Company is unable to grow sales of ARCALYST in future periods, the Company would need to seek additional financing through public or private securities offerings, debt financings, government funding or grants, or other sources, which may include licensing, collaborations or other strategic transactions or arrangements.

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

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

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

Summary of Significant Accounting Policies

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Short-Term Investments

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Treasury notes.

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).

Such investments which are included in short-term investments on the Company's consolidated balance sheets are considered available-for-sale (“AFS”) debt securities and are reported at fair value with unrealized gains and losses recognized in accumulated other comprehensive loss in stockholders’ equity, net of related tax effects.

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.

No such adjustments were necessary during the periods presented.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

If the AFS debt security’s fair value declines below its amortized cost the Company considers all available evidence to evaluate the extent to which the decline is due to credit-related factors or noncredit-related factors.

If the decline is due to noncredit-related factors then no credit loss is recorded and the unrealized loss is recognized in accumulated other comprehensive loss in stockholders’ equity, net of the related tax effects.

If the decline is considered to be a credit-related impairment, it is recognized as an allowance on the consolidated balance sheet with a corresponding charge to the statement of operations.

The credit allowance is limited to the difference between the fair value and the amortized cost basis.

No credit-related allowances or impairments have been recognized on the Company’s investments in available-for-sale debt securities.

Concentrations of Credit Risk

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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.

The Company is also subject to credit risk from the accounts receivable related to product revenue.

Trade accounts receivable are recorded net of allowances for cash discounts associated with prompt payments from customers.

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

There were no material write-offs charged against the allowance for the year ended December 31, 2021.

Restricted Cash

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

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method.

Maintenance and repairs are charged to expense as incurred.

When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statement of operations and comprehensive loss in the period of disposal.

The expected useful lives of the respective assets are as follows:

Estimated Useful Life

Computer hardware and software

Laboratory equipment

Furniture, fixtures and vehicles

Leasehold improvements

Shorter of estimated useful life or lease term

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Impairment of Long-Lived Assets

Long-lived assets consist of property and equipment.

Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets.

If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value.

An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount.

The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

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 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.

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

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

The lease expired in August 2021 and the restricted cash was released to operating cash in September 2021.

As of December 31, 2021, there was no balance in restricted cash.

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

Fair Value Measurements

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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 restricted cash, which was held in a money market fund, 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”).

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.

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

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

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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.

The Company has elected not to recognize leases with a term of one year or less on its balance sheet.

The Company has elected not to recognize leases with a term of one year or less on its balance sheet, the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Operating leases, ROU assets and their corresponding lease liabilities are recorded based on the present value of lease payments over the expected remaining lease term.

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then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components.

Although separation of lease and non-lease components is required, certain practical expedients are available.

Companies may elect the practical expedient to not separate lease and non-lease components.

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

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 ROU asset being recorded on the balance sheet and amortized on a straight-line basis as lease expense.

Property and Equipment

Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method.

Maintenance and repairs are charged to expense as incurred.

When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from

KINIKSA PHARMACEUTICALS, LTD.

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

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.

the consolidated balance sheet and any resulting gains or losses are included in the consolidated statement of operations and comprehensive loss in the period of disposal.

The expected useful lives of the respective assets are as follows:

Estimated Useful Life

Computer hardware and software

Laboratory equipment

Furniture, fixtures and vehicles

Leasehold improvements

Shorter of estimated useful life or lease term

Inventories are stated at the lower of cost or estimated net realizable value with cost based on the first-in first-out method.

Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified and labeled for use in clinical trials as the products are required to be re-labeled for alternative uses.

Prior to the regulatory approval of its drug candidates, the Company incurs expenses for the manufacture of product candidate supplies to support clinical development that could potentially be available to support the commercial launch of those therapeutics.

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.

The Company performs an assessment of the recoverability of capitalized inventories during each reporting period and writes down any excess and obsolete inventory to its net realizable value in the period in which the impairment is first identified.

Such impairment charges, should they occur, are recorded as a component of cost of sales in the Company’s consolidated statements of operations and comprehensive loss.

The determination of whether inventory costs will be realizable requires the use of estimates by management.

If actual market conditions are less favorable than projected by management, additional writedowns of inventory may be required.

The vials that will ultimately be distributed free of charge under our patient assistance program are recognized as selling expense when they are labeled as free goods.

Revenue Recognition

ASC 606 outlines a five-step process for recognizing revenue from contracts with customers:

(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the separate performance obligations in the contract, and (v) recognize revenue associated with the performance obligations as they are satisfied.

The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Once a contract is determined to be within the scope of ASC 606, the Company determines the performance obligations that are distinct.

The Company recognizes as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied.

Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery of the product to the customer.

ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time.

ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g.

receivable), before the entity transfers a good or service to the customer.

The Company did not have any contract assets or liabilities as of December 31, 2021 and 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Product Revenue, Net

Following the FDA approval of ARCALYST on March 18, 2021, the Company began generating product revenue from sales of ARCALYST in April 2021.

ARCALYST is sold through a third party logistics provider that distributes primarily through a network of authorized specialty pharmacies and specialty distributors (“customer”), which deliver the medication to patients by mail.

The Company’s payment terms are between 30 to 35 days.

Net revenue from product sales is recognized at the transaction price when the specialty pharmacy or specialty distributors obtains control of the Company’s products, which occurs at a point in time, typically upon shipment of the product from the third party logistics provider.

The Company’s net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, and specialty pharmacy and distributor fees.

These adjustments represent variable consideration under ASC 606 and are estimated using the expected value method and are recorded when revenue is recognized on the sale of the product.

These adjustments are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances.

Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.

Discounts and Allowances

Revenue from product sales are recorded at the transaction price, which includes estimates for discounts and allowances and includes cash discounts, chargebacks, rebates, returns, copay assistance, and specialty pharmacy and distributor fees.

These reserves are classified as reductions of accounts receivable (if the amount is payable to the Customer and right of offset exists) or a current liability (if the right of offset does not exist, the amount is payable to a third party, or is related to a future return).

These allowances are established by management as its best estimate based on historical experience and data points available and are adjusted to reflect known changes in the factors that impact such reserves.

Allowances for customer credits, chargebacks, rebates, data fees for services, returns, and discounts are established based on contractual terms with customers and analyses of historical usage of these items.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The nature of the allowances and accruals requiring estimates, and the specific considerations the Company uses in estimating these amounts are as follows:

Government Chargebacks and Rebates

Government and other rebates and chargebacks include amounts payable to payors and healthcare providers under various programs and by payor and individual payor plans.

Rebates and chargebacks are based on contractual arrangements or statutory requirements which may vary by product, payor and individual payor plans.

For qualified programs that can purchase products through wholesalers or other distributors at a lower contractual price, the wholesalers or distributors charge back to the Company the difference between their acquisition cost and the lower contractual price.

Rebates and chargebacks are estimated primarily based on product sales, and expected payor mix and discount rates, which require significant estimates and judgment.

Additionally, in developing the estimates the Company considers:

historical and estimated payor mix;

statutory discount requirements and contractual terms;

historical claims experience and processing time lags;

estimated patient population;

known market events or trends;

market research;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

channel inventory data obtained from customers;

and other pertinent internal or external information.

The Company assesses and updates the estimates every quarter to reflect actual claims and other current information.

Government and other chargebacks are recognized as reduction of revenue upon the sale to the Customers.

These items are payable to customers and other rebates that are payable to other third party payors and healthcare providers are classified as accrued expense liabilities.

Cash Discounts

The Company estimates cash discounts based on contractual terms and expectations regarding future customer payment patterns.

Specialty Pharmacy & Distributor Fees

Under the inventory management agreements with specialty pharmacies and distributors, the Company pays a fee primarily for compliance with certain contractually determined covenants such as the maintenance of agreed upon inventory levels.

These specialty pharmacy and distributor fees are based on a contractually determined fixed percentage of sales.

The Company has contracted with certain specialty pharmacies to obtain transactional data related to the products in order to develop a better understanding of the selling channel as well as patient activity and utilization by the Medicaid program and other government agencies and managed care organizations.

The Company pays a variable fee to the specialty pharmacies to provide the data.

The Company also pay the specialty pharmacies a fee in exchange for providing distribution and inventory management services, including the provision of inventory management data to the Company.

The Company estimates the fee for service accruals and allowances based on sales to each specialty pharmacy and the applicable contracted rate.

Sales Returns

Allowances are made for estimated sales returns by the customers and are recorded in the period the related revenue is recognized.

The Company typically permit returns if the product is out of date or damaged during transition to the common carrier.

The Company’s estimates of sales returns are based primarily on analysis of industry information reporting the return rates for similar products and contractual agreement terms.

The Company also takes into consideration known or expected changes in the marketplace specific to ARCALYST.

Shipping and Handling

Shipping and handling activities are considered to be fulfillment activities and not considered to be a separate performance obligation.

Other Incentives

Other incentives include a co-pay assistance program for eligible patients with commercial insurance in the U.S.

The co-pay assistance programs assist commercially insured patients who have and are intended to reduce each participating patient’s portion of the financial responsibility of the purchase price up to a specified dollar amount of assistance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Intangible Assets

Upon FDA approval and commercial launch of ARCALYST in March 2021, the Company capitalized the $ 20,000 milestone payment to Regeneron for a specified regulatory milestone as a f inite-lived intangible asset.

The intangible asset will be amortized on a straight-line basis over the life of the underlying intellectual property of 20 years .

Amortization expense will be recorded as cost of goods sold in the Company’s consolidated statement of operations and comprehensive loss.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets, including intangible assets and property and equipment, whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable.

When such events occur, the Company determines whether there has been an impairment in value by comparing the asset’s carrying value with its fair value, as measured by the anticipated undiscounted net cash flows of the asset.

If an impairment in value exists, the asset is written down to its estimated fair value.

The Company has not recognized any impairment losses through December 31, 2021 and there have been no events that triggered an impairment analysis.

Research and Development Costs

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The Company's historical accrual estimates have not been materially different from the actual costs.

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 selling, general and administrative expenses.

KINIKSA PHARMACEUTICALS, LTD.

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

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 selling, general and administrative expenses.

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.

Share-Based Compensation

7 unchanged sentences

Prior to May 2018, the Company was a private company and, accordingly, lacks company-specific historical and implied volatility information for its shares.

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.

Therefore, it estimates its expected share price volatility based on the historical volatility of the Company and 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” options.

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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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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.

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

For the years ended December 31, 2021, 2020 and 2019 the Company’s other comprehensive loss was comprised of unrealized gain (loss) on short-term investments and currency translation adjustments, net of tax.

Net Loss per Share

Basic net loss per share attributable to common shareholders is computed by dividing the net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.

Diluted net loss attributable to common shareholders is computed by adjusting net loss attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities.

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 share options and unvested restricted share units are considered potential dilutive common shares.

In periods in which the Company reports a net loss attributable to common shareholders, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.

The Company reported a net loss attributable to common shareholders for the years ended December 31, 2021, 2020 and 2019.

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.

1 unchanged sentence

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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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.

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.

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.

The Company is an exempted company incorporated under the laws of Bermuda.

Under the current laws of Bermuda, income tax is not charged or levied on an exempted company’s income.

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.

6 unchanged sentences

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.

federal and state research and development credits, the Foreign

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Derived Intangible Income (“FDII”) deduction and share-based compensation taxable events.

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

6 unchanged sentences

In 2021, the Company recognized an uncertain tax position related to research and development credits (see Note 13).

Net Loss per Share

The Company follows the two-class method when computing net loss per share as the Company has issued shares that meet the definition of participating securities.

The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings.

The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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 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.

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 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 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.

The Company adopted the standard on January 1, 2021.

The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Fair Value of Financial Assets and Liabilities

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:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Fair Value Measurements

as of December 31, 2021 Using:

Restricted cash — money market funds

Cash equivalents — money market funds

Cash equivalents — U.S.

Treasury notes

Short-term investments — U.S.

12 unchanged sentences

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Cash equivalents and short-term investments as of December 31, 2021 and 2020 consisted of U.S.

1 unchanged sentence

December 31, 2021

Cash equivalents — U.S.

Treasury notes

Short-term investments — U.S.

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The aggregate fair value of securities held by the Company in an unrealized loss position was $ 49,739 at December 31, 2021.

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

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

As of both December 31, 2021 and 2020 these securities were held by the Company in an unrealized loss position for less than 12 months.

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

As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of December 31, 2021 and 2020.

Product Revenue, Net

Following the FDA approval of ARCALYST on March 18, 2021, the Company began generating product revenue from sales of ARCALYST in April 2021.

As of December 31, 2020 the company did not have revenue.

Product Revenue, net

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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.

The following table summarizes balances and activity in each of the product revenue allowance and reserve categories for the year ended December 31, 2021:

Balance at December 31, 2020

Current provisions relating to sales in the current year

Adjustments relating to prior years

Payments/returns relating to sales in the current year

Payments/returns relating to sales in the prior years

Balance at December 31, 2021

(1) Included in the return reserve, is a provision of $ 226 for a specific return associated with product that was damaged in transit.

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

Reduction of accounts receivable

Components of other current liabilities

Total revenue-related reserves

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

During the year ended December 31, 2021, the Company identified and relabeled certain ARCALYST product previously acquired initially intended to support the clinical trials as inventory to be sold as commercial product classified as finished goods.

The value of this inventory had previously been expensed to research and development costs and was sold at zero cost.

As of December 31, 2021 the Company did not have any remaining zero cost inventory.

As of December 31, 2020, the Company did not have commercial inventory.

Inventory consisted of the following:

Raw materials

Work-in-process

Finished Goods

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

Property and Equipment, Net

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Total property and equipment, net

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.

As of December 31, 2021, construction in progress is primarily comprised of fixtures related to commercial operations which the Company anticipates will be placed into service in 2022.

Depreciation expense for the years ended December 31, 2021, 2020 and 2019 was $ 1,455 , $ 2,405 and $ 2,068 , respectively.

Kiniksa US leases office and laboratory space under operating leases.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

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 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 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.

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 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 January 31, 2021.

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

Monthly lease

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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 .

Kiniksa US and Kiniksa UK leases office and laboratory space under operating leases.

Additionally, Kiniksa US leases vehicles under an operating lease.

The components of lease cost for the year ended December 31, 2021, 2020 and 2019 are as follows:

Operating lease cost

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Weighted-average discount rate

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Maturities of operating leases liabilities were as follows:

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Present value of lease liabilities

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Intangible Assets

Intangible assets, net of accumulated amortization, impairment charges and adjustments are summarized in the following table.

As of December 31, 2020, the Company did not have intangible assets.

As of December 31, 2021

Estimated life

Regulatory milestone

As of December 31, 2021 future amortization of intangible assets are as follows:

For the years ended December 31,

Accrued Expenses

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Accrued employee compensation and benefits

Accrued legal and professional fees

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").

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 (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, 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:

The holders of Preferred Shares were entitled to vote, together with the holders of common shares, on all matters submitted to shareholders for a vote.

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

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

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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 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.

At the time of the IPO, the Series A Original Issue Price and Series A Conversion Price were equal to $ 4.6707 .

The Series B Original Issue Price and Series B Conversion Price were equal to $ 6.9475 , and the Series C Original Issue Price and Series C Conversion Price were equal to $ 15.6438 .

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.

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

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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 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.

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.

If upon any such liquidation, dissolution or winding up of the Company or deemed liquidation event, the assets of the Company available for distribution to its shareholders were insufficient to pay the holders of Preferred Shares the full amount to which they were entitled, the holders of Preferred Shares would have shared ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise have been payable in respect of the shares held by such holders of Preferred Shares upon such distribution if all amounts payable on or with respect to such shares were paid in full.

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.

Accrued legal, commercial and professional fees

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

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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 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 .

In addition, on June 22, 2018, the Company completed the sale of 1,006,425 Class A common shares to the underwriters of the IPO following the exercise in part of their over-allotment option to purchase additional shares at a public offering price of $ 18.00 per share for gross proceeds of $ 18,116 .

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 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.

price of $ 18.26 per share for aggregate gross proceeds of $ 85,000 .

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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, 2020, no preferred shares were designated or issued .

The Company has authorized 200,000,000 shares, at a par value of $ 0.000273235 as of December 31, 2021 and 2020.

Each Class A common share entitles the holder to one vote on all matters submitted to the shareholders for a vote.

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

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(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.

8 unchanged sentences

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

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Share-Based Compensation

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In December 2021, the board of directors approved the automatic increase as of January 1, 2022 of 2,762,416 shares, equal to 4 % of the as-converted Class A common shares outstanding on December 31, 2021.

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

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, 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.

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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

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

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.

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 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, 2021, there were 2,191,014 Class A common shares subject to outstanding awards under the 2015 Plan and reserved for issuance thereunder pursuant to such awards.

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For awards granted to employees and non-employees with four year vesting terms, 25 % of the option vests on the first anniversary of the grant date and the remaining shares vest equally each month for three years thereafter.

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.

For awards granted to employees with

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

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.

2018 Employee Share Purchase Plan

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As of December 31, 2021, 598,817 Class A common shares were available for future issuance under the 2018 ESPP.

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

Share Options

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( 2,533,083 )

( 1,003,182 )

Outstanding as of December 31, 2021

Share options exercisable as of December 31, 2021

Share options unvested as of December 31, 2020

Share options vested and expected to vest as of December 31, 2021

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.

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The weighted-average grant-date fair value per share of share options granted during the years ended December 31, 2021, 2020 and 2019 was $ 11.30 , $ 11.38 and $ 9.36 , respectively.

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The total fair value of share options vested during the years ended December 31, 2021, 2020 and 2019 was $ 22,870 , $ 17,931 and $ 13,997 , respectively.

As of December 31, 2021, total unrecognized compensation expense related to the unvested share option awards was $ 43,968 which is expected to be recognized over a weighted average remaining period of 2.53 years.

Option Valuation

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:

The assumptions that the Company used to determine the grant-date fair value of share options granted to employees and directors the 2018 Plan during the years ended December 31, 2021, 2020 and 2019 were as follows, presented on a weighted-average basis:

Risk-free interest rate

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Expected dividend yield

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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:

During the years ended December 31, 2021 and 2020, the Company did not grant share options to non-employees.

During the year ended December 31, 2019, 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

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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.

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.

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.

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

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

The cash award was eligible to be earned and paid 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 was 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 was 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.

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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.

Restricted Share Units

RSUs represent the right to receive shares of the Company’s Class A common shares upon vesting of the RSUs.

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

Starting March 2021, the Company granted RSUs with service conditions (“Time-Based RSUs”) to eligible employees.

The Time-Based RSUs will vest 25 % on each of the first, second, third and fourth anniversaries of the date of grant, subject to continued employment through such dates.

In December 2019, the Company granted Time-Based RSUs that vested in one installment on December 31, 2020, subject to the recipient’s continued employment through that date.

As of December 31, 2020, 56,369 Class A common shares were issued with the remaining shares 24,332 shares withheld for tax purposes.

During the years ended December 31, 2020 and 2019, the Company granted the First RSU Awards as part of the RLTIP to eligible employees.

During the year ended December 31, 2021, the Achievement Date was met and 187,682 of Class A common shares were issued under the First RSU Awards in accordance with the RLTIP and will vest in one installment on the first anniversary of the Achievement Date, subject to continued employment through such date.

During the year ended December 31, 2021, the Second RSU Awards were granted to eligible employees on the Achievement Date with 142,283 shares granted in accordance with the RLTIP which will vest on the second anniversary of the Achievement Date, subject to continued employment through such date.

For the years ended December 31, 2021 and 2020, the Company recognized $ 3,682 and $ 980 , respectively in compensation expense related to RSUs including those granted in connection to the RLTIP.

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:

The following table summarizes RSU activity, including the Time-Based RSUs and the RSU Awards under the RLTIP, for the year ended December 31, 2021:

Unvested RSUs as of December 31, 2020

Unvested RSUs as of December 31, 2021

As of December 31, 2021, total unrecognized compensation cost related to the RSU Awards and Time-Based RSUs was $ 10,249 which is expected to be recognized over a weighted average remaining period of 3.16 years.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Share-Based Compensation

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

Cost of goods sold

Research and development expenses

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.

License and Acquisition Agreements

Biogen Asset Purchase Agreement

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

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

In 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.

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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.

4 unchanged sentences

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 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.

During the year ended December 31, 2021, the Company recorded research and development expense of $ 53 , related to the annual maintenance fee in connection with the retained contracts.

During the year ended December 31,

KINIKSA PHARMACEUTICALS, LTD.

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

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 in connection with the retained contracts.

Primatope Stock Purchase Option Agreement

14 unchanged sentences

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 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 years ended December 31, 2021 and 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.

During the year ended December 31, 2018, the Company recorded research and development expense of $ 800 , related to the extension of the option period under the Primatope Agreement.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Beth Israel Deaconess Medical Center License Agreement

3 unchanged sentences

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

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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.

2 unchanged sentences

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.

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

(“Regeneron”), pursuant to which the Company has been granted an exclusive license under certain intellectual property rights controlled by Regeneron to develop and commercialize ARCALYST worldwide, excluding the Middle East and North Africa, for all indications other than those in oncology and local administration to the eye or ear.

Upon receiving positive data in RHAPSODY, the Company’s pivotal Phase 3 clinical trial of ARCALYST, Regeneron transferred the biologics license application, or BLA, for ARCALYST to the Company.

In March 2021, when the FDA granted approval of ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and children 12 years and older, the Company assumed the sales and distribution of ARCALYST for CAPS and DIRA in the United States.

In exchange for these rights, the Company made an upfront payment of $ 5,000 .

In addition, the Company made a $ 7,500 payment in the fourth quarter of 2020 in connection with the achievement of a specified regulatory milestone event and a regulatory milestone payment of $ 20,000 in the first quarter of 2021.

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.

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.

The Company is also responsible for costs related to the filing, prosecution and maintenance of certain licensed patent rights.

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, 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

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

Such costs include but are not limited to (i) the Company’s cost of goods sold for product used, sold or otherwise distributed for patient use by the Company;

(ii) customary commercialization expenses, including the cost of the Company’s field force, and (iii) the Company’s cost to market, advertise and otherwise promote ARCALYST, with such costs identified in subsection (iii) subject to specified limits.

In addition, should there be a transfer of technology related to the manufacture of ARCALYST, then, to the extent permitted in accordance with the Regeneron Agreement, the fully-burdened costs incurred by each of the Company and Regeneron in performing (or having performed) such technology transfer shall also be deducted from net sales of ARCALYST to determine profit.

The Company also evenly splits with Regeneron any proceeds received by the Company from any licensees, sublicensees and distributors in consideration for the sale, license or other disposition of rights with respect to ARCALYST, including upfront payments, milestone payments and royalties.

For the year ended December 31, 2021, the company recognized $ 835 of expenses related to the profit sharing agreement presented within collaboration expenses.

Pursuant to the Regeneron Agreement, in September 2017, the parties entered into a clinical supply agreement under which Regeneron agreed to manufacture product solely for the Company’s use in development activities.

KINIKSA PHARMACEUTICALS, LTD.

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

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.

to the Regeneron Agreement, during the year ended December 31, 2021, the Company entered into a commercial supply agreement under which Regeneron agreed to manufacture product for the Company’s use, including for commercial sales.

The commercial supply agreement terminates upon the termination of the Regeneron Agreement or the date of completion of the transfer of technology related to the manufacture of ARCALYST.

During the years ended December 31, 2021 and 2020, the Company did not incur any research and development expense related to the purchase of drug materials under the clinical supply agreement.

As of December 31, 2021, the Company recorded inventory of $ 3,675 related to the purchase of commercial product under the commercial supply agreement (see Note 5).

As of December 31, 2021, the Company had non-cancelable purchase commitments under the commercial supply agreement (see Note 15).

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

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

The Company may terminate the agreement at any time with one year ’s written notice.

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

MedImmune License Agreement

13 unchanged sentences

Royalty rates are subject to reductions upon certain events.

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

5 unchanged sentences

During the years ended December 31, 2021, 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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.

11 unchanged sentences

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.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years pursuant to IRC Section 174.

Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.

If the requirement is not modified, the Company anticipates this will have a significant impact on current tax expense beginning in 2022.

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.

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.

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 ARCALYST 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.

17 unchanged sentences

Permanent differences

Change in valuation allowance

state taxes, net of federal

Uncertain tax positions

Change in valuation allowance

Effective income tax rate

9 unchanged sentences

Accrued expenses and other liabilities

Intangible Asset

Net operating losses

6 unchanged sentences

As of December 31, 2021 and 2020, the Company had federal research and development tax credit carryforwards of approximately $ 1,546 and $ 1,383 respectively, available to reduce future tax liabilities, which begin to expire in 2041.

As of December 31, 2020 and 2019, the Company had state research and development tax credit carryforwards of approximately $ 844 and $ 265 respectively, available to reduce future tax liabilities, which begin to expire in 2035.

As of December 31, 2021 and 2020, the Company had state research and development tax credit carryforwards of approximately $ 251 and $ 844 respectively, available to reduce future tax liabilities, which can be carried forward indefinitely.

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 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.

The Company has a full valuation allowance against all of its deferred tax assets due to its negative evidence in the form of cumulative losses.

In the prior year the only deferred tax asset that did not have a valuation allowance related to Kiniksa UK operations.

Kiniksa UK has generated significant operating losses and the Company has determined that it is not more likely than not that it will be able to utilize the generated losses and has booked a full valuation allowance against the deferred tax assets of Kiniksa UK.

These deferred tax assets grew significantly during 2021 as a result of the transfer of intangible assets to Kiniksa UK, which resulted in tax basis with a limited book basis.

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 were as follows:

Changes in the valuation allowance for deferred taxes were as follows:

Valuation allowance at beginning of year

5 unchanged sentences

(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 valuation allowance increased by $ 118,637 in 2021 primarily as a result of the recognition of a valuation allowance against the UK deferred tax assets associated with the tax basis in intellectual property and net operating losses.

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 $ 545 and $ 837 as of December 31, 2021 and 2020, respectively.

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.

The net decrease relates to new tax positions on research and development credits generated in 2021, offset by positions related to completed R&D tax studies and other credits.

A roll forward of the Company’s uncertainties in its income tax provision liability is presented below:

19 unchanged sentences

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.

The Company’s potentially dilutive securities, which include share options 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.

2 unchanged sentences

Share options to purchase common shares

Unvested restricted common shares

Unvested RSUs

3 unchanged sentences

Manufacturing Commitments

The Company entered into agreements with several contract manufacturing organizations to provide preclinical and clinical trial materials.

As of December 31, 2020, the Company had committed to minimum payments under these agreements totaling $ 16,178 which are due during the year ending December 31, 2021.

Rilonacept Long-Term Incentive Plan

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

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.

The Company entered into supply agreements with Regeneron to provide both clinical supply and commercial product (see Note 12).

The Company entered into agreements with several CMOs to provide the Company with preclinical and clinical trial materials.

As of December 31, 2021, the Company had committed to minimum payments under these agreements totaling $ 45,438 , of which $ 32,389 are due within one year.

Indemnification Agreements

3 unchanged sentences

To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2020, 2019 or 2018.

The Company does not believe that the outcome of any claims under indemnification arrangements will have a material

KINIKSA PHARMACEUTICALS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its consolidated financial statements as of December 31, 2021, 2020 or 2019.

Legal Proceedings

6 unchanged sentences

During the years ended December 31, 2021, 2020 and 2019, the Company contributed $ 1,558 , $ 993 and $ 851 respectively, to the plan.

Subsequent Event

On February 21, 2022, the Company entered into two collaboration and license agreements (together, the “Collaboration Agreements”) with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.

(“Huadong”), pursuant to which the Company granted Huadong exclusive rights to develop and commercialize rilonacept and mavrilimumab, respectively, in the Asia Pacific region, excluding Japan.

The Company will otherwise retain its current rights to the Licensed Products.

Under the Collaboration Agreements, the Company will receive an upfront cash payment of $ 22,000 and will be eligible to receive up to approximately $ 640,000 in contingent payments, including specified development, regulatory and sales-based milestones.

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