The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report, and our audited consolidated financial statements and related notes for the year ended December 31, 2022 included in our Annual Report on Form 10-K (our "Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. As a result of many factors, including those factors set forth in the risks identified in Part II-Item 1A "Risk Factors" section of this Quarterly Report and our other filings with the Securities and Exchange Commission (the "SEC") our actual results could differ materially from the results, performance or achievements expressed in or implied by these forward-looking statements.

Overview

We are a biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutic medicines for patients suffering from debilitating diseases with significant unmet medical need. Our immune-modulating assets, ARCALYST, KPL-404 and mavrilimumab, are based on strong biologic rationale or validated mechanisms, target a spectrum of underserved cardiovascular and autoimmune conditions, and offer the potential for differentiation.

ARCALYST is an interleukin-1? and interleukin-1? cytokine trap. In 2017, we licensed ARCALYST from Regeneron, who discovered and initially developed the drug. Our exclusive license to ARCALYST from Regeneron includes worldwide rights, excluding the Middle East and North Africa, for all applications other than those in oncology and local administration to the eye or ear. We received U.S. Food and Drug Administration ("FDA"), approval of ARCALYST for the treatment of recurrent pericarditis and reduction in risk of recurrence in adults and children 12 years and older in March 2021. Recurrent pericarditis is a painful inflammatory cardiovascular disease with an estimated U.S. prevalent population of approximately 40,000 patients seeking and receiving medical treatment. ARCALYST is commercially available across the United States through a network of distributors. ARCALYST is also approved in the United States for the treatment of Cryopyrin-Associated Periodic Syndromes ("CAPS") specifically Familial Cold Autoinflammatory Syndrome and Muckle-Wells Syndrome in adults and children 12 years and older, and the maintenance of remission in Deficiency of Interleukin-1 Receptor Antagonist ("DIRA") in adults and children weighing 10 kg or more. We are responsible for sales and distribution of ARCALYST in all approved indications in the United States, and evenly split profits on sales, as well as third party proceeds, with Regeneron. In March 2023, Regeneron initiated a technology transfer of the manufacturing process for ARCALYST drug substance and we are working with Regeneron to identify and qualify a new CDMO.

KPL-404 is an investigational monoclonal antibody inhibitor of CD40-CD154 interaction. In 2019, we acquired all of the outstanding securities of Primatope Therapeutics, Inc. ("Primatope"), the company that owned or controlled the intellectual property related to KPL-404. In connection with our acquisition of Primatope, we acquired an exclusive world-wide license to KPL-404 from Beth Israel Deaconess Medical Center, Inc. ("BIDMC"). The CD40-CD154 interaction is a key T-cell co-stimulatory signal critical for B-cell maturation, immunoglobulin class switching and Type 1 immune response. We believe disrupting the CD40-CD154 interaction is an attractive approach to address multiple autoimmune disease pathologies such as rheumatoid arthritis ("RA"), Sjogren's syndrome, Graves' disease and systemic lupus erythematosus. In May 2021, we announced positive final data from our Phase 1 single-ascending-dose clinical trial of KPL-404 in healthy volunteers, which evaluated safety and pharmacokinetics, as well as receptor occupancy and T-cell dependent antibody response. In December 2021, we initiated a Phase 2 clinical trial of KPL-404 in RA, which is designed to evaluate pharmacokinetics, safety and efficacy with subcutaneous administration. In January 2023, we announced that we had completed enrollment of the multiple-ascending-dose portion of such trial. We are currently enrolling the proof-of-concept portion of the trial. We expect data from the trial in the first half of 2024.

Mavrilimumab is an investigational monoclonal antibody inhibitor targeting granulocyte-macrophage colony stimulating factor receptor alpha ("GM-CSFR?"). In 2017, we licensed exclusive worldwide rights in all indications to mavrilimumab from MedImmune, Limited ("MedImmune"). We are pursuing collaborative study agreements to evaluate the potential of mavrilimumab in rare cardiovascular diseases where the GM-CSF mechanism has been



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implicated. We previously evaluated mavrilimumab in giant cell arteritis ("GCA"), a chronic inflammatory disease of the medium-to-large arteries, and COVID-19-related acute respiratory distress syndrome ("ARDS").

Vixarelimab is an investigational monoclonal antibody inhibitor of signaling through oncostatin M receptor beta ("OSMR?"), which was previously part of our portfolio of immune-modulating assets. In September 2022, we closed an agreement granting Genentech, Inc. and F. Hoffmann-La Roche Ltd (collectively, "Genentech") an exclusive worldwide license to develop and commercialize vixarelimab. Pursuant to such agreement, we have agreed to complete our in-progress Phase 2b dose-ranging clinical trial of vixarelimab for the treatment of prurigo nodularis, a chronic inflammatory skin condition.

Our ability to generate product revenue sufficient to achieve sustained corporate profitability will depend heavily on the continued commercialization of ARCALYST and the development and eventual commercialization of one or more of our current or future product candidates, if approved. While our ARCALYST collaboration with Regeneron has achieved profitability, such profits remain small compared to our total net losses and there is no guarantee that our ARCALYST collaboration with Regeneron will remain profitable in the future. In addition, payments and royalties arising from out-licensing, collaboration or other similar agreements, though potentially substantial, are often isolated events and cannot be relied upon to generate significant and sustained revenue. For the three months ended March 31, 2023, our net losses were $12.3 million. As of March 31, 2023, we had an accumulated deficit of $504.3 million. We expect to incur operating losses for the foreseeable future as we advance our product candidates through preclinical and clinical development and, ultimately, seek regulatory approval. In addition, we expect to continue to incur significant expenses related to product manufacturing, including technology transfer costs, marketing, sales and distribution of ARCALYST. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates.

As of March 31, 2023, we had cash, cash equivalents and short-term investments of $187.5 million. We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of the unaudited consolidated financial statements included in this Quarterly Report. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "- Liquidity and Capital Resources." Our future viability is dependent on our ability to fund our operations through sales of ARCALYST and/or raise additional capital, such as through debt or equity offerings, as needed.

Components of Our Results of Operations

Product revenue, net

Following the FDA approval of ARCALYST in March 2021 for recurrent pericarditis, we 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, collectively, the customers, which deliver the medication to patients by mail.

Net revenue from product sales is recognized at the transaction price when the customers obtain control of our product, which occurs at a point in time, typically upon shipment of the product from the third party logistics provider.

Our net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, and specialty pharmacy and distributor fees. These adjustments represent variable consideration under ASC Topic 606, Revenue from Contracts with Customers, 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.



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License and collaboration revenue

License and collaboration revenue includes amounts recognized related to upfront payments, royalty revenue, and milestone payments.

In February 2022, we entered into two collaboration and license agreements (the "Collaboration Agreements"), with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. ("Huadong"), pursuant to which we granted Huadong exclusive rights to develop and commercialize rilonacept and mavrilimumab, referred to as the Licensed Products, in the Asia Pacific region excluding Japan, or the Territory. We otherwise retained our current rights to the Licensed Products outside the Territory.

Under the Collaboration Agreements, we received a total upfront cash payment of $22.0 million, which includes $12.0 million for the Territory license of rilonacept and $10.0 million for the Territory license of mavrilimumab. In addition, we will be eligible to receive contingent payments, including specified development, regulatory and sales-based milestones. Huadong will also be obligated to pay us tiered percentage royalties on a Licensed Product-by-Licensed Product basis ranging from the low-teens to low-twenties on annual net sales of each Licensed Product in the Territory, subject to certain reductions tied to rilonacept manufacturing costs and certain other customary reductions, with an aggregate minimum floor. Royalties will be payable on a Licensed Product-by-Licensed Product and country-by-country or region-by-region basis until the later of (i) 12 years after the first commercial sale of the applicable Licensed Product in such country or region in the Territory, (ii) the date of expiration of the last valid patent claim of our patent rights or any joint collaboration patent rights that covers the applicable Licensed Product in such country or region in the Territory, and (iii) the expiration of the last regulatory exclusivity for the applicable Licensed Product in such country or region in the Territory. We recognized the $10.0 million related to the mavrilimumab license during the year ended December 31, 2022. We deferred the $12.0 million related to the rilonacept license agreement as of March 31, 2023, and will recognize revenue as materials are shipped.

In August 2022, we entered into a license agreement (the "Genentech License Agreement") with Genentech, pursuant to which we granted Genentech exclusive worldwide rights to develop and commercialize vixarelimab and related antibodies.

Under the Genentech License Agreement, we received an upfront payment of $80.0 million for the license. In the first quarter of 2023, following our last delivery of certain drug supplies to Genentech, we received an additional $20.0 million payment. We will be eligible to receive up to approximately $600.0 million in contingent payments, including specified development, regulatory and sales-based milestones as well as royalties in the low double digits to mid-teens on annual net sales, in each case before fulfilling our upstream financial obligations. We recognized a portion of the $80.0 million upfront payment and the $20.0 million payment related to the delivery of certain materials in the three months ended March 31, 2023 for the drug supply delivered and the completed portion of the in-progress Phase 2b prurigo nodularis clinical trial. We will recognize the remaining revenue associated with the transaction price over the remaining duration of the in-progress Phase 2b prurigo nodularis clinical trial.



Operating Expenses

Cost of Goods Sold

Cost of goods sold includes production and distribution costs of ARCALYST, and amortization of the $20.0 million payment we made to Regeneron and other miscellaneous product costs associated with ARCALYST. Cost of goods sold also includes labor and overhead costs associated with the production of ARCALYST associated with quality control, quality assurance, and supply chain activities.

Collaboration expenses

Collaboration expenses consist of Regeneron's share of the profit related to ARCALYST sales under the license agreement with Regeneron (the "Regeneron Agreement"). We evenly split profits on sales of ARCALYST with Regeneron, where profits are determined after deducting from net sales of ARCALYST certain costs related to the



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manufacturing and commercialization of ARCALYST. Such costs include but are not limited to (i) our cost of goods sold for product used, sold or otherwise distributed for patient use by us; (ii) customary commercialization expenses, including the cost of our field force, and (iii) our cost to market, advertise and otherwise promote ARCALYST, with such costs identified in subsection (iii) subject to specified limits. With respect to technology transfer of the manufacturing process for ARCALYST drug substance initiated by Regeneron in March 2023, to the extent permitted by the Regeneron Agreement, the fully-burdened costs of each of us and Regeneron incurred in performing such technology transfer shall also be deducted from net sales of ARCALYST to determine profit. We also evenly split with Regeneron any proceeds received by us from any licensees, sublicensees and distributors in consideration for the sale, license or other disposition of rights with respect to ARCALYST, including upfront payments, milestone payments and royalties.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates. We expense research and development costs as incurred. These expenses may include:

?expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;

?expenses incurred under agreements with CROs that are primarily engaged in the oversight and conduct of our clinical trials and CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs for our product candidates;

?other costs related to acquiring and manufacturing preclinical and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

?payments made in cash or equity securities under third party licensing, acquisition and other similar agreements;

?employee-related expenses, including salaries and benefits, travel and share-based compensation expense for employees engaged in research and development functions;

?costs related to compliance with regulatory requirements; and

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

We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license, acquisition and other similar agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery



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activities as well as for managing our preclinical and clinical development, process development and manufacturing clinical and preclinical materials.

Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will be substantial over the next several years as we conduct our ongoing and/or planned clinical trials for our product candidates, as well as conduct other preclinical and clinical development, and make regulatory filings for our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license, acquisition and other similar agreements to acquire the rights to our product candidates.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of our current or future product candidates or when, if ever, we will realize significant revenue from product sales or be profitable. This uncertainty is due to the numerous risks and uncertainties, including those described in Part II, Item 1A. "Risk Factors" in this Quarterly Report.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and benefits, travel and share based compensation expense for personnel in selling, marketing, medical, executive, business development, finance, human resources, legal and support personnel functions. Selling, general and administrative expenses also include external commercialization, marketing, and professional fees for legal, patent, and accounting services.

We have been commercializing ARCALYST since April 2021 and expect that our selling, general and administrative expenses will continue to increase in the future as we continue to perform commercialization and sales activities.

Other Income

Other income consists of interest income recognized from investments in money market funds, U.S. Treasury notes and other miscellaneous income offset by expenses related to investments.

Income Taxes

As an exempted company incorporated under the laws of Bermuda, we are principally subject to taxation in Bermuda. Under the current laws of Bermuda, there is no corporate income tax levied on an exempted company's income, resulting in an effective zero percent tax rate. As a result, we have not recorded any income tax benefits from our losses incurred in Bermuda during each reporting period, and no net operating loss carryforwards are currently available to us for those losses, while our assets remain in Bermuda. Our wholly owned U.S. subsidiaries, Kiniksa US, and Primatope are subject to federal and state income taxes in the United States. Our wholly owned subsidiary Kiniksa UK, and its wholly owned subsidiaries, Kiniksa Pharmaceuticals (Germany) GmbH, Kiniksa Pharmaceuticals (France) SARL, and Kiniksa Pharmaceuticals GmbH are subject to taxation in their respective countries. Our income tax provision is primarily driven by income earned in the UK and U.S. offset in part by tax benefits from the Foreign Derived Intangible Income ("FDII") deduction and U.S. federal and state research and development credits ("R&D Credits").

In the first quarter of 2022, we transferred exclusive rights to develop and commercialize mavrilimumab in the Asia Pacific region, excluding Japan, to Kiniksa UK.

In the third quarter of 2022, we transferred exclusive worldwide rights to develop and commercialize vixarelimab to Kiniksa UK.



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Results of Operations

Comparison of the Three Months Ended March 31, 2023 and 2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:



                                          Three Months Ended
                                              March 31,
                                          2023          2022        Change

                                                  (in thousands)

Revenue:
Product revenue, net                   $   42,659    $   22,189    $  20,470
License and collaboration revenue           5,686        10,000      (4,314)
Total revenue                              48,345        32,189       16,156
Costs and Operating expenses:
Cost of goods sold                          7,036         4,219        2,817
Collaboration expenses                      8,288         8,254           34
Research and development                   15,172        20,817      (5,645)
Selling, general and administrative        29,045        22,218        6,827
Total operating expenses                   59,541        55,508        4,033
Loss from operations                     (11,196)      (23,319)       12,123
Other income                                1,832            34        1,798
Loss before income taxes                  (9,364)      (23,285)       13,921
Provision for income taxes                (2,906)       (1,925)        (981)
Net loss                               $ (12,270)    $ (25,210)    $  12,940


Product Revenue, Net

We recognized net revenue from the sale of ARCALYST of $42.7 million for the three months ended March 31, 2023, compared to $22.2 million for the three months ended March 31, 2022, an increase of $20.5 million. The increase in product revenue was primarily driven by an increase in patients.

License and Collaboration Revenue

We reported $5.7 million of license and collaboration revenue for the three months ended March 31, 2023, related to the Genentech License Agreement, compared to $10.0 million for the three months ended March 31, 2022, a decrease of $4.3 million. This decrease in license and collaboration revenue was primarily driven by the $10.0 million upfront payment recognized during the three months ended March 31, 2022 upon the signing of the mavrilimumab Collaboration Agreement in February of 2022 offset by the revenue recognized during the three months ended March 31, 2023, related to the Genentech License Agreement. We expect to recognize $12.0 million of deferred revenue related to the rilonacept Huadong Collaboration Agreement over the life of the agreement as materials are delivered and the remaining $6.7 million of the transaction price still to be recognized related to the Genentech License Agreement over the life of the in-progress Phase 2b prurigo nodularis clinical trial.

Cost of Goods Sold

We recognized cost of goods sold from the sale of ARCALYST of $7.0 million for the three months ended March 31, 2023, compared to $4.2 million for the three months ended March 31, 2022, an increase of $2.8 million. The increase in cost of goods sold relates primarily to the increase in sales of ARCALYST. We expect cost of goods sold to increase as we initiate and conduct a technology transfer of the manufacturing process for ARCALYST drug substance.



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Collaboration Expenses

Collaboration expenses were $8.3 million for the three months ended March 31, 2023 and 2022. Collaboration expenses increased due to increased revenue from sales of ARCALYST offset by a $6.0 million expense related to the rilonacept Huadong Collaboration Agreement recognized during the three months ended March 31, 2022. We expect to continue to incur collaboration expenses associated with sales of ARCALYST.

Research and Development Expenses



                                                            Three Months Ended
                                                                March 31,
                                                             2023         2022      Change

                                                                    (in thousands)
Rilonacept (ARCALYST)                                     $      558    $  1,857   $ (1,299)
KPL-404                                                        3,446       2,205       1,241
Mavrilimumab                                                   (272)       3,512     (3,784)
Vixarelimab                                                    2,047       2,805       (758)

Unallocated research and development expenses: Personnel related (including share-based compensation) 6,413 6,970 (557) Other

                                                          2,980       3,468       (488)
Total research and development expenses                   $   15,172    $ 20,817   $ (5,645)

Research and development expenses were $15.2 million for the three months ended March 31, 2023, compared to $20.8 million for the three months ended March 31, 2022, a decrease of $5.6 million.

The direct costs for our ARCALYST program were $0.6 million during the three months ended March 31, 2023, compared to $1.9 million during the three months ended March 31, 2022, a decrease of $1.3 million. The expense reduction for the three months ended March 31, 2023, is due to the limited remaining close-out costs of the RHAPSODY trial, our global, pivotal Phase 3 clinical trial in recurrent pericarditis. The expenses for the three months ended March 31, 2022, related primarily to the long-term extension portion of the RHAPSODY trial.

The direct costs for our KPL-404 program were $3.4 million during the three months ended March 31, 2023, compared to $2.2 million during the three months ended March 31, 2022, an increase of $1.2 million. The increase in expenses incurred primarily related to the initiation cost of cohort three and continuation of the first two cohorts of our Phase 2 trial in RA during the three months ended March 31, 2023, as compared to initial cost of the first two cohorts of our Phase 2 trial in RA, for the three months ended March 31, 2022.

The direct costs (credits) for our mavrilimumab program were ($0.3) million during the three months ended March 31, 2023, compared to $3.5 million during the three months ended March 31, 2022, or a decrease of $3.8 million. The decrease in expenses incurred is primarily related to trial cost reductions identified by our CRO in our Phase 3 clinical trial in COVID-19 related ARDS during close-out reconciliations during the three months ended March 31, 2023, compared to the wind-down activities of the Phase 3 clinical trial in COVID-19 related ARDS during the three months ended March 31, 2022.

The direct costs for our vixarelimab program were $2.0 million during the three months ended March 31, 2023, compared to $2.8 million during the three months ended March 31, 2022, a decrease of $0.8 million. Expenses incurred during the three months ended March 31, 2023, were primarily related to our ongoing Phase 2b clinical trial in prurigo nodularis while during the three months ended March 31, 2022, expenses were primarily related to the initiation of our Phase 2b clinical trial in prurigo nodularis.

Unallocated research and development expenses were $9.4 million for the three months ended March 31, 2023, compared to $10.4 million for the three months ended March 31, 2022, a decrease of $1.0 million. The decrease of $1.0 million in unallocated research and development expenses was primarily due to a reduction in late stage clinical trial



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activity. Personnel-related costs for the three months ended March 31, 2023 and 2022, included share-based compensation of $1.4 million and $2.0 million, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $29.0 million for the three months ended March 31, 2023, compared to $22.2 million for the three months ended March 31, 2022. The increase of $6.8 million was primarily due to an increase of $4.5 million in personnel-related costs and $1.7 million in sales and marketing costs related to the expansion of the salesforce. Personnel-related costs for the three months ended March 31, 2023 and 2022, included share-based compensation of $4.4 million and $3.9 million, respectively.

Other Income

Other income was $1.8 million for the three months ended March 31, 2023 compared to other income of less than $0.1 million for the three months ended March 31, 2022. The increase was primarily due to higher interest rates on U.S. Treasury notes and a larger average balance in short term investments.

Provision for Income Taxes

For the three months ended March 31, 2023, we recorded an income tax provision of $2.9 million relating primarily to income earned in the UK and the U.S., net of the FDII deduction and R&D Credits utilized. For the three months ended March 31, 2022, we recorded an income tax provision of $1.9 million relating primarily to the current tax expense due to income from our cost plus arrangements in the United States, net of R&D Credits utilized. During the three months ended March 31, 2022, there was no UK tax provision because Kiniksa UK was in a net loss position and had a full valuation allowance against its deferred tax asset. We expect our UK current tax provision to be partially reduced by net operating losses to the extent available. While we still maintain a full valuation allowance on the U.S. deferred tax assets as of March 31, 2023, based on current U.S. forecasted income, it is reasonably possible that the Company will release its valuation allowance on its U.S. deferred tax assets within one year.

Liquidity and Capital Resources

As of March 31, 2023, our principal source of liquidity was cash, cash equivalents and short-term investments, which totaled $187.5 million. Net loss was $12.3 million and $25.2 million for the three months ended March 31, 2023 and 2022, respectively. We expect to incur operating losses for the foreseeable future.

Under various agreements with third parties, we have agreed to make milestone payments, pay royalties, annual maintenance fees and to meet due diligence requirements, each based upon specified milestones. Under our license agreement with Regeneron, we have entered into supply agreements to provide both clinical and commercial product. We have committed to minimum payments to Regeneron of $7.6 million, all of which are due within one year. We have entered into lease agreements for office and laboratory space, and vehicles, with total future lease payments of $5.9 million, of which $3.7 million are due within one year. We expect to incur additional cash commitments as we conduct a technology transfer of the manufacturing process for ARCALYST, drug substance.

Under various agreements with third parties, we are entitled to receive upfront payments, milestone payments, and royalties, each based upon specified milestones. In the first quarter of 2023, we received $20.0 million for delivery of certain drug supplies as part of the Genentech License Agreement.



These agreements impact our short-term and long-term liquidity and capital
needs.

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Cash Flows

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



                                                Three Months Ended
                                                    March 31,
                                                2023          2022

                                                  (in thousands)

Net cash used in operating activities $ (4,267) $ (36,846) Net cash used in investing activities (37,920) (22,723) Net cash provided by financing activities

            90           423

Net decrease in cash and cash equivalents $ (42,097) $ (59,146)

Operating Activities

During the three months ended March 31, 2023, operating activities used $4.3 million of cash which primarily consisted of our net loss of $12.3 million, adjusted for non-cash items of $7.7 million and working capital decrease of $0.3 million. Non-cash items were comprised primarily of $6.1 million of stock based compensation, offset by $1.1 million of amortization of premiums and accretion of discounts on short-term investments. Working capital decreased primarily due to a $7.7 million decrease in contract assets, a $6.7 million increase in deferred revenue both related to the $20.0 million received as part of the Genentech License Agreement and a $5.2 million decrease in accounts receivable, offset by a $10.6 million decrease in accrued expenses attributable to a lower level of late stage clinical trials and $6.5 million decrease in accounts payable attributable to timing of inventory purchases.

During the three months ended March 31, 2022, operating activities used $36.8 million of cash, primarily resulting from our net loss of $25.2 million as well as net cash used by our operating assets and liabilities of $19.2 million offset by non-cash charges of $7.6 million. Net cash used by our operating assets and liabilities for the three months ended March 31, 2022, consisted primarily of a $25.5 million increase in account receivable primarily due to the Huadong Collaboration Agreements, a $9.5 million increase in inventory and a $3.9 million increase in prepaid expenses and other current assets, offset by an increase of $12.0 million in deferred revenue as a result of the Rilonacept Huadong Collaboration Agreement, and a $4.1 million increase in accrued expenses and other current liabilities as a result of the upfront payment profit share of the Huadong Collaboration Agreement with Regeneron.

Investing Activities

During the three months ended March 31, 2023, investing activities used $37.9 million of cash, primarily consisting of $52.9 million of purchases of short-term investments, offset by $15.0 million of maturities of short-term investments.

During the three months ended March 31, 2022, investing activities used $22.7 million of cash, consisting of $30.2 million of purchases of short-term investments, offset by $7.5 million of maturities of short-term investments.

Financing Activities

During the three months ended March 31, 2023 and 2022, net cash provided by financing activities was $0.1 million and $0.4 million, respectively, consisting of proceeds from the exercise of share options.

Funding Requirements

We expect to incur significant expenses in connection with our ongoing and planned activities as we continue to commercialize ARCALYST and advance our current and future product candidates through preclinical and clinical development, seek regulatory approval and commercialize one or more of our current or future product candidates, if approved. In addition, if we obtain marketing approval for any of our current or future product candidates, we expect to incur significant additional commercialization expenses related to such activities. We may also incur expenses in



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connection with the in-licensing or acquisition of additional product candidates. As a result, we expect to incur additional expenses related to milestone, royalty and other payments payable to third parties with whom we have entered into license, acquisition and other similar agreements to acquire the rights to our product candidates. Additionally, we expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. We expect to incur expenses as we:

? conduct our current and planned clinical trials for our current and future

product candidates;

increase clinical and commercial manufacturing capabilities, make arrangements

? with additional third party manufacturers to successfully manufacture our

products and product candidates and perform activities related to our

technology transfer of the manufacturing process for ARCALYST drug substance;

? develop and timely deliver clinical grade and commercial grade product

formulations that can be used in our clinical trials and for commercial sale;

? seek regulatory approvals for any product candidates that successfully complete

clinical trials;

maintain, establish, and/or expand a sales, marketing, medical affairs and

? distribution infrastructure to commercialize ARCALYST or any of our current or

future product candidates for which we may obtain marketing approval and intend

to commercialize on our own;

? launch commercial sales of any of our current or future product candidates, if

and when approved, whether alone or in collaboration with others;

? make milestone or other payments under any current or future license,

acquisition, collaboration or other strategic transaction agreements;

expand our operational, financial and management systems and increase personnel

? globally to support our clinical development, manufacturing and

commercialization efforts and our operations as a public company;

? maintain, expand and protect our intellectual property portfolio; and

? in-license or acquire other product candidates and technologies or their

related businesses if we determine to do so.

We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. The future viability of our company is dependent on our ability to fund our operations through sales of ARCALYST and/or raise additional capital, such as through debt or equity offerings, as needed. We anticipate that we may require additional capital if we choose to pursue in-licenses or acquisitions of other product candidates and technologies or their related businesses. We expect to continue to incur significant expenses related to product manufacturing, sales, marketing and distribution of ARCALYST. In addition, if we obtain regulatory approval for any of our current or future product candidates, pursue additional indications or additional territories for our products or any of our current or future product candidates, we expect to incur significant expenses related to product development and manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.

Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic products, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements may be impacted by a number of factors, including those described in Part II, Item 1A. "Risk Factors" in this Quarterly Report.



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Until such time, if ever, as we can generate substantial and sustained product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, or other sources, including, licensing, collaboration, marketing, distribution or other strategic transactions or arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders' ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect our shareholders' rights as a common shareholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in fixed payment obligations.

If we raise funds through licensing, collaboration, marketing, distribution or other strategic transactions or arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates or future revenue streams, or otherwise agree to terms that may not be favorable to us. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs for product candidates, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in the Annual Report and the notes to the consolidated financial statements included in Item 1, "Financial Statements (Unaudited)" included in this Quarterly Report. We believe that of our critical accounting policies, the following accounting policies involve the most judgment and complexity:

? accrued research and development expenses;

? revenue recognition; and

? realizability of deferred tax assets.

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