(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~Aug~~November 8, ~~2018,~~2023, the registrant had ~~19,108,221~~72,692,963 shares of common stock, $0.001 par value per share, outstanding.

This Quarterly Report on Form 10-Q contains forward-looking ~~statements.~~statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “potential,” “project,” “plan,” “expect,” “seek,” “target” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

Unless the context otherwise requires, the terms “Kezar,” “Kezar Life Sciences,” “the ~~company,~~Company,” “we,” “us,” “our” and similar references in this Quarterly Report on Form 10-Q refer to Kezar Life Sciences, Inc. and our wholly owned Australian subsidiary, Kezar Life Sciences Australia Pty Ltd.

See accompanying notes to the unaudited condensed consolidated financial statements

See accompanying notes to the unaudited ~~interim~~ condensed consolidated financial statements

See accompanying notes to the unaudited condensed consolidated financial statements

Reference Rate Reform. In ~~February 2016,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued ~~Accounting Standards Update~~ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“~~ASU”~~LIBOR”) ~~No. 2016-02, “Leases.” ASU 2016-02 increases transparency~~ and ~~comparability among organizations by recognizing lease assets and lease liabilities on~~other interbank offered rates to alternative reference rates. This guidance generally allows for contract modifications solely related to the ~~balance sheet and requires disclosing key information about leasing arrangements. ASU 2016-02 is effective on~~replacement of the reference rate to be accounted for as a continuation of the existing contract instead of as an extinguishment of the contract, without triggering certain accounting impacts that could be required associated with an extinguishment of the contract. In January 1, 2019. Management does not expect the adoption of ASU 2016-02 to have a material effect on its business. The Company is currently evaluating the effect the update will have on its financial statements and related disclosures.

~~In May 2017,~~2021, the FASB issued ASU ~~No. 2017-09,~~ ~~Compensation – Stock Compensation~~2021-01, Reference Rate Reform (Topic ~~718)~~848): Scope, to expand the scope of ~~Modification Accounting~~this guidance to include derivatives. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022 to December 31, 2024. As discussed in note 7 of the condensed consolidated financial statements, in June 2023 our loan agreement was amended and effective July 1, 2023, the interest base transitioned from LIBOR to Secured Overnight Financing Rate ("SOFR"). ~~This ASU provides~~We applied the above guidance ~~about which changes to the terms or conditions~~when accounting for this change (as discussed further in note 7), and adoption of a share-based payment award requires the Company to apply modification accounting. This ASU will be effective for the Company for annual reporting periods, including interim reporting periods, beginning after December 15, 2017. The Company adopted this ~~standard on January 1, 2018 noting it~~guidance did not have a material impact on ~~the Company’s~~our financial statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718).” ASU 2018-07 simplifies the accounting for nonemployee share-based payment transactions. This ASU is effective for public entities for interim As of September 30, 2023, we have no debt instruments that use LIBOR as a reference rate, and ~~annual reporting periods beginning after December 15, 2018. The Company has evaluated the potential impact of~~ this guidance ~~and does~~is not ~~believe~~expected to have a material impact on our financial statements in the future.

There have been no other recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance that ~~it will~~are expected to have a material impact on the Company’s condensed consolidated financial ~~statements.~~statements upon adoption.

June 30, 2018

Amortized Cost

Unrealized
Gains

Unrealized
Losses

Fair Value

Assets

Level 1:

Cash

5,497

—

—

5,497

Money market funds

89,793

—

—

89,793

U.S. Treasury securities

16,414

—

(2
)

16,412

Subtotal

111,704

—

(2
)

111,702

Level 2:

Corporate debt securities

6,682

1

—

6,683

Subtotal

6,682

1

—

6,683

Total

$
118,386

$
1

$
(2
)

$
118,385

Reported as:

Cash and cash equivalents

$
101,973

Marketable securities

$
16,412

4. Available-for-Sale Securities

The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in the Company’s condensed consolidated balance sheets (in thousands):


	September 30, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
U.S. Treasury money market funds	$	25,724	$	—	$	—		$	25,724
Marketable securities:
U.S. Treasury securities		46,923		1		(156	)		46,768
Commercial paper		48,706		1		(78	)		48,629
U.S. agency bonds		96,481		—		(171	)		96,310
Total available-for-sale securities	$	217,834	$	2	$	(405	)	$	217,431
Cash									774
Total cash, cash equivalent and marketable securities								$	218,205


	December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
U.S. Treasury money market funds	$	38,745	$	—	$	—		$	38,745
Marketable securities:
U.S. Treasury securities		40,340		—		(199	)		40,141
Commercial paper		117,855		2		(379	)		117,478
Corporate debt securities		1,978		—		—			1,978
U.S. agency bonds		76,610		56		(158	)		76,508
Total available-for-sale securities	$	275,528	$	58	$	(736	)	$	274,850
Cash									1,711
Total cash, cash equivalent and marketable securities								$	276,561

December 31, 2017

Amortized Cost

Unrealized
Gains

Unrealized
Losses

Fair Value

Assets

Level 1:

Cash

804

—

—

804

Money market funds

50,229

—

—

50,229

Restricted cash

13

—

—

13

Subtotal

51,046

—

—

51,046

Total

$
51,046

$
—

$
—

$
51,046

Reported as:

Cash and cash equivalents

$
51,033

Restricted cash

$
13

~~Where quoted prices are available~~The Company has not recognized an allowance for credit losses on any securities in an ~~active market, securities are classified as Level 1.~~ unrealized loss position as of September 30, 2023 and December 31, 2022.

The ~~Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates~~following table displays additional information regarding gross unrealized losses and fair value by ~~using benchmark yields, reported trades, broker/dealer quotes,~~major security type for available-for-sale securities in an unrealized loss position as of September 30, 2023 and ~~issuer spreads.~~December 31, 2022 (in thousands):


	September 30, 2023
	Less than 12 consecutive months					12 months or greater
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	16,089	$	(102	)	$	25,455	$	(54	)
Commercial paper		33,635		(78	)		—		—
U.S. agency bonds		96,309		(171	)		—		—
Total	$	146,033	$	(351	)	$	25,455	$	(54	)


	December 31, 2022
	Less than 12 consecutive months					12 months or greater
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities	$	33,782	$	(196	)	$	6,359	$	(3	)
Commercial paper		112,706		(379	)		—		—
Corporate debt securities		1,978		—			—		—
U.S. agency bonds		33,942		(147	)		5,490		(11	)
Total	$	182,408	$	(722	)	$	11,849	$	(14	)

The Company believes that the individual unrealized losses represent temporary declines primarily resulting from interest rate changes. The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be

other-than-temporarily impaired as of September 30, 2023. There were no ~~transfers between Level 1 and Level 2 during~~ sales of available-for-sale securities in any of the periods presented.

As of ~~June~~September 30, ~~2018,~~2023, the amortized cost and estimated fair value of the Company’s available-for-sale securities by contractual maturity are shown below (in thousands):


	Amortized		Estimated
Available-for-sale securities maturing in:	Cost		Fair Value
One year or less	$	187,100	$	186,752
One to two years		30,734		30,679
Total available-for-sale securities	$	217,834	$	217,431

The Company determined that the gross unrealized losses on its marketable securities as of June 30, 2018 were temporary in nature. The Company currently does not intend to sell these securities prior to maturity and does not consider these investments to be other-than-temporarily impaired at June 30, 2018. There were no sales of available-for-sale securities in any of the periods presented.

~~Under the terms~~Depreciation expense was $0.3 million and $0.8 million for each of its lease for office and laboratory space at 4000 Shoreline Court, South San Francisco, the Company received an incentive from the landlord for $3.2 million to construct leasehold improvements, which have been recorded in fixed assets and as deferred rent in other liabilities that will be amortized over the remaining lease term. During the three and ~~six~~nine months ended ~~June~~September 30, ~~2018, the Company disposed of leasehold improvements, laboratory equipment~~2023, respectively, compared to $0.3 million and ~~office equipment resulting in a loss of $0 and $97,000, respectively. There was no such loss during~~$0.8 million for the three and ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2022, respectively.

As of ~~June~~September 30, ~~2018,~~2023, the unrecognized stock-based compensation cost related to outstanding unvested stock options and ~~the~~RSUs that are expected to vest was $37.5 million with an estimated weighted average amortization period ~~using the straight-line attribution method, was as follows (dollars in thousands):~~of 2.6 years.

The fair value of the ~~employee~~ stock options granted is calculated using the Black-Scholes option-pricing model with the following ~~weighted-average~~range of assumptions:

The expected term of options granted represents the period of time that options granted are expected to be outstanding and was determined by calculating the midpoint between the date of vesting and the contractual life of each option. The expected term of the ESPP rights is equal to the six-month look-back period. Volatility is based on the weighted average of the historical volatility of the Company's stock price and that of a peer group of public companies over the expected term. The peer group was selected on the basis of operational and economic similarity with the Company’s principal business operations. The risk-free interest rate for the expected term of the options is based on the U.S. Treasury yield curve with a maturity equal to the expected term in effect at the time of grant. The Company has not paid, and does not anticipate paying, cash dividends on its shares of common stock; therefore, the expected dividend yield is zero.

~~7. Income Taxes~~On September 20, 2023, the Company entered into a Collaboration and License Agreement (the “Everest License Agreement”) with Everest Medicines II (HK) Limited (“Everest”) pursuant to which, among other things, the Company granted to Everest an exclusive license to develop and commercialize one or more products containing the Company’s proprietary compound, zetomipzomib (the “Products”), in the licensed field in the Greater China region (Mainland China, Taiwan, Hong Kong and Macau), South Korea, Singapore, Malaysia, Thailand, Indonesia, Vietnam and the Philippines (the “Territory”). The licensed field includes all uses other than the diagnosis or treatment in humans of cancerous or pre-cancerous diseases or conditions. Everest Medicines Limited is also a party to the Everest License Agreement solely for limited purposes, including to guarantee the performance by Everest of its obligations under the Everest License Agreement.

~~For~~Under the terms of the Everest License Agreement, the Company received one-time, irrecoverable, non-refundable and non-creditable upfront payment of $7.0 million in October 2023, certain variable payments for manufacturing supply services, and is entitled to receive milestone payments upon achievement of certain development, regulatory and commercial milestone events, for total potential milestone payments of up to $125.5 million. In addition, Everest will pay to the Company tiered royalties on the net sales of the Products in the Territory during the term of the Everest License Agreement ranging from the single digit to the low-teens, subject to certain reductions for patent expiration, generic competition and payments for licenses to third party patents.

The term of the Everest License Agreement will continue on a market-by-market basis until expiration of the relevant royalty term of the Products, unless terminated earlier. Everest has the right to terminate the Everest License Agreement for convenience following completion, suspension or termination of the PALIZADE clinical trial. The Company may terminate the Everest License Agreement if Everest challenges the Company’s patents or fails to perform any development or commercialization activities for a continuous period of more than twelve (12) months, subject to certain exceptions. In addition, either party may terminate the Everest License Agreement for the other party’s uncured breach or insolvency, and the Everest License Agreement will automatically terminate in the event of termination of the Company’s exclusive license agreement with Onyx Therapeutics, Inc.

Under the terms of the Everest License Agreement, at the election of Everest, the Company may manufacture and provide clinical supply to Everest to use in development and commercialization in the Territory at the fully burdened manufacturing cost plus specified margins, as defined within the Everest License Agreement. Certain of these provisions were determined to be options to acquire additional goods or services at a price that approximates the stand-alone selling price for that good or service and therefore do not represent material rights, or separate performance obligations, within the context of the Everest License Agreement. The Company evaluated the Everest License Agreement and determined it was within the scope of ASC 606. The transaction price was determined to consist of the upfront payment of $7.0 million.

License of Intellectual Property. The license to the Company’s intellectual property and associated know-how represents a distinct performance obligation. The license and associated know-how was transferred to Everest in the third quarter of 2023 to satisfy this performance obligation. The Company allocated the full transaction price to the license of the Company’s intellectual property and accordingly recognized collaboration revenue of $7.0 million for the three and ~~six~~nine months ended ~~June~~September 30, ~~2018~~2023.

Milestone Payments. The potential development, regulatory and ~~2017, respectively,~~commercial milestone payments are paid upon achievement of certain milestones as defined in the Everest License Agreement. It was determined that their achievement is highly dependent on factors outside of the Company’s control. These payments have been fully constrained until the Company ~~did~~concludes that achievement of the milestone is probable and that recognition of revenue related to the milestone will not ~~record an~~result in a significant reversal in amounts recognized in future periods and, as such, have been excluded from the transaction price. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of each milestone and any related constraint and, if necessary, adjust its estimate of the overall transaction price. As of September 30, 2023, the Company has not recognized any revenue associated with development, regulatory and commercial milestones.

Royalties. Any consideration related to royalties will be recognized if and when the related sales occur, as they were determined to relate predominantly to the license granted to Everest and, therefore, have also been excluded from the transaction price. No royalty revenue was recognized as of September 30, 2023.

As of September 30, 2023, the Company had a receivable of $7.0 million, representing the billed amount related to the upfront payment in September 2023, that the Company had unconditional right to receive under the Everest License Agreement.

~~On April 1, 2017,~~the resignation of Christopher Kirk, Ph.D. from his role as President and Chief Scientific Officer of the Company, the Company and Dr. Kirk entered into ~~a consulting agreement with Michael Kauffman, a member~~an Advisor Agreement, effective as of ~~its board of directors. This agreement provides that~~April 22, 2023 (the “Advisor Agreement”), pursuant to which Dr. ~~Kauffman shall provide clinical~~Kirk provided scientific and ~~scientific~~strategic advisory services as a consultant to the Company (the “Services”). The Services were provided at a rate of $41,050 per month, and ~~participate on~~the Company reimbursed Dr. Kirk for the cost of premiums for continued COBRA coverage through the termination date of the Advisor Agreement, discussed in the Note 14 Subsequent Events below.

Pursuant to the Advisor Agreement, the Company recognized approximately $127,000 and $223,000 of compensation expense during the three and nine months ended September 30, 2023, respectively, of which $42,000 was recorded in accrued liabilities as of September 30, 2023.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~The~~You should read the following ~~information should be read~~management’s discussion and analysis of our financial condition and results of operations in conjunction with ~~the~~our unaudited condensed consolidated financial ~~information~~statements and ~~the~~related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and ~~the~~with our audited consolidated financial ~~information~~statements and ~~the~~related notes thereto for the year ended December 31, 2022 included in our ~~Prospectus that forms a part of our Registration Statement~~Annual Report on Form ~~S-1 (File No. 333-225194), which was~~10-K, as filed with the U.S. Securities and Exchange Commission, or the SEC, ~~pursuant to Rule 424~~ on ~~June 21, 2018,~~March 14, 2023, or the ~~Prospectus.~~Annual Report.

We are a clinical-stage biotechnology company, discovering and developing novel small molecule therapeutics to treat unmet needs in ~~autoimmunity~~immune-mediated diseases and cancer. We believe therapies that inhibit multiple drivers of disease by targeting fundamental upstream control processes within the cell have the potential for profound therapeutic benefit in a number of difficult-to-treat diseases. To that end, we are advancing two drug development programs that harness different regulators of cellular function: the first targets the immunoproteasome which is responsible for protein degradation in cells of the immune system and drives many key aspects of immune cell function, and the second targets the Sec61 translocon, which is located on the endoplasmic reticulum and represents the beginning of the protein secretion pathway. Targeting these fundamental regulators of cellular function offers an attractive approach to treating many diseases.

Our lead product candidate, ~~KZR-616,~~zetomipzomib, is a first-in-class selective immunoproteasome inhibitor that has successfully completed Phase 1a testing in healthy volunteers, ~~and is now enrolling~~ a Phase ~~1b/2~~1b trial in patients with systemic lupus erythematosus, or SLE, and a Phase 2a trial in patients with lupus nephritis, or LN. In the first half of 2023, we initiated PALIZADE, a global, placebo-controlled, double-blind Phase 2b clinical trial evaluating zetomipzomib in ~~lupus~~patients with LN. Target enrollment is 279 patients, who will be randomly assigned (1:1:1) to receive 30 mg of zetomipzomib, 60 mg of zetomipzomib or placebo subcutaneously once weekly for 52 weeks, in addition to standard background therapy. Background therapy can, but will not be mandated to, include standard induction therapy. We are also continuing to explore development opportunities for zetomipzomib in patients with SLE, a chronic inflammatory disease.

In addition, we are leveraging the broad therapeutic potential of zetomipzomib in other severe autoimmune diseases of high unmet medical need. Our PORTOLA trial is a placebo-controlled, double-blind Phase 2a clinical trial evaluating zetomipzomib in patients with autoimmune hepatitis, or AIH, a rare, chronic disease in which the immune system attacks the liver and ~~lupus nephritis.~~causes inflammation and tissue damage. Target enrollment is 24 patients, who will be randomly assigned (2:1) to receive either zetomipzomib or placebo in addition to background corticosteroid therapy for 24 weeks and includes a protocol-mandated steroid taper by Week 14.

Based on clinical data generated to date with zetomipzomib, we believe that zetomipzomib has the potential to address multiple chronic immune-mediated diseases. We believe that the immunoproteasome is a validated target for the treatment of a wide variety of ~~autoimmune~~immune-mediated diseases given its ability to regulate multiple drivers of the ~~compelling published~~inflammatory disease process. Many inflammatory disorders are currently treated one cytokine or cell type at a time, but the immunoproteasome affects a broad spectrum of immune regulators. We have seen encouraging clinical activity ~~seen~~and biomarker data in the SLE and LN patients who received zetomipzomib in the MISSION trial. The safety and tolerability profiles of zetomipzomib has been favorable and consistent with ~~proteasome inhibitors administered~~the needs for a long-term therapy. We intend to identify additional immune-mediated disease indications where a proof of principle exists to further develop zetomipzomib.

Our oncology product candidate, KZR-261, is being studied in an open-label Phase 1 clinical trial designed to evaluate safety and tolerability, pharmacokinetics and pharmacodynamics, as well to explore preliminary anti-tumor activity. This study is being conducted in two parts: dose escalation in patients with ~~severe~~locally advanced or metastatic solid malignancies, and dose expansion in patients with selected tumor types. As of November 2023, the dose escalation portion of the study is enrolling Cohort 8 (60 mg/m2). KZR-261 is the first clinical candidate from our novel research platform targeting the Sec61 translocon and the protein secretion pathway for the discovery and development of small molecule therapeutics for oncology and autoimmune ~~diseases. Our Phase 1a clinical trial results provide evidence that KZR-616 avoids~~indications. KZR-261 has demonstrated broad anti-tumor activity in preclinical models of both solid and hematologic malignancies by targeting multiple pathways driving tumor growth and survival.

We believe this discovery platform has the ~~side effects caused by non-selective proteasome inhibitors, side effects that prevent them from being developed~~potential to yield additional small molecule product candidates with the ability to inhibit multiple pathways as a ~~treatment~~single agent, as well as compounds designed to selectively inhibit a single secreted or transmembrane protein of interest. For example, in ~~autoimmunity. Initial top-line results~~November 2022, we presented promising preclinical data on KZR-540, an orally bioavailable small molecule that selectively blocks PD-1 expression via inhibition of the Sec61 translocon. If successfully developed and approved, small molecules generated from ~~the Phase 1b portion of our trial are expected in 2019, and we plan to initiate up to four additional trials in autoimmune diseases in 2019. We are also leveraging~~ our protein secretion ~~pathway~~program could serve as alternatives to currently marketed biologic therapeutics to act as cytotoxic anti-cancer agents or to block the secretion of novel targets of interest in immuno-oncology or inflammation. In October 2023, we announced that we have paused preclinical research and discovery activities and are exploring strategic alternatives for our protein secretion platform ~~to discover~~ and ~~develop small molecule therapies targeting cancer and immuno-oncology.~~related preclinical programs.

Since the commencement of our operations, ~~in mid-2015,~~ we have devoted substantially all of our resources to performing research and development activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily from the issuance and sale of convertible preferred stock, ~~and from our initial~~ public ~~offering as described below.~~

~~On June 8, 2018, we effected a 1-for-5.62 reverse stock split of our issued and outstanding shares~~offerings of common stock and redeemable convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable,pre-funded warrants to ~~reflect this reverse stock split.~~

~~On June 25, 2018, we completed our initial public offering, or IPO, where by we sold 5,750,000 shares of our~~purchase common stock which included 750,000 shares issued as a result of the underwriters exercising their over-allotment option in full. We received cash proceeds of approximately $77.6 million from the IPO, net of underwriting discounts and ~~commissions and other offering expenses paid by us.~~

~~Since our inception, we have incurred significant operating losses.~~debt. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. We have incurred significant operating losses since our inception. Our net losses were ~~$8.5~~$68.2 million and ~~$11.7~~$69.6 million for the year ended December 31, ~~2017~~2022 and the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2023, respectively, and we expect to continue to incur significant losses for the foreseeable future. As of ~~June~~September 30, ~~2018,~~2023, we had an accumulated deficit of ~~$37.8~~$318.5 million. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on ~~discovering,~~ completing the necessary development, obtaining regulatory approval and preparing for potential commercialization of our product candidates.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on other research and development activities. We expect our expenses will increase substantially over time as we:

F~~inancial~~The following table sets forth the status and initial focus of our product candidates and protein secretion program:

We have no products approved for commercial sales and, to date, have not generated any revenue from the sale of products, and we do not expect to generate any revenue from the sale of products in the near future.

Our revenue to date has been generated from the upfront payment pursuant to our collaboration with Everest under the Everest License Agreement. Collaboration revenue consists of revenue received from upfront, milestone and contingent payments received from the strategic partner. We recognize collaboration revenue when the performance obligation is satisfied.

In addition to receiving an upfront payment, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price.

We expect that any collaboration revenue we generate from our current collaboration and license agreement, and from any future collaboration partners, will fluctuate as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors.

Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

∎

~~the costs related to production of clinical supplies; and~~

•

facilities and other allocated expenses, which include expenses for rent and facility-related costs and supplies.

∎

~~facilities and other allocated expenses, which include expenses for rent and other facility related costs and other supplies.~~

We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers.

We are eligible under the AusIndustry Research and Tax Development Tax Incentive Program to obtain a cash amount from the Australian Taxation Office. The tax incentive is available to us on the basis of specific criteria with which we must comply related to research and development expenditures in Australia. These research and development tax incentives are recognized as contra research and development expense when the right to receive has been attained and funds are considered to be collectible. The amounts are determined based on a cost-reimbursement basis, and the incentive is related to our research and development expenditures and is due to us regardless of whether any Australian tax is owed. Amounts related to the AusIndustry Research and Development Tax Incentive Program are recognized when there is reasonable assurance that the incentive will be received, the relevant expenditure has been incurred by our Australian subsidiary, Kezar Life Sciences Australia Pty Ltd, a proprietary company limited by shares, and the amount of the consideration can be reliably measured.

The following table summarizes our research and development expenses incurred during the respective periods (in ~~thousands)~~millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(unaudited)				(unaudited)
Research and development expenses by program:
Zetomipzomib	$	15.2	$	8.2	$	39.3	$	20.9
KZR-261		4.2		3.1		11.9		8.1
Protein Secretion		4.3		2.6		11.9		7.2
Total research and development expenses	$	23.7	$	13.9	$	63.1	$	36.2

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

(unaudited)

(unaudited)

Discovery research

$
3,759

$
1,141

$
6,029

$
2,606

Clinical development

872

401

1,902

1,002

Manufacturing related expenses

597

67

872

106

Less: Australian Research and Development
Tax Incentive Program

—

(164
)

(3
)

(438
)
Total research and development expenses

$
5,228

$
1,445

$
8,800

$
3,276

We expect our research and development expenses to increase substantially for the foreseeable future as ~~we continue to invest in research and development activities related to developing~~ our product ~~candidate and our preclinical programs and as they~~candidates advance into later stages of development. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

General and Administrative Expenses

Our general and administrative expenses consist primarily of personnel costs, allocated facilities costs and ~~other~~ expenses for outside professional services, including legal, human resource, ITinformation technology and audit services. Personnel costs consist of salaries, benefits and stock-based compensation. We ~~expect to~~will incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, The Nasdaq Stock Market LLC and any other securities exchange on which our securities are traded, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect towe increase the size of our administrative function to support the growth of our business.

Interest Income

Our interest income consists of interest income earned on our cash, cash equivalents and ~~cash equivalents.~~marketable securities.

Interest Expense

Our interest expense is related to our debt facility. A portion of the interest expense is non-cash expense relating to the accretion of the final payment fees and amortization of debt discount and debt issuance costs associated with our Loan Agreement with Oxford Finance.

July 2023 Option Repricing

On July 24, 2023, the Compensation Committee of the Company’s Board of Directors approved a stock option repricing (the “Option Repricing”) in which the exercise price of certain outstanding options to purchase shares of the Company’s common stock under the 2018 Plan was reduced to $2.28 per share, the closing price of the Common Stock on July 24, 2023. As a result of the Option Repricing, 9,904,755 vested and unvested stock options outstanding as of July 24, 2023 granted under the 2018 Plan with original exercise prices ranging from $2.44 to $22.85, were repriced. The total incremental fair value to be recognized as a result of the repricing was approximately $4.7 million. The incremental fair value attributable to the vested option shares, totaling approximately $2.3 million, was recognized as non-cash stock-based compensation expense during the three months ended September 30, 2023. The

remaining incremental fair value attributable to the unvested option shares will be amortized over the remaining requisite service period, which is largely through the end of 2026.

Results of Operations

Comparison of the Three Months Ended ~~June~~September 30, ~~2018~~2023 and ~~2017~~2022


	Three Months Ended September 30,
(dollars in millions)	2023			2022			$ Change
Collaboration revenue	$	7.0		$	—		$	7.0
Operating expenses:
Research and development		23.7			13.9			9.8
General and administrative		8.8			5.1			3.7
Total operating expenses		32.5			19.0			13.5
Loss from operations		(25.5	)		(19.0	)		(6.5	)
Interest income		2.8			1.4			1.4
Interest expense		(0.4	)		(0.3	)		(0.1	)
Net loss	$	(23.1	)	$	(17.9	)	$	(5.2	)

Collaboration Revenue

Three Months Ended June 30,

(dollars in thousands)

2018

2017

$ Change

Operating expenses:

Research and development

$
5,228

$
1,445

$
3,783

General and administrative

1,722

436

1,286

Total operating expenses

6,950

1,881

5,069

Loss from operations

(6,950
)

(1,881
)

(5,069
)
Interest income

175

1

174

Net loss

$
(6,775
)

$
(1,880
)

$
(4,895
)

Collaboration revenue increased by $7.0 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 due to the upfront payment under the Everest License Agreement.

Research and Development Expenses

Research and development expenses increased by ~~$3.8~~$9.8 million for the three months ended ~~June~~September 30, ~~2018,~~2023, compared to the three months ended ~~June~~September 30, ~~2017.~~2022. The increase was due to an increase of ~~$1.0~~$5.3 million in ~~toxicology and other preclinical studies,~~clinical expenses primarily related to increased activities for the PALIZADE trial, an increase of ~~$0.3~~$1.6 million in ~~clinical trial costs due to the initiation of the Phase 1b clinical trial of KZR-616,~~personnel expenses, an increase of ~~$0.4 million related to manufacturing, an increase of $0.3 million in medicinal chemistry efforts related to our protein secretion discovery program, an increase of $0.4~~$1.3 million in stock-based compensation primarily from the Option Repricing, an increase of ~~$0.7~~$0.8 million in facility-related expense due to the increase rent from additional lease space, an increase of $0.5 million in consulting expenses and an increase of $0.2 million in manufacturing expenses related to the timing of drug manufacturing runs.

General and Administrative Expenses

General and administrative expenses increased by $3.7 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The increase was due to an increase of $1.6 million in legal and professional service costs largely in connection with the Everest License Agreement, an increase of $1.5 million in stock-based compensation primarily from the Option Repricing, an increase of $0.4 million in personnel expenses due to an increase in headcount and an increase of ~~$0.5~~$0.2 million in facility-related expenses. In addition, the Australian Research and Development Tax Incentive credit earned for the three months ended June 30, 2018 decreased by $0.2 million compared to the same period in 2017, which is recorded as a reduction in our research and development expenses.expense.

~~General and Administrative Expenses~~Interest Income

~~General and administrative expenses~~Interest income increased by ~~$1.3~~$1.4 million for the three months ended ~~June~~September 30, ~~2018,~~2023, compared to the three months ended ~~June~~September 30, ~~2017.~~2022. The increase was primarily due to ~~a $0.6 million increase in stock-based compensation, a $0.2 million in personnel expenses related to~~ an increase in headcount and increased salaries, a $0.3 million increase in consulting and professional fees related to preparing to become a public company and an increase of $0.2 million in facility-related expenses due to the move to our new corporate office.interest rates.

Interest ~~Income~~Expense

Interest ~~income~~expense increased by ~~$0.2~~$0.1 million for the three months ended ~~June~~September 30, ~~2018,~~2023, compared to the three months ended ~~June~~September 30, ~~2017.~~2022. The ~~increase~~interest expense was ~~attributable to~~composed of the contractual coupon interest ~~income earned on higher cash equivalents balance resulting from our IPO~~expense, the amortization of the debt discount and issuance costs and the accretion of the final payment fee associated with the Loan Agreement entered into in ~~June 2018 and Series B convertible preferred stock financing in June and July 2017.~~November 2021.

Comparison of the ~~Six~~Nine Months Ended ~~June~~September 30, ~~2018~~2023 and ~~2017~~2022


	Nine Months Ended September 30,
(dollars in millions)	2023			2022			$ Change
Collaboration revenue	$	7.0		$	—		$	7.0
Operating expenses:
Research and development		63.1			36.2			26.9
General and administrative		20.8			15.0			5.8
Total operating expenses		83.9			51.2			32.7
Loss from operations		(76.9	)		(51.2	)		(25.7	)
Interest income		8.4			1.9			6.5
Interest expense		(1.1	)		(0.8	)		(0.3	)
Net loss	$	(69.6	)	$	(50.1	)	$	(19.5	)

Collaboration Revenue

Six Months Ended June 30,

(dollars in thousands)

2018

2017

$ Change

Operating expenses:

Research and development

$
8,800

$
3,276

$
5,524

General and administrative

3,236

862

2,374

Total operating expenses

12,036

4,138

7,898

Loss from operations

(12,036
)

(4,138
)

(7,898
)
Interest income

314

1

313

Net loss

$
(11,722
)

$
(4,137
)

$
(7,585
)

Collaboration revenue increased by $7.0 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 due to the upfront payment under the Everest License Agreement.

Research and Development Expenses

Research and development expenses increased by ~~$5.5~~$26.9 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2023, compared to the ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2022. The increase was due to an increase of ~~$1.6~~$12.7 million in ~~toxicology and other preclinical studies,~~clinical expenses primarily related to increased activities for the PALIZADE trial, an increase of ~~$0.6~~$4.2 million in personnel and recruiting expenses, an increase of $2.8 million in facility-related expense due to the increase rent from additional lease space, an increase of $2.7 million in stock-based compensation, an increase of $1.9 million in research and preclinical activities related to protein secretion, an increase of $1.9 million in manufacturing ~~activities,~~expenses and an increase of $0.6 million in clinical trial costs due to the initiation of the Phase 1b clinical trial of KZR-616, an increase of $0.4 million in medicinal chemistry efforts related to our protein secretion discovery program, an increase of $0.8 million in personnel expenses due to an increase in headcount, an increase of $0.4 million in stock-based compensation and an increase of $0.7 million in facility-relatedconsulting expenses. In addition, the Australian Research and Development Tax Incentive credit earned for the six months ended June 30, 2018 decreased by $0.4 million compared to the same period in 2017, which is recorded as a reduction in our research and development expenses.

General and Administrative Expenses

General and administrative expenses increased by ~~$2.4~~$5.8 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2023, compared to the ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2022. The increase was due to an increase of ~~$0.9 million in legal and professional fees related to preparing to be a public company, an increase of $0.6~~$2.1 million in stock-based compensation, an increase of ~~$0.4~~$2.0 million in legal and other professional services, an increase of $1.2 million in personnel and recruiting expenses ~~related~~due to an increase in headcount and ~~increased~~ salaries, and an increase of ~~$0.5~~$0.4 million in facility-related ~~expenses~~expense.

Interest Income

Interest income increased by $6.5 million for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. The increase was due to ~~the move to our new corporate office and disposal of property and equipment from our prior facility.~~an increase in interest rates.

Interest ~~Income~~Expense

Interest ~~income~~expense increased by $0.3 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2023, compared to the ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2022. The ~~increase~~interest expense was ~~attributable to~~composed of the contractual coupon interest ~~income earned on higher cash equivalents balance resulting from our IPO~~expense, the amortization of the debt discount and issuance costs and the accretion of the final payment fee associated with the Loan Agreement entered into in ~~June 2018 and Series B convertible preferred stock financing in June and July 2017.~~November 2021.

Liquidity and Capital Resources

Overview

In June 2018, we completed an IPO whereby we sold 5,750,000 shares of our common stock at a price of $15.00 per share, which included 750,000 shares as a result of the underwriters exercising their over-allotment option exercised in full. We received net proceeds of $77.6 million from the IPO, after deducting underwriting discounts and commissions and other offering expenses paid by us. In connection with the IPO, all of our outstanding convertible preferred stock automatically converted to common stock on a one-for-one ratio on June 20, 2018.

Since our inception and through June 30, 2018, we have raised an aggregate of $150.6 million to fund our operations, including $77.6 million from our IPO and $72.6 million from the sale of convertible preferred stock. As of ~~June~~September 30, ~~2018,~~2023, we had ~~$102.0~~$218.2 million in cash, ~~and~~ cash equivalents and ~~$16.4 million~~marketable securities. As of September 30, 2023, our cash equivalents and marketable securities ~~invested in a U.S. Treasury money market fund, U.S. Treasury securities,~~had an average maturity of approximately five months and ~~corporate debt securities with maturities of eight months or less.~~the longest maturity was 19 months.

We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the foreseeable future. Our net loss was ~~$6.8 million and $11.7~~$69.6 million for the ~~three and six~~nine months ended ~~June~~September 30, ~~2018, respectively,~~2023, and we had an accumulated deficit of ~~$37.8~~$318.5 million as of ~~June~~September 30, ~~2018.~~2023.

We believe that our cash, ~~and~~ cash equivalents and marketable securities as of ~~June~~September 30, ~~2018~~2023 will be sufficient to meet our projected operating requirements through at least ~~through~~ the next 12 months from the date ~~the~~these financial statements were issued. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect.

At-the-Market Offering Program

In December 2021, we entered into a Sales Agreement, or the ATM Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we can offer and sell, from time to time at our sole discretion, through Cowen, as our sales agent, shares of common stock having an aggregate offering price of up to $200.0 million. Any shares of common stock sold will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-261774). We will pay Cowen a commission up to 3.0% of the gross sales proceeds of any shares of common stock sold through Cowen under the ATM Agreement and also have provided Cowen with indemnification and contribution rights. As of September 30, 2023, we have sold an aggregate of 11,986,003 shares of our common stock for gross proceeds of approximately $131.7 million at a weighted average purchase price of $10.98 per share pursuant to the ATM Agreement. As of September 30, 2023, approximately $68.3 million remains available under the ATM Agreement. No shares were sold under the ATM Agreement during the three months ended September 30, 2023.

Debt Facility

In November 2021, we entered into the Loan Agreement with Oxford Finance, which provides up to $50.0 million in borrowing capacity across five potential tranches. The initial tranche of $10.0 million was funded at the closing of the Loan Agreement. The remaining tranches were dependent on achieving certain clinical trial milestones. As of September 30, 2023, we declined these tranches in borrowing capacity available to us under the Loan Agreement.

Until June 30, 2023, the Loan Agreement bore interest at a floating per annum rate (based on the actual number of days elapsed divided by a year of 360 days) equal to the sum of (a) the greater of (i) the 30-day U.S. LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue and (ii) 0.08%, plus (b) 7.87%. We are required to make monthly interest-only payments prior to the amortization date of January 1, 2025, subject to a potential one-year extension upon satisfaction of certain conditions. The loan facility is secured by all assets except intellectual property, which is subject to a negative pledge, and will mature on November 1, 2026. There are no warrants or financial covenants associated with the Loan Agreement. A LIBOR transition event occurred effective July 1, 2023 and Oxford Finance revised the Loan Agreement to replace the LIBOR rate with the 1-month CME term SOFR plus 0.1%. The rate change did not require contract remeasurement at the effective date of the change or a reassessment of any previous accounting determinations pertaining to the facility. The rate change did not have a material impact on the Company’s financial statements.

Funding Requirements

We believe that our available cash, cash equivalents and short-term investments are sufficient to fund existing and planned cash requirements for the next 12 months. Our primary ~~use~~uses of ~~cash is~~capital are, and we expect will continue to ~~fund operating~~be, compensation and related expenses, ~~primarily~~third-party clinical research and development ~~expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued~~services, clinical costs, legal and other regulatory expenses and ~~prepaid expenses.~~general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.

We will require additional financing to fund working capital and pay our obligations. We may pursue financing opportunities through the issuance of debt or equity. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us or at all. Our future funding requirements will depend on many factors, including the following:

∎

the progress, timing, scope, results and costs of our clinical trials and preclinical studies for our product candidates, including the ability to enroll patients in a timely manner for our clinical trials;

•

∎

~~the costs of obtaining clinical and commercial supplies for KZR-616 and any other product candidates we may identify and develop;~~

•

the costs of obtaining clinical and commercial supplies for zetomipzomib, KZR-261 and any other product candidates we may identify and develop;

∎

~~the cost, timing and outcomes of regulatory approvals;~~

•

the cost, timing and outcomes of regulatory approvals;

∎

~~the extent to which we may acquire or in-license other product candidates and technologies;~~

•

the extent to which we may acquire or in-license other product candidates and technologies;

∎

~~the cost of attracting, hiring and retaining qualified personnel;~~

•

the cost of attracting, hiring and retaining qualified personnel;

∎

~~our ability to successfully commercialize any product candidates for which we obtain regulatory approval; and~~

•

our ability to successfully commercialize any product candidates for which we obtain regulatory approval; and

∎

~~the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.~~

•

the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.

Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Our material cash requirements as of September 30, 2023 primarily relate to the maturities of principal obligations under our Term Loan and operating leases for office space and equipment. As of September 30, 2023, we ~~need~~have $3.9 million payable within 12 months. Refer to ~~raise~~Notes 6 and 7 to our condensed consolidated financial statements for additional information. In addition, pursuant to our exclusive license agreement with Onyx Therapeutics, Inc., or the Onyx License Agreement, we expect to recognize and pay a $5.0 million milestone payment in the fourth quarter of 2023 for the initiation of the PALIZADE trial.

Our expected material cash requirements do not include any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into or may enter into with various entities pursuant to which we have in-licensed certain intellectual property, including our Onyx License Agreement. Under the Onyx License Agreement, we are obligated to pay Onyx milestone payments of up to $172.5 million in the aggregate upon the achievement of certain development, regulatory and sales milestones. We excluded the contingent payments given that the timing and amount (if any) of any such payments cannot be reasonably estimated at this time. We also have no material non-cancellable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis.

We will require additional financing to fund working capital and pay our obligations. We may pursue financing opportunities through a combination of equity offerings, debt financings and additional funding from license and collaboration agreements. Except for any obligations of Everest to reimburse us for research and development expenses or to make milestone or royalty payments under the Everest License Agreement, we have no committed external sources of funding. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations ~~funding~~or on terms favorable to us or at all. Funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations and other licensing arrangements. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Cash Flows

The following summarizes our cash flows for the periods ~~indicated (in thousands):~~indicated:


	Nine Months Ended September 30,
	2023			2022
(dollars in millions)	(unaudited)
Net cash used in operating activities	$	(62.7	)	$	(43.0	)
Net cash provided by (used in) investing activities	$	48.2		$	(82.7	)
Net cash provided by financing activities	$	0.6		$	127.4

Six Months Ended June 30,

2018

2017

(unaudited)

Cash used in operating activities

$
(10,715
)

$
(4,315
)
Cash used in investing activities

(17,317
)

—

Cash provided by financing activities

78,995

42,414

Effect of exchange rate changes on cash and cash equivalents and restricted cash

(36
)

45

Net increase in cash and cash equivalents and restricted cash

$
50,927

$
38,144

Cash Flows from Operating Activities

During the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2023, cash used in operating activities was ~~$10.7~~$62.7 million, which consisted of a net loss of ~~$11.7 million, adjusted by non-cash charges of $1.5~~ $69.6million and a net change of ~~$0.5~~$3.6 million in our net operating assets and ~~liabilities.~~liabilities, adjusted by non-cash charges of $10.6 million. The non-cash charges consisted of ~~$0.3~~$14.9 million for stock-based compensation expense, $0.8 million for depreciation and amortization, ~~$1.1~~and $0.2 million ~~for stock-based compensation~~of non-cash interest expense, offset by $5.3 million of amortization of premium and ~~$0.1 million for loss~~discounts on ~~disposal of property and equipment.~~marketable securities. The change in our net operating assets and liabilities was primarily due to an increase of ~~$0.9~~$7.0 million in accounts receivable, an increase of $1.8 million in prepaid ~~expenses, including advance payments for~~and other current assets driven by the start-up clinical activities related to the PALIZADE trial, and ~~toxicology activities,~~a decrease of $0.2 million in operating lease asset and liabilities, offset by an increase of ~~$0.6~~$5.4 million in accounts payable ~~accrued expenses~~ and ~~other~~accrued liabilities due to ~~professional services, and~~increased clinical ~~expenditures as well as an increase of $0.2 million related to the deferred rent.~~expenditures.

During the ~~six~~nine months ended ~~June~~September 30, ~~2017,~~2022, cash used in operating activities was ~~$4.3~~$43.0 million, which consisted of a net loss of ~~$4.1 million, adjusted by non-cash charges of $0.2~~ $50.1million and a net change of ~~$0.3~~$4.5 million in our net operating assets and ~~liabilities.~~liabilities, adjusted by non-cash charges of $11.6 million. The non-cash charges consisted of ~~$0.1~~$10.2 million for stock-based compensation expense, $1.3 million for depreciation and amortization and $0.1 million ~~for stock-based compensation~~of non-cash interest expense. The change in our net operating assets and liabilities was primarily due to an increase of ~~$0.7~~$5.2 million in prepaid ~~expenses~~ and other current assets, ~~primarily due to the Australian Research and Development Tax Incentive receivable, offset by~~ an increase of ~~$0.4~~$1.6 million in accounts payable ~~due to the timing~~and accrued liabilities and a decrease of ~~payments.~~$0.9 million in operating lease liabilities.

Cash Flows from Investing Activities

~~During~~Net cash provided by investing activities was $48.2 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018,~~2023, primarily relating to the maturities of marketable securities exceeding purchases of such marketable securities. Payments for the purchases of property and equipment were $1.8 million during the nine months ended September 30, 2023.

Net cash used in investing activities was ~~$17.3~~$82.7 million ~~of which $1.0 million related~~for the nine months ended September 30, 2022, primarily relating to the ~~purchase~~purchases of marketable securities exceeding maturities of such marketable securities. Payments for the purchases of property and equipment ~~and $16.4~~were $1.2 million ~~for purchases of marketable securities, compared to zero for~~during the ~~six~~nine months ended ~~June~~September 30, ~~2017.~~2022.

Cash Flows from Financing Activities

~~During the six months ended June 30, 2018,~~Net cash provided by financing activities for the nine months ended September 30, 2023 was ~~$79.0~~$0.6 million, ~~consisting of proceeds from our recent IPO which totaled $78.8 million net of issuance costs, and $0.2 million~~primarily from the ~~exercise~~issuance of common stock ~~options. During the six months ended June 30, 2017,~~pursuant to our employee equity plans.

Net cash provided by financing activities for the nine months ended September 30, 2022 was ~~$42.4~~$127.4 million, primarily relating to the net proceeds received from sales of common stock under the ATM Agreement and $0.8 million from the issuance of ~~Series B redeemable convertible preferred stock.~~

~~Contractual Obligations and Other Commitments~~

~~During the three and six months ended June 30, 2018, there were no material changes~~common stock pursuant to our ~~contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Prospectus.~~ employee equity plans.

~~Off-Balance Sheet Arrangements~~

~~We have not entered into any off-balance sheet arrangements and do not have holdings in any variable interest entities.~~

Critical Accounting ~~Polices and~~ Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported collaboration revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities, and collaboration revenue recognition that are not readily apparent from other sources. For revenue recognition, judgment includes (a) assessing the number of performance obligations; (b) determining the transaction price; (c) allocating the transaction price to the performance obligations in the contract; and (d) determining the pattern over which performance obligations are satisfied. Actual results may differ from these estimates under different assumptions or conditions.

~~There~~Other than collaboration revenue recognition, there have been no other material changes to our critical accounting ~~policies~~judgments and estimates from those described inunder “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,” included~~Operations” in our ~~Prospectus.~~Annual Report.

~~JOBS Act Accounting Election~~Status as an Emerging Growth Company and a Smaller Reporting Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS ~~Act.~~Act, and we expect to cease being an “emerging growth company” on December 31, 2023. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

In addition, until December 31, 2023, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth ~~company” we intend to rely on such exemptions,~~company,” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) ~~and~~or (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply until December 31, 2023 or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.

We are also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by nonaffiliates is less than $250.0 million measured on the last

business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The primary objectives of our investment activities are to ensure liquidity and to preserve capital. The market risk inherent in our financial instruments and in our financial position reflects the potential losses arising from adverse changes in interest rates and concentration of credit risk. We had cash, cash equivalents and marketable securities of ~~$118.4~~$218.2 million as of ~~June~~September 30, ~~2018,~~2023, which consisted of bank deposits, highly liquid U.S. Treasury money market funds, U.S. ~~treasury~~Treasury securities, commercial paper and ~~corporate debt securities.~~ U.S. agency bonds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. As of ~~June~~September 30, ~~2018,~~2023, our cash equivalents and marketable securities ~~have maturities~~had an average maturity of ~~eight~~approximately 5 months ~~or less.~~and the longest maturity was 19 months. Due to the short-term duration and the lower risk profile of our cash equivalents and marketable securities, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities. We have the ability to hold our cash equivalents and marketable securities until maturity, and we therefore do not expect a change in market interest rates to affect our operating results or cash flows to any significant degree.

Our investment portfolio consists of investment grade securities diversified amongst security types, industries, and issuers. We maintain cash, cash equivalents, and investments with multiple financial institutions that we believe are financially sound and have minimal credit risk exposure, although at times our balances may exceed the applicable insurance coverage limits. We monitor and manage the overall counterparty credit risk exposure of our cash balances to individual financial institutions on an ongoing basis. All our securities are held in custody by a recognized financial institution. Our policy limits the amount of credit exposure to a maximum of 10% to any one issuer, except for the U.S. Treasury, Federal Agencies, or Government Money Market Funds, and we believe no significant concentration risk exists with respect to these investments.

Approximately $0.7 million of our cash balance iswas located in Australia as of ~~June~~September 30, ~~2018.~~2023. Our expenses, except those related to our Australian operations, are generally denominated in U.S. dollars. For our operations in Australia, the majority of the expenses are denominated in Australian dollars. To date, we have not had a formal hedging program with respect to foreign currency. A 10% increase or decrease in current exchange rates would not have a material effect on our consolidated financial results.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain “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, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, ~~2018.~~2023. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ~~not~~ effective at athe reasonable assurance ~~level as a result of the material weakness that existed~~level.

Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting ~~as described below, and which continues~~during our most recent fiscal quarter that materially affected or are reasonably likely to ~~exist as of June 30, 2018.~~

~~Material Weakness in Internal Control over Financial Reporting~~

~~In connection with the audit of our consolidated financial statements as of and for the years ended December 31, 2016 and 2017, we identified a material weakness in~~materially affect our internal control over financial reporting. The material weakness related to a lack of sufficient number of qualified personnel within our accounting function to adequately segregate duties, a lack of sufficient review and approval of manual journal entries posted to the general ledger and a lack of adequate review procedures over general ledger account reconciliations.

~~We are implementing measures designed to improve our internal control over financial reporting to remediate this material weakness, including the following:~~

∎

~~we have added additional qualified accounting personnel, including our Chief Financial Officer and controller, and began segregating duties among accounting personnel; and~~

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~~we are formalizing our internal control documentation and strengthening supervisory reviews by our management.~~

These additional resources and procedures are designed to enable us to broaden the scope and quality of our internal review of underlying information related to financial reporting and to formalize and enhance our internal control procedures. With the oversight of senior management and our audit committee, we have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weakness.

~~Changes in Internal Control over Financial Reporting.~~ 29

Due to a transition period established by SEC rules applicable to newly public companies, our management is not required to evaluate the effectiveness of our internal control over financial reporting until after the filing of our Annual Report on Form 10-K for the year ended December 31, 2018. As a result, this Quarterly Report on Form 10-Q does not address whether there have been any changes in our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors.

An investment in shares of our common stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our financial statements and related notes hereto, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock could ~~decline;~~decline, and you may lose all or part of your investment. We cannot assure you that any of the events discussed below will not occur.

Summary of Selected Risks ~~Related~~Associated with our Business

Our business is subject to ~~Our Financial Position~~numerous risks and ~~Capital Needs~~uncertainties, including those discussed at length in the section titled “Risk Factors.” These risks include, among others, the following:

•

We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.

•

We have a limited operating history and have never generated revenue from product sales, which may make it difficult to evaluate the success of our business to date and to assess our future viability.

•

We will require substantial additional capital to finance our operations, which may not be available on acceptable terms, if at all. Failure to obtain this necessary capital when needed may force us to delay, reduce or terminate certain of our product development programs or other operations.

•

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish proprietary rights.

•

Our future success is substantially dependent on the successful clinical development, regulatory approval and commercialization of zetomipzomib and KZR-261, as well as any future product candidates.

•

We may explore strategic collaborations, which would require us to relinquish important rights to and control over the development and commercialization of our product candidates to any future collaborators.

•

Success in preclinical studies or earlier clinical trials may not be indicative of future clinical trial results, and we cannot assure you that any clinical trials will lead to results sufficient for the necessary regulatory approvals.

•

Clinical trials are very expensive, time consuming and difficult to design and implement.

•

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be delayed, made more difficult or rendered impossible by multiple factors outside our control.

•

We may encounter substantial delays or difficulties in enrolling and retaining patients in our clinical trials.

•

The manufacture of our product candidates is complex and uncertain, and until we develop a validated manufacturing process, we may encounter difficulties in supplying our planned and future clinical trials. If we encounter such difficulties, or fail to meet quality standards, our ability to meet clinical timelines and expand our development strategy could be impacted.

•

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval.

•

We may not be able to obtain or maintain orphan drug designations or exclusivity for our product candidates, which could limit the potential profitability of our product candidates.

•

Even if our product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

•

We face substantial competition, which may result in others developing or commercializing drugs before or more successfully than us.

•

We are dependent upon Everest for the further development and commercialization of zetomipzomib in the greater China region, South Korea and certain Southeast Asian countries.

•

Our relationships with customers, physicians, and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, transparency laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

•

We rely on third parties to manufacture clinical supplies of our product candidates and to conduct, supervise and monitor our clinical trials and preclinical studies. If those third parties perform in an unsatisfactory manner, it may harm our business.

•

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. If we breach our exclusive license agreement with Onyx Therapeutics, Inc., we could lose the ability to continue the development and commercialization of zetomipzomib.

•

If we are unable to obtain and maintain patent protection for zetomipzomib, KZR-261 or any future product candidate, if the scope of patent protection is not sufficiently broad, or if our patents are insufficient to protect our product candidates for an adequate amount of time, we may not be able to compete effectively in our markets.

•

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

•

We are highly dependent on the services of our executive officers, and if we are not able to retain these members of our management team or recruit and retain additional management, clinical and scientific personnel, our business will be harmed.

•

If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports, about our business or our market, our stock price and trading volume could decline.

•

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.

Risks Related to Our Financial Position and Capital Needs

Since inception in February 2015, we have incurred significant operating losses. Our net loss was ~~$9.0 million and $8.5~~$68.2 million for the ~~years~~year ended December 31, ~~2016~~2022 and ~~2017, respectively, and $11.7~~$69.6 million for the ~~six~~nine months ended ~~June~~September 30, ~~2018.~~2023. As of ~~June~~September 30, ~~2018,~~2023, we had an accumulated deficit of ~~$37.8~~$318.5 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Since inception, we have devoted substantially all of our efforts to research and preclinical and clinical development of our product candidates, as well as to expanding our management team and infrastructure. It could be several years, if ever, before we have a commercialized drug. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if, and as, we:

∎

~~continue the ongoing and planned development of KZR-616;~~

•

continue the ongoing and planned development of zetomipzomib, KZR-261 and future product candidates from our protein secretion program;

∎

~~seek to discover and develop additional product candidates;~~

•

seek to discover and develop additional product candidates, including preclinical studies and clinical trials for such product candidates;

∎

~~initiate preclinical studies and clinical trials for any additional product candidates that we may pursue in the future;~~

•

maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how;

∎

~~establish a sales, marketing, manufacturing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;~~

•

seek marketing approvals for zetomipzomib, KZR-261 and any future product candidates that successfully complete clinical trials;

•

establish a sales, marketing, manufacturing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;

∎

~~continue to build a portfolio of product candidates through the acquisition or in-license of drugs, product candidates or technologies;~~

•

continue to build a portfolio of product candidates through the acquisition or in-license of drugs, product candidates or technologies;

∎

~~seek marketing approvals for KZR-616 and any future product candidates that successfully complete clinical trials;~~

•

implement operational, financial, management and compliance systems; and

•

attract, hire and retain additional administrative, clinical, regulatory and scientific personnel.

∎

~~maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how;~~

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~~implement operational, financial and management systems;~~

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~~attract, hire and retain additional administrative, clinical, regulatory and scientific personnel; and~~

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~~incur additional legal, accounting and other expenses associated with operating as a public company.~~

In addition, because of the numerous risks and uncertainties associated with developing pharmaceutical products, ~~and development,~~ we are unable to accurately predict the timing or amount of increased expenses orand when, or if, we will be able to achieve profitability. Our expenses could increase, and profitability could be further delayed if we decide to or are required by regulatory authorities to perform studies or trials in addition to those currently expected or if there are any delays in the ~~development,~~initiation, enrollment or ~~in the~~ completion of any planned or future preclinical studies or clinical trials of our current and future product candidates. Even if we complete the development and regulatory processes ~~described above,~~necessary to obtain marketing approval, we anticipate incurring significant costs associated with launching and commercializing ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of ~~our company~~the Company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations.

We have a limited operating history and have never generated ~~any~~ revenue from product sales, which may make it difficult to evaluate the success of our business to date and to assess our future viability.

We are a clinical-stage company ~~founded in February 2015,~~ and our operations to date have been largely focused on raising capital and ~~undertaking~~conducting preclinical ~~studies~~ and ~~conducting early-stage~~ clinical ~~trials for KZR-616.~~development of zetomipzomib and KZR-261, as well as research and discovery activities of future product candidates under our protein secretion program. As an organization, we have not yet demonstrated an ability to successfully complete clinical development, obtain regulatory approvals, manufacture a commercial-scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful ~~commercialization.~~commercialization of our product candidates. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.

Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with any future collaborative partners, to successfully complete the development of and obtain the regulatory approvals necessary to commercialize ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates. We do not anticipate generating revenue from product sales for the next several years, if ever. Our ability to generate revenue from product sales depends heavily on our, or any future collaborators’, success in:

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~~timely and successfully completing preclinical and clinical development of KZR-616 and any future product candidates;~~

•

timely and successfully completing preclinical and clinical development of zetomipzomib, KZR-261 and any future product candidates;

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~~obtaining regulatory approvals for KZR-616 and any future product candidates for which we successfully complete clinical trials;~~

•

obtaining regulatory approvals for zetomipzomib, KZR-261 and any future product candidates for which we successfully complete clinical trials;

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launching and commercializing any product candidates for which we obtain regulatory approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

•

∎

qualifying for coverage and adequate reimbursement by government and third-party payors for any product candidates for which we obtain regulatory approval, both in the United States and internationally;

•

qualifying for and obtaining coverage and adequate reimbursement by government and third-party payors for any product candidates for which we obtain regulatory approval, both in the United States and internationally;

∎

developing, validating and maintaining commercially viable, sustainable, scalable, reproducible and transferable manufacturing processes for KZR-616, a self-administered dual-chamber system for KZR-616 and any future product candidates that are compliant with current good manufacturing practices, or cGMP;

•

developing, validating and maintaining commercially viable, sustainable, scalable, reproducible and transferable manufacturing processes for zetomipzomib, a self-administered dual-chamber system for administering zetomipzomib and any future product candidates that are compliant with current good manufacturing practices, or cGMP;

∎

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate amount and quality of starting materials, drug substance, drug product and drug delivery devices and services to support clinical development, as well as the market demand for KZR-616 and any future product candidates, if approved;

•

establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate amount and quality of starting materials, drug substance, drug product and drug delivery devices and services to support clinical development, as well as the market demand for zetomipzomib, KZR-261 and any future product candidates, if approved;

∎

obtaining market acceptance, if and when approved, of KZR-616 or any future product candidate as a viable treatment option by physicians, patients, third-party payors and others in the medical community;

•

obtaining market acceptance, if and when approved, of zetomipzomib, KZR-261 or any future product candidate as a viable treatment option by physicians, patients, third-party payors and others in the medical community;

∎

~~effectively addressing any competing technological and market developments;~~

•

effectively addressing any competing technological and market developments;

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~~implementing additional internal systems and infrastructure, as needed;~~

•

implementing additional internal systems and infrastructure, as needed;

•

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations pursuant to such arrangements;

∎

~~negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations pursuant to such arrangements;~~

•

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

•

securing appropriate pricing in the United States and internationally.

∎

~~maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and~~

∎

~~securing appropriate pricing in the United States and internationally.~~

We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. We may need to eventually transition from a company with a research and development focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays and may not be successful in such a transition.

Our operations have consumed substantial amounts of cash since our inception. We expect our expenses to increase in connection with our ongoing and planned activities, particularly as we continue to develop and potentially commercialize our product candidates, in addition to costs associated with the acquisition or in-licensing of any additional product candidates we may pursue. Our expenses could increase beyond expectations if the U.S. Food and Drug Administration, or FDA, or ~~other~~comparable foreign regulatory authorities require us to perform clinical and other studies in addition to those that we currently anticipate. In addition, if we obtain marketing approval for our product candidates, we expect to incur significant expenses related to sales, marketing, manufacturing and distribution. ~~Furthermore, we expect to incur additional costs associated with operating as a public company.~~

As of ~~June~~September 30, ~~2018,~~2023, we had cash, cash equivalents and marketable securities of $218.2 million. We believe that our cash, cash equivalents and marketable securities ~~was $118.4 million. We believe that~~as of September 30, 2023, and our ~~existing cash, cash equivalents and marketable securities~~available borrowing capacity will fund our current operating plans through at least the next 12 months from the date the financial statements were issued. However, our operating plan may change as a result of many factors currently unknown to us, including as a result of the macroeconomic uncertainties and impacts, including as a result of future bank failures or geopolitical tensions such as the Russia-Ukraine or Israel-Hamas wars, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. If the adverse global economic conditions, including higher inflation rates and changes in interest rates, persist or worsen, we could experience an inability to access additional capital or engage in strategic transactions on terms reasonable to us, or at all.

We do not currently have any commitments for future funding other than reimbursement, milestone and royalty payments we may receive under our Everest License Agreement, and we may not receive any further funds under that agreement. In any event, we will require substantial additional capital to develop a delivery system for ~~KZR-616,~~zetomipzomib, conduct additional clinical trials, seek regulatory approval and commence commercialization of ~~KZR-616~~zetomipzomib, KZR-261 or any future product candidates. Even if we believe we have sufficient capital for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates.

If we do not raise additional capital in sufficient amounts, or on terms acceptable to us, we may be prevented from pursuing discovery, development and commercialization efforts, which will harm our business, operating results and prospects.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish proprietary rights.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. We do not have any committed external source of funds. In December 2021, we entered into Sales Agreement, or the ATM Agreement, with Cowen and Company, LLC, for an at-the-market offering program that allows us to sell up to an aggregate of $200 million of our common stock. As of September 30, 2023, approximately $68.3 million remains available under the at-the-market program. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. In addition, we may issue equity or debt securities as consideration for obtaining rights to additional compounds.

Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures, declaring

dividends or placing limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could negatively impact our ability to conduct our business. IfFor example, our obligations under the Loan Agreement are secured by a security interest in all of our assets, other than our intellectual property which is subject to a negative pledge. In addition, the Loan Agreement contains customary covenants that, subject to specific exceptions, restrict our ability to, among other things, declare dividends or redeem or repurchase equity interests, incur additional liens, make loans and investments, incur additional indebtedness, engage in mergers, acquisitions and asset sales, transact with affiliates, undergo a change in control, add or change business locations, or engage in businesses that are not related to its existing business.

In addition, if we raise additional capital through future collaborations, strategic alliances or third-party licensing arrangements, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. For example, in September 2023, we entered into a collaboration and license agreement with Everest granting it an exclusive license to develop and commercialize zetomipzomib in the greater China region, South Korea and certain Southeast Asian countries in exchange for an upfront payment and potential milestone and royalty payments.

If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market ourselves.

The terms of the Loan Agreement with Oxford Finance place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.

In November 2021, we entered into a Loan Agreement with Oxford Finance that provided us with up to $50.0 million of borrowing capacity across five potential tranches. The initial tranche of $10.0 million was funded at the closing of the Loan Agreement. As of September 30, 2023, we declined the remaining tranches in borrowing capacity available to us under the Loan Agreement. Our overall leverage and certain obligations and affirmative and negative covenants contained in the related documentation could adversely affect our financial health and business and future operations by limiting our ability to, among other things, satisfy our obligations under the Loan Agreement, refinance our debt on terms acceptable to us or at all, plan for and adjust to changing business, industry and market conditions, use our available cash flow to fund future acquisitions and make dividend payments, and obtain additional financing for working capital, to fund growth or for general corporate purposes, even when necessary to maintain adequate liquidity.

If we default under the Loan Agreement, Oxford Finance may accelerate all of our repayment obligations and exercise all of their rights and remedies under the Loan Agreement and applicable law, potentially requiring us to renegotiate our agreement on terms less favorable to us. Further, if we are liquidated, the lenders’ right to repayment would be senior to the rights of the holders of our common stock to receive any proceeds from the liquidation. Oxford Finance could declare a default upon the occurrence of an event of default, including events that they interpret as a material adverse change as defined in the Loan Agreement, payment defaults or breaches of certain affirmative and negative covenants, thereby requiring us to repay the loan immediately. Any declaration by Oxford Finance of an event of default could significantly harm our business and prospects and could cause the price of our common stock to decline. Additionally, if we raise any additional debt financing, the terms of such additional debt could further restrict our operating and financial flexibility.

We ~~may be~~are required and expect to make significant payments in connection with our license agreement with Onyx Therapeutics, Inc., or Onyx, for ~~KZR-616 and other compounds.~~zetomipzomib.

~~In June 2015, we~~We acquired rights to ~~KZR-616,~~zetomipzomib, pursuant to aan exclusive license agreement with Onyx, or the Onyx ~~license agreement.~~License Agreement. Under the Onyx ~~license agreement,~~License Agreement, we are subject to significant obligations, including payment obligations triggered upon achievement of specified milestones and royalties on licensed product ~~sales, as well as other material obligations.~~sales. We are obligated to pay Onyx milestone payments up to an aggregate of $172.5 million upon the achievement of certain development, regulatory and sales milestone events. In addition, we are obligated to pay Onyx tiered royalties based on net sales of ~~KRZ-616.~~zetomipzomib. If these payments become due, we may not have sufficient funds available to meet our obligations and our development efforts may be harmed.

Our ability to use ~~our~~ net operating ~~loss carryforwards~~losses and certain other tax attributes ~~may be limited.~~

We have incurred substantial losses since inception and do not expect to become profitable in the near future, if ever. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income may be subject to limitation.

Our net operating loss, or NOL, carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. Our NOLs generated in tax years beginning on or prior to December 31, 2017 are permitted to be carried forward for only 20 years under applicable U.S. tax law. Our federal NOLs generated in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal NOLs is limited to 80% of current year taxable income. It is uncertain if ~~any, until such unused losses expire. Under Sections~~and to what extent various states will conform to federal law with respect to the limitations on the use of NOLs.

In addition, under Section 382 and Section 383 of the ~~U.S.~~ Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” ~~generally defined as a greater than 50 percentage point change (by value) in~~ its ~~equity ownership by certain stockholders over a rolling three-year period, the corporation’s~~ ability to use its pre-change ~~net operating loss~~NOL carryforwards ~~or NOLs,~~ and other pre-change

tax attributes (such as research tax credits) to offset its post-change income ~~or taxes~~ may be limited. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points (by value) over their lowest ownership percentage over a rolling three-year period. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of ~~subsequent~~ shifts in our stock ownership (some of which ~~shifts~~ are outside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOLs to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. ~~As a result,~~

Consequently, even if we ~~attain~~achieve profitability, we may not be ~~unable~~able to ~~use~~utilize a material portion of our ~~NOLs~~NOL carryforwards and certain other tax attributes, which could ~~negatively impact our future~~have a material adverse effect on cash ~~flows.~~flow and results of operations.

~~Comprehensive~~Changes in tax ~~reform legislation~~laws or regulations could materially adversely affect our ~~business~~company.

The tax regimes to which we are subject or under which we operate are unsettled and ~~financial condition.~~

~~On December 22, 2017, the Tax Cuts and Jobs Act~~may be subject to significant change. The issuance of ~~2017,~~additional guidance related to existing or ~~the Tax Act, was signed into law. The Tax Act contains, among other things, significant~~future tax laws, or changes to ~~corporate taxation,~~tax laws or regulations proposed or implemented by the current or a future U.S. presidential administration, Congress, or taxing authorities in other jurisdictions, including ~~(i) a reduction~~jurisdictions outside of the ~~corporate~~United States, could materially affect our tax ~~rate from~~obligations and effective tax rate. To the extent that such changes have a ~~top marginal rate~~negative impact on us, our suppliers, manufacturers, or our customers, including as a result of ~~35% to a flat rate~~related uncertainty, these changes may adversely impact our business, financial condition, results of ~~21%, (ii) a limitation~~operations, and cash flows.

The amount of taxes we pay in different jurisdictions depends on the application of the tax ~~deduction for interest expense~~laws of various jurisdictions, including the United States, to ~~30%~~our international business activities, tax rates, new or revised tax laws, or interpretations of ~~adjusted earnings (except for certain small businesses), (iii)~~tax laws and policies, and our ability to operate our business in a ~~limitation~~manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the ~~deduction~~jurisdictions in which we operate may challenge our methodologies for ~~net operating losses~~pricing intercompany transactions pursuant to ~~80% of current year taxable~~our intercompany arrangements or disagree with our determinations as to the income ~~in respect of net operating losses generated during~~and expenses attributable to specific jurisdictions. If such a challenge or ~~after 2018~~disagreement were to occur, and ~~elimination of net operating loss carrybacks, (iv) a~~our position was not sustained, we could be required to pay additional taxes, interest, and penalties, which could result in one-time tax ~~on offshore earnings at~~charges, higher effective tax rates, reduced ~~rates regardless~~cash flows, and lower overall profitability of ~~whether they~~our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency. Similarly, a taxing authority could assert that we are ~~repatriated, (v) immediate deductions for certain new investments instead of deductions for depreciation expense over time,~~subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and ~~(vi) a modification~~such an assertion, if successful, could increase our expected tax liability in one or repeal of many business deductions and credits, including a reduction of the Orphan Drug Credit from 50% to 25% of eligible clinical costs. Any federal NOLs incurred in 2018 and in future years may now be carried forward indefinitely pursuant to the Tax Act. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law. We will continue to examine the impact the Tax Act may have on our business and financial condition.more jurisdictions.

Risks Related to the Development and Commercialization of Our Product Candidates

Our future success is substantially dependent on the successful clinical development, regulatory approval and commercialization of ~~KZR-616~~zetomipzomib and KZR-261, as well as any future product candidates. If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be adversely affected.

The time required to obtain approval or other marketing authorizations by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations orand the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. ~~KZR-616 is currently our only product candidate.~~ We have not obtained regulatory approval for ~~KZR-616 or~~ any product candidate, and it is possible that neither ~~KZR-616~~our current product candidates, nor any product candidates we may seek to develop in the future, will ever obtain regulatory approval. Neither we nor any future collaborator is permitted to market ~~KZR-616~~zetomipzomib or ~~any future drug product candidates~~KZR-261 in the United States or abroad until we receive regulatory approval from the FDA or the applicable foreign regulatory ~~agency.~~authority.

Prior to obtaining approval to commercialize ~~KZR-616 and any other drug~~our product ~~candidate~~candidates in the United States or abroad, we must demonstrate with substantial evidence from well controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. Results from ~~nonclinical studies and~~ clinical trials and preclinical studies can be interpreted in different ways. Even if we believe the ~~nonclinical or~~ clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and ~~other~~comparable foreign regulatory authorities. The FDA may also require us to conduct additional clinical trials or nonclinical studies ~~or clinical trials~~ for our product candidates either prior to or post-approval, or it

may object to the design of our clinical trials and other elements of our clinical development ~~program.~~programs. In addition, the FDA typically refers applications for novel drugs ~~like KZR-616 and potentially other of our future product candidates,~~ to an advisory committee comprising outside experts. The FDA is not bound by the recommendation of the advisory committee, but it considers such recommendation when making its decision.

Of the large number of ~~products~~product candidates in development, only a small percentage are successfully ~~complete~~approved by the FDA or a comparable foreign regulatory authority ~~approval processes~~ and are commercialized. The lengthy approval or marketing authorization process as well as

the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval or marketing authorization to market our product candidates, which would significantly harm our business, financial condition, results of operations and prospects.

We have invested a significant portion of our time and limited financial and management resources in the development of ~~KZR-616.~~zetomipzomib and KZR-261. Our business is dependent on our ability to successfully complete development of, obtain regulatory approval for, and, if approved, successfully commercialize ~~KZR-616~~zetomipzomib and ~~any future product candidates~~KZR-261 in a timely manner. Our resource allocation decisions may cause us to fail to capitalize on profitable market opportunities for our product candidates.

Even if we eventually complete clinical testing and receive approval of a new drug application, or NDA, or foreign marketing application for ~~KZR-616~~zetomipzomib, KZR-261 or any future product candidates, the FDA or the comparable foreign regulatory authorities may grant approval or other marketing authorization contingent on the performance of costly additional clinical trials, including post-market clinical trials. The FDA or the comparable foreign regulatory authorities also may approve or authorize for marketing a product candidate for a more limited indication or patient population ~~that~~than we originally request, and the FDA or comparable foreign regulatory authorities may not approve or authorize the labeling that we believe is necessary or desirable for the successful commercialization of a product candidate. Any delay in obtaining, or inability to obtain, applicable regulatory approval or other marketing authorization would delay or prevent commercialization of that product candidate and would materially adversely impact our business and prospects.

In addition, the FDA and comparable foreign regulatory authorities may change their policies, adopt additional regulations or revise existing regulations or take other actions, which may prevent or delay approval of our future products under development on a timely basis. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain approvals, increase the costs of compliance or restrict our ability to maintain any marketing authorizations we may have obtained. In addition, we could also experience delays in the timing of our interactions with regulatory authorities due to absenteeism by governmental employees, inability to conduct planned physical inspections related to regulatory approval, which could delay anticipated approval decisions and otherwise delay or limit our ability to make planned regulatory submissions or obtain new product approvals.

Even if we receive regulatory approval to market any of our product candidates, we cannot assure you that any such product candidate will be successfully commercialized, widely accepted in the marketplace or more effective than other commercially available alternatives. Furthermore, even if we obtain regulatory approval for ~~KZR-616 and~~ any ~~future~~of our product candidates, we will still need to develop a commercial organization, establish a commercially viable pricing structure and obtain approval for adequate reimbursement from third-party and government payors. If we are unable to successfully commercialize ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates, we may not be able to generate sufficient revenue to continue our business.

Clinical trials are very expensive, time consuming and difficult to design and implement.

Our product candidates will require clinical testing before we are prepared to submit an NDA for regulatory approval. The clinical trial process is expensive, time consuming, difficult to design and implement, and subject to uncertainty. We estimate that the successful completion of clinical trials of our product candidates will take several years to complete. We cannot predict with any certainty if or when we might submit an NDA for regulatory approval for any of our product candidates or whether any such NDA will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with our proposed endpoints for any future clinical trial of our product candidates, which may delay the commencement of our clinical trials. We may design the inclusion and exclusion criteria for trial participation too narrowly, which would make it difficult to find and enroll patients for our clinical trials. In addition, we may not succeed in developing and validating disease-relevant clinical endpoints based on insights regarding biological pathways for the disorders we are studying. Failure can occur at any stage, and we could encounter problems that cause us to suspend, abandon or repeat clinical trials.

In the first half of 2023, we initiated PALIZADE, a global, placebo-controlled, double-blind Phase 2b clinical trial evaluating zetomipzomib in patients with LN. As an organization, we have not previously conducted a clinical trial to the scale of the PALIZADE trial. We have engaged and intend to use a single contract research organization, or CRO, to manage the PALIZADE trial, and although we will oversee their performance and maintain certain regulatory responsibilities, the ultimate success of initiating, enrolling and completing this trial, and ensuring regulatory and quality compliance across several countries, will depend significantly on the CRO's performance, in addition to several other third-party service providers and clinical trial vendors in the United States and worldwide.

We plan to conduct the PALIZADE trial in several countries where we have not previously engaged with local regulatory authorities nor performed clinical trials. The process and timelines required to obtain approval from foreign regulatory authorities is unpredictable and may depend upon numerous factors and their substantial discretion. The inability to obtain and maintain regulatory approval for the conduct of the PALIZADE trial outside the United States may impact the timelines and completion of the PALIZADE trial.

If the market opportunities for zetomipzomib and KZR-261 are smaller than we believe they are, our business may suffer.

We currently focus our drug development of zetomipzomib on treatments of immune-mediated diseases, including lupus nephritis and autoimmune hepatitis. Our eligible patient population and pricing estimates may differ significantly from the actual market addressable by our product candidates. Our projections of both the number of people who have these disorders, as well as the subset of people with these disorders who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these disorders. Our Phase 1 trial of KZR-261 is designed to evaluate safety and tolerability, pharmacokinetics and pharmacodynamics, and we have not yet selected the tumor types or patient populations for the next stages of clinical development. The number of eligible patients for either product candidate may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be ~~successful in~~amenable to treatment with our ~~efforts~~product candidates. If the market opportunities for our product candidates are smaller than we estimate, our business and results of operations could be adversely affected.

Due to ~~expand our pipeline of product candidates.~~

~~A key element~~the significant resources required for clinical development, we are required to make strategic decisions for the development of our ~~strategy is~~product candidates. We may expend our limited resources to ~~build~~pursue a ~~pipeline~~particular product candidate or indication and fail to capitalize on other opportunities that may be more profitable or for which there may be a greater likelihood of success.

The development of zetomipzomib and KZR-261 requires significant capital investment. Due to the significant resources required for clinical development, we must focus our research and development efforts on specific indications and decide which development opportunities to pursue and advance for each program. Our decisions concerning the allocation of development, management and financial resources may not lead to the development of viable commercial products and may divert resources away from better opportunities. If we do not accurately evaluate the viability, development costs and commercial potential of our product candidates, ~~and~~we may fail to ~~progress these~~capitalize on profitable market opportunities, forego or delay opportunities to pursue other product candidates or other indications that may later prove to have greater commercial potential than those we choose to pursue, or relinquish valuable rights to product candidates through ~~clinical~~collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development ~~for the treatment of autoimmune indications, oncology,~~ and ~~immuno-oncology.~~ commercialization rights to such product candidates.

We may ~~not be able~~explore strategic collaborations, which would require us to relinquish important rights to and control over the development and commercialization of our product candidates to any future collaborators.

Over time, our business strategy may include entering into product development collaborations, including strategic collaborations with major biotechnology or pharmaceutical companies. For example, in September 2023, we entered into a collaboration and license agreement with Everest granting it exclusive license to develop ~~product candidates that are safe~~ and ~~effective.~~commercialize zetomipzomib in the greater China region, South Korea and certain Southeast Asian countries in exchange for an upfront payment and potential milestone and royalty payments. We cannot predict what form such a strategic collaboration might take. We face significant competition in seeking appropriate strategic collaborators, and the negotiation process can be complicated and time consuming. Even if we are successful in ~~continuing~~our efforts to ~~build our pipeline,~~establish new development collaborations, the ~~potential product candidates that we identify~~terms of such collaborations may not be ~~suitable for clinical~~favorable to us. Entering into future collaborations could subject us to a number of risks, including:

•

we may be required to relinquish important rights to and control over the development ~~including as a result~~and commercialization of ~~safety, tolerability, efficacy~~our product candidates;

•

we may be required to undertake the expenditure of substantial operational, financial and management resources;

•

we may be required to issue equity securities that would dilute our stockholders’ percentage ownership of our company;

•

we may be required to assume substantial actual or ~~other characteristics that indicate that they are unlikely to be drugs that will receive marketing approval, achieve market acceptance or obtain reimbursements from third-party payors. If~~ contingent liabilities;

•

we ~~do not successfully develop and commercialize product candidates or collaborate with others to do so, we will~~may not be able to ~~generate~~control the amount and timing of resources that our strategic collaborators devote to the development or commercialization of our product ~~revenue which~~candidates;

•

strategic collaborators may select indications or design clinical trials in a way that may be less successful or slower than if we were doing so;

•

strategic collaborators may delay clinical trials, provide insufficient funding, terminate a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new version of a product candidate for clinical testing;

•

strategic collaborators may not pursue further development and commercialization of products resulting from the strategic collaboration arrangement or may elect to discontinue research and development programs;

•

strategic collaborators may not commit adequate resources to the marketing and distribution of our product candidates, limiting our potential revenues from these products;

•

disputes may arise between us and our strategic collaborators that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and consumes resources;

•

strategic collaborators may experience financial difficulties;

•

strategic collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in a manner that could ~~significantly harm~~jeopardize or invalidate our ~~financial position and~~proprietary information or expose us to potential litigation;

•

business combinations or significant changes in a strategic collaborator’s business strategy may adversely affect a strategic collaborator’s willingness or ability to complete its obligations under any arrangement;

•

strategic collaborators could decide to move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and

•

strategic collaborators could terminate the ~~trading price~~arrangement or allow it to expire, which would delay the development and may increase the cost of developing our ~~common stock.~~

product candidates.

Success in preclinical studies or earlier clinical trials may not be indicative of ~~results in~~ future clinical trial results, and we cannot assure you that any ~~on-going, planned or future~~ clinical trials will lead to results sufficient for the necessary regulatory approvals.

Success in preclinical testing and earlier clinical trials does not ensure that later clinical trials will generate the same results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. Preclinical tests and early clinical trials are primarily designed to test safety, to study pharmacokinetics and pharmacodynamics and to understand the side effects of product candidates at various doses and schedules. Success in preclinical studies and earlier clinical trials does not ensure that later trials designed to test efficacy ~~trials~~ will be successful, nor does it predict final results. Our product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical studies or having successfully advanced through earlier clinical trials. For example, in May 2022, we reported topline data from our PRESIDIO Phase 2 clinical trial of zetomipzomib in patients with dermatomyositis and polymyositis, in which zetomipzomib did not demonstrate significant differentiation from placebo.

In addition, the design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. As an organization, we have limited experience designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving

promising results in preclinical testing and earlier clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

Identifying and qualifying patients to participate in our clinical trials is critical to our success. We are developing zetomipzomib to address several autoimmune diseases with high degrees of unmet medical need, including lupus nephritis and autoimmune hepatitis. If the actual number of patients with these disorders is smaller than we anticipate, or if these patients are unwilling to participate in a clinical trial, we may encounter difficulties in enrolling patients in our clinical trials, thereby delaying or preventing development and approval of our product candidates. Even once enrolled, we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data, the number and nature of competing treatments and ongoing clinical trials of competing therapies for the same indication, the proximity of patients to clinical sites, our ability to provide zetomipzomib for at-home administration, and the eligibility criteria for the trial. Because our focus includes rare disorders, there are limited patient pools from which to draw in order to complete our clinical trials in a timely and cost-effective manner. Furthermore, our efforts to build relationships with patient communities may not succeed, which could result in delays in patient enrollment in our clinical trials. In addition, any negative results we may report in clinical trials of our product candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates or could render further development impossible. For example, the impact of public health crises, or geopolitical tensions, such as the Russia-Ukraine or Israel-Hamas wars, may delay or prevent patients from enrolling or from receiving treatment in accordance with the protocol and the required timelines, which could delay our clinical trials, or prevent us from completing our clinical trials at all. Any inability to timely and successfully complete clinical development will increase our costs, slow our development plans and impair our ability to generate revenue from our product candidates. In addition, we may be

reliant on CROs and clinical trial sites to ensure proper and timely conduct of our clinical trials and, while we intend to enter into agreements governing their services, we will be limited in our ability to compel their actual performance.

We may encounter substantial delays or difficulties in our clinical trials.

We may not commercialize, market, promote or sell any product candidate without obtaining marketing approval from the FDA or ~~other~~a comparable foreign regulatory authority, and we may never receive such approvals. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must ~~complete preclinical development and then~~ conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. ~~Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome.~~ A failure of one or more clinical trials can occur at any stage of testing. For example, in May 2022, we reported topline data from our PRESIDIO Phase 2 clinical trial of zetomipzomib in patients with dermatomyositis and polymyositis, in which zetomipzomib did not demonstrate significant differentiation from placebo. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We ~~may experience numerous unforeseen events prior to, during, or as a result of,~~cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Moreover, circumstances may arise that could ~~delay~~result in suspending or ~~prevent~~terminating our ~~ability~~ongoing clinical trials. As an example, some patients included in the MISSION Phase 2 clinical trial were located in Ukraine and Russia. The closure of sites, the inability to ~~receive marketing approval or commercialize KZR-616~~screen and enroll new patients or any ~~future product candidates, including:~~

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~~delays in reaching a consensus with regulatory authorities on design or implementation of our clinical trials;~~

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~~regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;~~

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~~delays in reaching agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites;~~

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the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at a higher rate than we anticipate or fail to return for post-treatment follow-up or we may fail to recruit suitable patients to participate in a trial;

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~~clinical trials of our product candidates may produce negative or inconclusive results;~~

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imposition of a clinical hold by regulatory authorities as a result of a serious adverse event, concerns with a class of product candidates or after an inspection of our clinical trial operations, trial sites or manufacturing facilities;

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~~occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;~~

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~~changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or~~

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~~we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs.~~

premature discontinuation of treatment by patients already enrolled in our trial could result in the need to enroll additional patients, which would be costly and could delay our anticipated timeline for the completion of the trial. Any inability to timely and successfully complete ~~preclinical and~~ clinical development ~~could result in additional~~will increase our costs, ~~to us or~~slow our development plans and impair our ability to generate revenue from our product candidates.

We have experienced and may in the future ~~drug sales~~experience numerous unforeseen events that may prevent the timely and successful completion of our clinical trials, or ~~other sources. In addition, if~~result in the termination of such clinical trials prior to their completion, including:

•

failure to recruit suitable patients to participate in a clinical trial, enrollment in these clinical trials may be slower than we ~~make~~anticipate, and participants may drop out during the course of these trials at a higher rate than we anticipate;

•

delays in manufacturing, ~~or formulation changes to~~testing, releasing, validating and shipping stable quantities of our product candidates and placebo for our clinical trial sites;

•

delays in reaching a consensus with the FDA and foreign regulatory authorities on the design of our clinical trials;

•

the number of patients required for clinical trials to produce statistically meaningful data may be larger than we anticipate;

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the costs of clinical trials of our product candidates may be greater than we anticipate, which may be more likely as a result of increased price inflation worldwide;

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occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits;

•

regulators or institutional review boards, or IRBs, may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site, or may otherwise suspend our clinical trials at any time if it appears we are or our collaborators are failing to conduct a trial in accordance with regulatory requirements;

•

delays in identifying and recruiting suitable clinical investigators or reaching agreement on acceptable terms with prospective clinical trial sites;

•

clinical trials of our product candidates may produce negative or inconclusive results, such as the topline data from our PRESIDIO Phase 2 clinical trial of zetomipzomib in patients with dermatomyositis and polymyositis, in which zetomipzomib did not demonstrate significant differentiation from placebo;

•

failure to perform our clinical trials in accordance with current Good Clinical Practice, or cGCP, or regulations required by the FDA or foreign regulatory authorities;

•

changes in regulatory requirements and guidance or other unforeseen regulatory developments that require amending or submitting new clinical protocols;

•

we may ~~need~~decide, or regulators may require us, to conduct additional ~~testing to bridge our modified~~clinical trials or abandon product ~~candidate to earlier versions.~~ development programs; or

•

business interruptions resulting from geo-political actions, war, terrorism, natural disasters or public health crises.

Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our product candidates, if approved, or allow our competitors to bring competing drugs to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business, financial condition, results of operations and prospects. In addition, if we make manufacturing or formulation changes to our product candidates, we may need to conduct additional testing to bridge our modified product candidate to earlier versions.

Additionally, if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our product candidates, we may:

∎

•

be delayed in ~~obtaining marketing approval, if at all;~~

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~~obtain approval for indications or patient populations that are not as broad as intended or desired;~~

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~~obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;~~

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~~be subject to additional post-marketing testing requirements;~~

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~~be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;~~

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~~have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy, or REMS;~~

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~~be subject to the addition of labeling statements, such as warnings or contraindications;~~

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~~be sued; or~~

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~~experience damage to our reputation.~~

~~Our product development costs will also increase if we experience delays in testing or~~ obtaining marketing ~~approvals. We do~~approval, if at all;

Further, we, the FDA, ~~other~~ comparable foreign regulatory authorities, or an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, including ~~the FDA’s current Good Clinical Practice, or GCP, regulations,~~cGCP, that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our ~~investigational new drug applications, or~~ INDs, or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion of ~~future~~ clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our product candidates could be negatively impacted, and our ability to generate revenues from our product candidates may be delayed.

The processes involved in manufacturing the active drug substance and finished drug product of zetomipzomib and KZR-261 are complex, expensive, highly regulated and subject to multiple risks and uncertainties. As product candidates are developed through early to late-stage clinical trials and then to approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods, are modified along the way to optimize the scale, process and results. Any changes to the manufacturing processes carry the risk that they will not achieve these intended objectives, or that the product candidates may not meet the rigorous quality standards necessary for use in our clinical trials.

We plan to continue manufacturing zetomipzomib and placebo in support of our PALIZADE and PORTOLA trials, to supply Everest under the Everest License Agreement and to support our future development strategies. We believe our existing supply of zetomipzomib will allow us to initiate the PALIZADE trial and PORTOLA trial, and we are continuing manufacturing activities to increase our clinical supply of zetomipzomib for these trials. However, if planned or future manufacturing of zetomipzomib fails to meet the quality standards for use in our clinical trials, or the active drug substance does not meet our quality specifications, it could impact our timelines and limit our development strategy. For example, in the fourth quarter 2022, we conducted a scale up GMP manufacturing run of zetomipzomib that did not meet the quality standards for use in our clinical trials.

In addition, our contract manufacturing organizations, or CMOs, may be unable to successfully increase the manufacturing scale for our product candidates in a timely or cost-effective manner and may experience delays due to limited manufacturing capacity. In addition, quality issues may arise during manufacturing activities. If our CMOs are unable to successfully manufacture our product candidates in sufficient quantity in a timely manner, our planned clinical trials may be delayed or modified and we may also be unable to fulfill our obligations under the Everest License Agreement, giving rise to the ability of Everest to terminate its collaboration or other potential adverse consequences as provided in the Everest License Agreement.

Our product candidates have been involved, and may be involved in the future, in investigator-initiated clinical trials, and we have limited or no control over the conduct of such trials.

Zetomipzomib has been involved in an investigator-initiated clinical trial, and our product candidates may be involved in investigator-initiated clinical trials in the future. Investigator-initiated clinical trials pose similar risks as those set forth elsewhere in this “Risk Factor” section relating to our own internal clinical trials. However, while investigator-initiated clinical trials may provide us with clinical data that can inform our development strategy, we are not the sponsors of such trials, and therefore, we do not control the protocols, administration, quality or conduct of these trials, including follow-up with patients and ongoing data collection. Despite this lack of control, negative results in investigator-initiated clinical trials could have a material adverse effect on our business and prospects and the perception of our product candidates.

Interim topline and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available, particularly from our open-label studies. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. Preliminary or topline data may include, for example, data regarding a small percentage of the patients enrolled in a clinical trial, and such preliminary data should not be viewed as an indication, belief or guarantee that other patients enrolled in such clinical trial will achieve similar results or that the preliminary results from such patients will be maintained. As a result, interim and preliminary data may not be statistically significant and should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data may cause the trading price of our common stock to fluctuate significantly and could significantly harm our business prospects.

Zetomipzomib is being developed as a lyophilized formulation which could adversely affect market acceptance if patients are required to reconstitute zetomipzomib themselves prior to injection.

We are developing zetomipzomib as a lyophilized product candidate, meaning that it will be freeze-dried and must be reconstituted with water prior to patient administration. While lyophilized products are common in the drug industry, this method for administering zetomipzomib could adversely affect market acceptance and make it more difficult to conduct clinical trials of zetomipzomib. In our current trials, zetomipzomib is reconstituted in the hospital pharmacy prior to patient administration. Beginning with our PRESIDIO OLE study, we provided patients with the ability to reconstitute zetomipzomib at home prior to injection.

During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries, discomforts and other adverse events, to their doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. Regulatory authorities may draw different conclusions or require additional testing to confirm these determinations, if they occur. In addition, it is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects or patients. Many times, side effects are only detectable after investigational drugs are tested in large-scale pivotal trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that zetomipzomib, KZR-261 or any future product candidates has side effects or causes serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked, which would harm our business, prospects, operating results and financial condition.

Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed and our ability to generate revenue through their sale may be delayed or eliminated. Any of these occurrences may harm our business, financial condition and prospects significantly.

Additionally, if any of our product candidates receive marketing approval, the FDA could require us to include a black box warning in our label or adopt a REMS to ensure that the benefits outweigh the risks, which may include, among other things, a Medication Guide outlining the risks of the drug for distribution to patients and a communication plan to healthcare practitioners. Furthermore, if we or others identify undesirable side effects caused by our product candidates during development or after obtaining U.S. regulatory approval, several potentially significant negative consequences could result, including:

Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us from achieving or maintaining market acceptance of the affected product candidate, if approved. In addition, these events could substantially increase the costs of commercializing our product candidates and could significantly harm our business, prospects, financial condition and results of operations.

We may not be able to obtain or maintain orphan drug designations or exclusivity for our product candidates, which could limit the potential profitability of our product candidates.

Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or if it affects more than 200,000, there is no reasonable expectation that sales of the drug in the United States will be sufficient to offset the costs of developing and making the drug available in the United States. If a drug with an orphan drug designation subsequently receives the first marketing approval for use in the rare disease or condition for which it was designated, then the sponsor is eligible for a seven-year period of marketing during which the FDA may not approve another sponsor’s marketing application for a drug with the same active moiety and intended for the same use or indication as the approved orphan drug, except in limited circumstances, such as if a subsequent sponsor demonstrates its product is clinically superior. During a sponsor’s orphan drug exclusivity period, however, competitors may receive approval for drugs with different active moieties for the same indication as the approved orphan drug, or for drugs with the same active moiety as the approved orphan drug, but for different indications. Orphan drug exclusivity could block the approval of one of our products for seven years if a competitor obtains approval for a drug with the same active moiety intended for the same indication before we do, unless we are able to demonstrate that grounds for withdrawal of the orphan drug exclusivity exist or that our product is clinically superior. Further, if a designated orphan drug receives marketing approval for an indication broader than the rare disease or condition for which it received orphan drug designation, it may not be entitled to exclusivity. For purposes of small molecule drugs, the FDA defines “same drug” as a drug that contains the same active moiety and is intended for the same use as the drug in question. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.

We intend to pursue orphan drug designation for ~~KZR-616~~zetomipzomib in ~~orphan~~the treatment of autoimmune ~~indications.~~hepatitis and any other rare immune-mediated disease indications we pursue for development. Obtaining orphan drug designation ~~can~~in additional indications and other jurisdictions may be difficult, and we may not be successful in doing so. ~~Even if we were to obtain~~The exclusivity for our orphan drug ~~designation~~designations, and for ~~a product candidate,~~any other designations that ~~exclusivity~~we may obtain in the future, may not effectively protect the drug from the competition of different drugs for the same condition, which could have already been approved or could be approved before or during the exclusivity period. Additionally, after an orphan drug is approved, the FDA could subsequently approve another application for the same drug for the same indication if the FDA concludes that the later drug is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusive marketing rights in the United States also may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. The failure to obtain an orphan drug designation for any product candidates we may develop, the inability to maintain that designation for the duration of the applicable period, or the inability to obtain or maintain orphan drug exclusivity could reduce our ability to make sufficient sales of the applicable product candidate to balance our expenses incurred to develop it, which would have a negative impact on our operational results and financial condition.

Even if we obtain and maintain approval for our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and could harm our business.

~~KZR-616~~Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of zetomipzomib and KZR-261 outside of the United States will be subject

to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable foreign regulatory authorities also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is ~~intended~~also subject to approval. Obtaining approval for zetomipzomib and KZR-261 in the European Union from the European Commission following the opinion of the European Medicines Agency, if we choose to submit a marketing authorization application there, would be ~~used~~a lengthy and expensive process. Even if a product candidate is approved, the FDA or the European Commission, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign regulatory approvals and compliance with ~~a self-administered dual-chamber system, which may~~foreign regulatory requirements could result in ~~additional regulatory~~significant delays, difficulties and ~~other risks.~~costs for us and could delay or prevent the introduction of zetomipzomib, KZR-261 and any future product candidates in certain countries.

~~Beginning~~Further, clinical trials conducted in Phase 2, KZR-616 is a lyophilized product candidate, meaning it is freeze-dried and must be reconstituted with water prior to delivery to a patient. While lyophilized products are common in the drug industry, we intend that if approved and commercialized, KZR-616 will be self-administered by patients via a self-administered dual-chamber system. There are several technical challenges we will need to solve related to use of a self-administered dual-chamber system, including whether KZR-616 is amenable to use in such a device and whether it is sufficiently stable to meet regulatory requirements. Weone country may not be able to solve these technical challenges, which would require that patients reconstitute KZR-616 themselves prior to injection. This method for administering KZR-616 could adversely affect market acceptance of KZR-616 and make it more difficult to conduct clinical trials of KZR-616. In addition, if we have not successfully developed the self-administered dual-chamber systemaccepted by ~~the time we commence Phase 3 clinical trials for KZR-616, we may need to seek~~regulatory authorities in other countries. Also, regulatory approval for ~~KZR-616 via a different delivery system, which could require additional bio-equivalence or efficacy clinical trials.~~

In addition, we will need to enter into an agreement with a contract manufacturing organization, or CMO, to manufacture the self-administered dual-chamber system, and we are aware of only one company that manufactures a self-administered dual-chamber system that has received FDA approval. Weour product candidates may be ~~dependent on the sustained cooperation of a third-party or collaborators~~withdrawn. If we fail to supply the devices; to conduct the studies required for approval or clearance by the applicable regulatory agencies; and to continue to meet the applicable regulatory and other requirements to maintain approval or clearance once it has been received.

We may experience delays in obtaining regulatory approval of KZR-616 with a self-administered dual-chamber system given the increased complexity of the review process when approval of the product and device is sought under a single marketing application. If delivered by a self-administered dual-chamber system, KZR-616 may be regulated as a drug/device combination product. In the United States, each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a drug, biologic or device. The determination whether a combination product requires a single marketing application or two separate marketing applications for each component is made by the FDA on a case-by-case basis. Although a single marketing application is generally sufficient for the approval of a combination product, the FDA may determine that separate marketing applications are necessary. This could significantly increase the resources and time required to bring a particular combination product to market. While we expect KZR-616, alongcomply with the ~~self-administered dual-chamber system, to~~regulatory requirements, our target market will be ~~subject to a single marketing application reviewed by the drug center at the FDA based on its primary mode of action as a drug, the FDA could disagree.~~

Failure to successfully develop or supply the device, delays in or failure of the studies conducted by us, our collaborators or third-party providers, or failure by us, our collaborators or the third-party providers to obtain or maintain regulatory approval or clearance of the device could result in increased development costs, delays in or failure to obtain regulatory approvalreduced and ~~associated delays in KZR-616 reaching the market. Further, failure to successfully develop or supply the device, or to gain or maintain its approval, could adversely affect sales of KZR-616.~~

~~If we are not successful in discovering, developing and commercializing additional product candidates,~~ our ability to ~~expand our business and achieve our strategic objectives would be impaired.~~

~~A key element~~realize the full market potential of our strategy is to discover, develop and potentially commercialize a portfolio of product candidates to treat autoimmune diseases, oncology, and immuno-oncology. We focus our clinical development of KZR-616 on autoimmune diseases with high, unmet medical needs to leverage the development and regulatory paths available for first-in-class or best-in-class agents. Efforts to identify and develop product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development, approved products or commercial revenues for many reasons, including the following:

We have limited financial and management resources and, as a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater market potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in circumstances under which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate. If we are unsuccessful in identifying and developing additional product candidates or are unable to do so, our business may be harmed.

~~Clinical trials are very expensive, time consuming and difficult to design and implement.~~

~~Our~~ product candidates will ~~require clinical testing before~~be harmed and our business, financial condition, results of operations and prospects could be harmed.

Even if we ~~are prepared to submit an NDA for regulatory approval. We cannot predict with any certainty if or when we might submit an NDA for~~obtain regulatory approval for any of our product candidates, ~~or whether any~~they will remain subject to ongoing regulatory oversight.

Even if we obtain regulatory approvals for our product candidates, such ~~NDA~~approvals will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. For example, the FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the ~~FDA. Human clinical~~FDA as reflected in the product’s approved labeling. Additionally, any regulatory approvals that we receive for our product candidates may also be subject to a REMS, limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 trials, ~~are very expensive~~ and ~~difficult~~surveillance to ~~design~~monitor the quality, safety and ~~implement, in part because they~~efficacy of the drug. Such regulatory requirements may differ from country to country depending on where we have received regulatory approval.

In addition, drug manufacturers and their facilities are subject to ~~rigorous regulatory requirements. For instance,~~payment of user fees and continual review and periodic inspections by the FDA and comparable foreign regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the NDA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a regulatory authority disagrees with the promotion, marketing or labeling of that drug, a regulatory authority may ~~not agree~~impose restrictions relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from the market or suspension of manufacturing.

If we fail to comply with ~~our proposed endpoints for~~applicable regulatory requirements following approval of any ~~future clinical trial~~ of our product candidates, which may delay the commencement of our clinical trials. In addition, we may not succeed in developing and validating disease-relevant clinical endpoints based on insights regarding biological pathways for the disordersa regulatory authority may:

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The ~~clinical trial process is also time consuming. We estimate that the successful completion~~occurrence of ~~clinical trials of~~any event or penalty described above may inhibit our ability to commercialize our product candidates ~~will take several years to complete. Furthermore, failure can occur at any stage,~~ and ~~we could encounter problems that cause us to abandon or repeat clinical trials.~~

Identifying and qualifying patients to participate in our clinical trials is critical to our success. We intend to develop KZR-616 to address several autoimmune diseases with high degrees of unmet medical need, including lupus nephritis and idiopathic inflammatory myopathies, where we have planned initial Phase 2 clinical trials, as well as other rare autoimmune indications. If the actual number of patients with these disorders is smaller than we anticipate, we may encounter difficulties in enrolling patients in our clinical trials, thereby delaying or preventing development and approval of KZR-616 and any future product candidates. Even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data, the number and nature of competing treatments and ongoing clinical trials of competing therapies for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the trial. Because our focus includes rare disorders, there are limited patient pools from which to draw in order to complete our clinical trials in a timely and cost-effective manner. Furthermore, our efforts to build relationships with patient communities may not succeed, which could result in delays in patient enrollment in our clinical trials. In addition, any negative results we may report in clinical trials of our product candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same product candidate. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our product candidates or could render further development impossible. In addition, we may rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements governing their services, we will be limited in our ability to compel their actual performance.

During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries and discomforts, to their doctor. Often, it is not possible to determine whether or not the product candidate being studied caused these conditions. Regulatory authorities may draw different conclusions or require additional testing to confirm these determinations, if they occur. In addition, it is possible that as we test our product candidates in larger, longer and more extensive clinical trials, or as use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects or patients. Many times, side effects are only detectable after investigational drugs are tested in large-scale pivotal trials or, in some cases, after they are made available to patients on a commercial scale after approval. If additional clinical experience indicates that KZR-616 or any future product candidates has side effects or causes serious or life-threatening side effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may be revoked, which would harm our business, prospects, operating results and financial condition.

The FDA’s and comparable foreign regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product ~~candidates receive~~candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval ~~the FDA could require us to include a black box warning in our label~~that we may have obtained and we may not achieve or ~~adopt a REMS to ensure that the benefits outweigh the risks,~~sustain profitability, which may include, among other things, a Medication Guide outlining the risks of the drug for distribution to patients and a communication plan to health care practitioners. Furthermore, if we or others identify undesirable side effects caused by our product candidates during development or after obtaining U.S. regulatory approval several potentially significant negative consequences could result, including:

Any of the above events resulting from undesirable side effects or other previously unknown problems could prevent us from achieving or maintaining market acceptance of the affected product candidate, if approved. In addition, these events could substantially increase the costs of commercializing our product candidates and could significantly harmwould adversely affect our business, prospects, financial condition and results of operations.

~~Interim “top-line”~~In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad.

Even if our product candidates receive marketing approval, they may fail to gain market acceptance by physicians, patients, third-party payors and ~~preliminary data~~others in the medical community. If they do not achieve an adequate level of acceptance, we may not generate significant product revenue and may not become profitable. The degree of market acceptance of zetomipzomib, KZR-261 and any future product candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:

Our efforts to educate physicians, patients, third-party payors and others in the medical community on the benefits of our product candidates may require significant resources and may never be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our product candidates. Because we expect sales of our product candidates, if approved, to generate substantially all of our revenues for the foreseeable future, the failure of our product candidates to find market acceptance would harm our business. In addition, if we enter into a strategic collaboration regarding any of our product candidates, our rights to receive milestone payments and royalties related to such product candidates will depend on our collaborators’ abilities to achieve market acceptance of those product candidates.

We are dependent upon our collaboration with Everest to further develop and commercialize zetomipzomib in the Greater China region, South Korea and select Southeast Asian countries. If we or Everest fail to perform as expected, the potential for us to generate future revenues under the collaboration could be significantly reduced, the development and commercialization of zetomipzomib may be substantially delayed, and our business could be adversely affected.

In September 2023, we entered into the Everest License Agreement granting Everest an exclusive license to develop and commercialize zetomipzomib in the greater China region, South Korea, and select Southeast Asian countries. Under the terms of the Everest License Agreement, we received an initial upfront payment of $7.0 million and are entitled to receive milestone payments upon achievement of certain development, regulatory and commercial milestone events, for total potential milestone payments of up to $125.5 million. In addition, Everest will pay to the Company tiered royalties on the net sales of zetomipzomib in the Territory during the term of the Everest License Agreement ranging from ~~our~~the single digit to the low-teens, subject to certain reductions.

Everest will be responsible for, at its own cost, and is required to use commercially reasonable efforts to, develop and commercialize zetomipzomib in the licensed territory. In addition, we will collaborate with Everest on the PALIZADE trial, where Everest will have primary responsibility for clinical development and regulatory activities in the licensed territory and will reimburse the Company for clinical trial costs incurred in the licensed territory. Everest will also have the opportunity to participate in the Company’s future global clinical trials involving zetomipzomib. The Company has agreed supply zetomipzomib to Everest during the term of the

Everest License Agreement, subject to Everest’s option to manufacture zetomipzomib for its own use in the licensed territory following completion of the PALIZADE trial.

There can be no assurance that the parties will achieve any of the regulatory, development or sales milestones, or that we ~~announce~~will receive any future milestone or ~~publish from time~~royalty payments under the Everest License Agreement. Everest’s activities may be influenced by, among other things, the efforts and allocation of resources by Everest, which we cannot control. If Everest does not perform in the manner we expect or fulfill its responsibilities in a timely manner, or at all, the clinical development, manufacturing, regulatory approval, and commercialization efforts related to ~~time~~zetomipzomib could be substantially delayed.

In addition, our collaboration with Everest may be unsuccessful due to other factors, including, without limitation, the following:

The actions of Everest and any other current or future licensees could adversely affect our business.

We currently exclusively license zetomibzomib to Everest to develop and commercialize zetomipzomib in the greater China region, South Korea and select Southeast Asian countries. It is possible that any clinical trials conducted by Everest or any other current or future licensees in its respective licensed territories could have negative results, which in turn could have a material adverse effect on the development and commercialization of zetomipzomib in the United States and the rest of the ~~clinical~~world. In addition, we will depend on Everest or any other current or future licensee to comply with all applicable laws relative to the development and commercialization of zetomipzomib in its respective licensed territories. If Everest were to violate, or was alleged to have violated, any laws or regulations during the performance of its obligations to us, it is possible we could suffer financial and reputational harm or other negative outcomes, ~~may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line data also remain subject to audit and verification procedures that may result~~including possible legal consequences. In addition, in the ~~final data being materially different from~~event of any termination, breach or expiration of the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.

~~We may explore strategic collaborations that may never materialize or~~Everest License Agreement, we may be required to ~~relinquish important rights~~devote additional efforts and to ~~and control over~~incur additional costs associated with pursuing the development and commercialization of ~~our product candidates to any future collaborators.~~zetomipzomib in the greater China region, South Korea and select Southeast Asian countries.

Over time, our business strategy includes acquiring or in-licensing small molecule compounds directed at autoimmune or cancer indications. As a result, we intend to periodically explore a variety of possible strategic collaborations in an effort to gain access to additional product candidates or resources. At the current time, we cannot predict what form such a strategic collaboration might take. We are likely to face significant competition in seeking appropriate strategic collaborators, and strategic collaborations can be complicated and time consuming to negotiate and document. We may not be able to negotiate strategic collaborations on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any strategic collaborations because of the numerous risks and uncertainties associated with establishing them.

~~If the market opportunities for KZR-616 and any future product candidates are smaller than we believe they are, our business may suffer.~~

We currently focus our drug development of KZR-616 on treatments of autoimmune diseases. Our eligible patient population and pricing estimates may differ significantly from the actual market addressable by our product candidates. Our projections of both the number of people who have these disorders, as well as the subset of people with these disorders who have the potential to benefit from treatment with our product candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, patient foundations or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these disorders. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our product candidates may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or access. If the market opportunities for our product candidates are smaller than we estimate, our business and results of operations could be adversely affected.

We face substantial competition, which may result in others developing or commercializing drugs before or more successfully than us.

The development and commercialization of new drugs is highly competitive. We face competition ~~with respect to KZR-616 and will face competition with respect to any other product candidates that we may seek to develop or commercialize in the future~~ from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell drugs or are pursuing the development of product candidates for the treatment of the indications that we are pursuing. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

More established companies may have a competitive advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater experience and expertise in securing reimbursement, government contracts and relationships with key opinion leaders, conducting testing and clinical trials, obtaining and maintaining regulatory approvals and distribution relationships to market products and marketing approved drugs. These companies also have significantly greater research and marketing capabilities than we do. If we are not able to compete effectively against existing and potential competitors, our business and financial condition may be harmed.

As a result of these factors, our competitors may obtain regulatory approval of their drugs before we are able to, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop therapies that are safer, more effective, more widely accepted or less expensive than ours, ~~and~~or may ~~also~~ be more successful than we are in manufacturing and marketing their drugs. These advantages could render our product candidates obsolete or non-competitive before we can recover the costs of such product candidates’ development and commercialization.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and early-stage companies may also prove to be significant competitors,

particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, medical, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Even if KZR-616 or any future product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

Even if KZR-616 or any future product candidates receive marketing approval, they may fail to gain market acceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of acceptance, we may not generate significant drug revenue and may not become profitable. The degree of market acceptance of KZR-616 or any future product candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:

Our efforts to educate physicians, patients, third-party payors and others in the medical community on the benefits of our product candidates may require significant resources and may never be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our product candidates. Because we expect sales of our product candidates, if approved, to generate substantially all of our revenues for the foreseeable future, the failure of our product candidates to find market acceptance would harm our business. In addition, our rights to receive milestone payments and royalties related to KZR-616 and other product candidates will depend on our collaborators’ abilities to achieve market acceptance of those product candidates.

~~Even if we obtain regulatory approval for KZR-616 or any future product candidates, they will remain subject to ongoing regulatory oversight.~~

Even if we obtain regulatory approvals for KZR-616 or any future product candidates, such approvals will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. Any regulatory approvals that we receive for KZR-616 or any future product candidates may also be subject to a REMS, limitations on the approved indicated uses for which the drug may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 trials, and surveillance to monitor the quality, safety and efficacy of the drug. Such regulatory requirements may differ from country to country depending on where we have received regulatory approval.

In addition, drug manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements and adherence to commitments made in the NDA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a drug, such as adverse events of unanticipated severity or frequency, or problems with the facility where the drug is manufactured or if a regulatory

authority disagrees with the promotion, marketing or labeling of that drug, a regulatory authority may impose restrictions relative to that drug, the manufacturing facility or us, including requesting a recall or requiring withdrawal of the drug from the market or suspension of manufacturing.

~~If we fail to comply with applicable regulatory requirements following approval of KZR-616 or any future product candidates, a regulatory authority may:~~

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize KZR-616 or any future product candidates and harm our business, financial condition, results of operations and prospects.

The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs and to spur innovation, but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

In addition, we cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive Orders, will be implemented and the extent to which they will affect the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell ~~KZR-616 or any future~~our product candidates, we may not be successful in commercializing ~~KZR-616 or any future~~such product candidates, if and when they are approved.

To successfully commercialize any product candidate that may result from our development programs, we will need to build out our sales and marketing capabilities, either on our own or with others. The establishment and development of our own commercial team or the establishment of a contract sales force to market any product candidate we may develop will be expensive and time-consuming and could delay any drug launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We may seek to enter into collaborations with other entities to utilize their established marketing and distribution capabilities, but we may be unable to enter into such agreements on favorable terms, if at all. If any current or future collaborators do not commit sufficient resources to commercialize our product candidates, or we are unable to develop the necessary capabilities on our own, we may be unable to generate sufficient revenue to sustain our business. We compete with many companies that currently have extensive, experienced and well-funded marketing and sales operations to recruit, hire, train and retain marketing and sales personnel. We will likely also face competition if we seek third parties to assist us with the sales and marketing efforts of ~~KZR-616 and any future~~our product candidates. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.

Even if we obtain and maintain approval for KZR-616 or any future product candidates from the FDA, we may never obtain approval for KZR-616 or any future product candidates outside of the United States, which would limit our market opportunities and could harm our business.

Approval of a product candidate in the United States by the FDA does not ensure approval of such product candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of KZR-616 and any future product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable foreign regulatory authorities also must approve the manufacturing and marketing of the product candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any product candidates, if approved, is also subject to approval. Obtaining approval for KZR-616 and any future product candidates in the European Union from the European Commission following the opinion of the European Medicines Agency, if we choose to submit a marketing authorization application there, would be a lengthy and expensive process. Even if a product candidate is approved, the FDA or the European Commission, as the case may be, may limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of KZR-616 and any future product candidates in certain countries.

Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval for our product candidates may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced and our ability to realize the full market potential of KZR-616 and any future product candidates will be harmed and our business, financial condition, results of operations and prospects could be harmed.

~~We will be required to obtain international regulatory approval to market and sell our product candidates outside of the United States.~~

We anticipate marketing our product candidates, if approved, outside of the United States. In order to market any of our product candidates outside of the United States, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The requirements for approval differ from country to country and approval in one country, including approval by the FDA in the United States, does not ensure approval by the applicable regulatory authorities in any other country. As a result, we may not obtain foreign regulatory approvals on a timely basis, if at all. A failure or delay in obtaining regulatory approval in one jurisdiction could have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm our business.

If we seek ~~approval~~ to commercialize ~~KZR-616 or any future~~our product candidates outside of the United States, a variety of risks associated with international operations could harm our business.

If we seek ~~approval of KZR-616 or any future~~to commercialize our product candidates outside of the United States, we expect that we will be subject to additional risks including:

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different regulatory requirements for approval of therapies in ~~commercialization including:~~

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~~different regulatory requirements for approval of therapies in foreign countries;~~

foreign countries;

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~~reduced protection for intellectual property rights;~~

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reduced protection for intellectual property rights;

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~~unexpected changes in tariffs, trade barriers and regulatory requirements;~~

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unexpected changes in tariffs, trade barriers and regulatory requirements;

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~~economic weakness, including inflation, or political instability in particular foreign economies and markets;~~

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economic weakness, including inflation, or political instability in particular foreign economies and markets;

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~~compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;~~

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compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

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~~foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;~~

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foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

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~~foreign reimbursement, pricing and insurance regimes;~~

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foreign reimbursement, pricing and insurance regimes;

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~~workforce uncertainty in countries where labor unrest is more common than in the United States;~~

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workforce uncertainty in countries where labor unrest is more common than in the United States;

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~~production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and~~

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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

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~~business interruptions resulting from geopolitical actions, including war and terrorism or natural disasters including earthquakes, typhoons, floods and fires.~~

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business interruptions resulting from geopolitical actions, war, terrorism, natural disasters and public health epidemics.

We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by many of the individual countries in and outside of Europe with which we will need to comply. Many biopharmaceutical companies have found the process of marketing their own products in foreign countries to be very challenging.

Coverage and adequate reimbursement may not be available for zetomipzomib or KZR-261, which could make it difficult for us to sell profitably, if approved.

Market acceptance and sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which coverage and reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis. One third-party payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each third-party payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a

third-party payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize zetomipzomib, KZR-261 or any future product candidates that we develop.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any product candidate that we may develop.

We face an inherent risk of product liability exposure related to the testing of ~~KZR-616 and any future~~our product candidates in clinical trials, both within and outside of the United States, and may face an even greater risk if we commercialize any product candidate that we may develop. If we cannot successfully defend ourselves against claims that any such product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

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~~decreased demand for any product candidate that we may develop;~~

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decreased demand for any product candidate that we may develop;

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~~loss of revenue;~~

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loss of revenue;

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~~substantial monetary awards to trial participants or patients;~~

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substantial monetary awards to trial participants or patients;

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~~significant time and costs to defend the related litigation;~~

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significant time and costs to defend the related litigation;

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~~withdrawal of clinical trial participants;~~

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withdrawal of clinical trial participants;

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~~increased insurance costs;~~

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increased insurance costs;

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~~the inability to commercialize any product candidate that we may develop; and~~

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the inability to commercialize any product candidate that we may develop; and

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~~injury to our reputation and significant negative media attention.~~

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injury to our reputation and significant negative media attention.

Although we maintain product liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage ~~each time~~as we ~~commence a~~advance through clinical ~~trial~~development and if we are able to successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Regulatory Compliance

Our relationships with customers, physicians, and third-party payors ~~will~~may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, transparency laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

Healthcare providers, including physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors may subject us to various federal and state fraud and abuse laws and other ~~health care~~healthcare laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil and criminal false claims laws and the law commonly referred to as the Physician Payments Sunshine Act and regulations. These laws will impact, among other things, our clinical research, proposed sales, marketing and educational programs. In addition, we may be subject to patient privacy laws by both the federal government and the states in which we conduct or may conduct our business. The laws that will affect our operations include, but are not limited to:

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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in return for the purchase, recommendation, leasing or furnishing of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand, and prescribers, purchasers and formulary managers on the other. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation;

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purchasers, formulary managers and others, on the other hand. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation;

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federal civil and criminal false claims laws, including, without limitation, the False Claims Act, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Federal Anti-Kickback Statute violations and certain marketing practices, including off-label promotion, implicate the False Claims Act;

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federal civil and criminal false claims laws, including, without limitation, the federal civil False Claims Act, and civil monetary penalty laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid or other government payors that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government. Federal Anti-Kickback Statute violations and certain marketing practices, including off-label promotion, implicate the federal civil False Claims Act;

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, a person from knowingly and willfully executing a scheme or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private). In addition, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, impose certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization on health plans, health care clearinghouses and certain health care providers, and their respective business associates that perform certain services involving the use or disclosure of individually identifiable health information;

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal civil and criminal statutes that prohibit, among other things, a person from knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program, or making false or fraudulent statements to defraud any healthcare benefit program, regardless of the payor (e.g., public or private);

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federal transparency laws, including the federal Physician Payments Sunshine Act, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to: (i) payments or other “transfers of value’’ made to physicians and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members; and

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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, which impose certain requirements relating to the privacy, security and transmission of individually identifiable health information on health plans, health care clearinghouses and certain healthcare providers, known as covered entities, and their respective business associates and their subcontractors that perform certain services involving the use or disclosure of individually identifiable health information;

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state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and state and local laws that require the registration of pharmaceutical sales representatives, or that otherwise restrict payments that may be made to healthcare providers; as well as state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

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federal transparency laws, including the federal Physician Payments Sunshine Act, that require certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to: (i) payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals; and (ii) ownership and investment interests held by physicians and their immediate family members; and

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state and foreign law equivalents of each of the above federal laws, state laws that require manufacturers to report information related to payments and other "transfers of value" to physicians and other healthcare providers, marketing expenditures, or drug pricing, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and state and local laws that require the registration of pharmaceutical sales representatives, or that otherwise restrict payments that may be made to healthcare providers; as well as state and foreign laws that govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations.

The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare company may run afoul of one or more of the requirements.

~~Coverage and adequate reimbursement may not be available for KZR-616 or any future product candidates, which could make it difficult for us to sell profitably, if approved.~~

Market acceptance and sales of any product candidates that we commercialize, if approved, will depend in part on the extent to which reimbursement for these drugs and related treatments will be available from third-party payors, including government health administration authorities, managed care organizations and other private health insurers. Third-party payors decide which therapies they will pay for and establish reimbursement levels. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. However, decisions regarding the extent of coverage and amount of reimbursement to be provided for any product candidates that we develop will be made on a payor-by-payor basis. One payor’s determination to provide coverage for a drug does not assure that other payors will also provide coverage, and adequate reimbursement, for the drug. Additionally, a third-party payor’s decision to provide coverage for a therapy does not imply that an adequate reimbursement rate will be approved. Each payor determines whether or not it will provide coverage for a therapy, what amount it will pay the manufacturer for the therapy, and on what tier of its formulary it will be placed. The position on a payor’s list of covered drugs, or formulary, generally determines the co-payment that a patient will need to make to obtain the therapy and can strongly influence the adoption of such therapy by patients and physicians. Patients who are prescribed treatments for their conditions and providers prescribing such services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products.

Third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that coverage and reimbursement will be available for any drug that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Inadequate coverage and reimbursement may impact the demand for, or the price of, any drug for which we obtain marketing approval. If coverage and adequate reimbursement are not available, or are available only to limited levels, we may not be able to successfully commercialize KZR-616 or any future product candidates that we develop.

Healthcare legislative reform measures may have a negative impact on our business and results of operations.

In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product candidates, restrict or

regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.

Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the PPACA, was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The PPACA, among other things: (i) addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected; (ii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations; (iii) established annual fees and taxes on manufacturers of certain branded prescription drugs; (iv) expanded the availability of lower pricing under the 340B drug pricing program by adding new entities to the program; and (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must now agree to offer ~~50% (and~~ 70% ~~commencing January 1, 2019)~~ point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

~~Some of the provisions of the PPACA have yet to be fully implemented, while certain provisions~~Since its passage, there have been ~~subject to~~varied executive, judicial and Congressional challenges ~~as well as recent efforts by~~to certain provisions of the ~~Trump administration~~PPACA. In addition, Congress has considered, and may consider in the future, legislation to repeal or repeal and replace ~~certain aspects~~all or part of the PPACA. While Congress has not passed any comprehensive repeal legislation, ~~two~~several bills affecting the implementation of certain taxes under the PPACA have been signed into law. ~~The Tax Cuts and Jobs Act of 2017 includes~~On June 17, 2021 the U.S. Supreme Court dismissed a ~~provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by~~challenge on procedural grounds that argued the PPACA ~~on certain individuals who fail to maintain qualifying health coverage for all or part of a year that~~ is ~~commonly referred to as~~unconstitutional in its entirety because the “individual ~~mandate.” Additionally, on January 22, 2018,~~mandate” was repealed by Congress. Further, prior to the U.S. Supreme Court ruling, President ~~Trump signed~~Biden issued an executive order that initiated a ~~continuing resolution on appropriations~~special enrollment period for ~~fiscal year 2018 that delayed the implementation~~purposes of ~~certain PPACA-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain~~obtaining health insurance ~~providers based on market share,~~coverage through the PPACA marketplace. The executive order also instructed certain governmental agencies to review and ~~the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018,~~reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the BBA, among other things, amends the PPACA, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress may consider additional legislation to repeal or repeal and replace other elements of the PPACA. ~~We continue to evaluate the effect~~It is possible that the PPACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and ~~its possible repeal~~the healthcare reform measures of the Biden administration will impact the PPACA and ~~replacement has on~~ our business.

Other legislative changes have been proposed and adopted since the PPACA was enacted. These changes include aggregate reductions to Medicare payments to providers of 2% per fiscal year pursuant to the Budget Control Act of 2011, which began in 2013, and due to subsequent legislative amendments to the statute, ~~including the BBA,~~ will remain in effect through ~~2027~~2031 unless additional ~~Congressional~~congressional action is taken. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 4% in the final fiscal year of this sequester. On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024. The American Taxpayer Relief Act of 2012, among other things, further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. ~~These new laws may result~~More recently, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022, or the IRA, into law, which included a number of significant drug pricing reforms, including the establishment of a drug price negotiation program within the U.S. Department of Health and Human Services, or HHS, that would require pharmaceutical manufacturers to charge a negotiated “maximum fair price” for certain selected drugs or pay an excise tax for noncompliance, the establishment of rebate payment requirements on manufacturers under Medicare Parts B and D to penalize price increases that outpace inflation, and a redesign of the Part D benefit, as part of which manufacturers are required to provide discounts on Part D drugs and Part D beneficiaries’ annual out-of-pocket spending will be capped at $2,000 beginning in ~~additional reductions in~~2025, although the Medicare drug price negotiation program is currently subject to legal challenges. The U.S. Department of Health and ~~other healthcare funding, which could~~Human Services has and will continue to issue and update guidance as these programs are implemented. It is currently unclear how the IRA will be implemented but is likely to have ~~an adverse effect~~a significant impact on ~~customers for our product candidates, if approved, and, accordingly, our financial operations.~~the pharmaceutical industry.

Additional changes that may affect our business include the expansion of new programs such as Medicare payment for performance initiatives for physicians under the Medicare Access and CHIP Reauthorization Act of 2015, which ~~will be fully implemented in 2019.~~introduced a merit-based incentive bonus program for Medicare physicians, also referred to as the Quality Payment Program. At this time, ~~it is unclear how~~the full impact of the introduction of the Medicare ~~quality payment program will impact~~Quality Payment Program on overall physician ~~reimbursement.~~ reimbursement remains unclear.

Also, there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products. AtAdditionally, based on a recent executive order, the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measuresBiden administration expressed its intent to ~~permit Medicare Part D plans~~pursue certain policy initiatives to ~~negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate~~reduce drug prices ~~under~~and

directed HHS to submit a report on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and ~~to eliminate cost sharing for generic drugs for low-income patients. While any proposed measures~~Medicaid beneficiaries. It is unclear whether these this executive order or similar policy initiatives will ~~require authorization through additional legislation to become effective, Congress and~~be implemented in the ~~Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.~~future. At the state level, legislatures ~~are~~have increasingly ~~passing~~passed legislation and ~~implementing~~implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

We expect that these and other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved drug. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

Risks Related to Our Dependence on Third Parties

We will rely on third parties to ~~produce~~manufacture clinical and commercial supplies of ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates.

~~Although we have small-scale internal manufacturing capabilities for characterization and preclinical assessment purposes, we~~We do not ~~expect to~~ own or operate facilities for drug manufacturing, testing, storage ~~and distribution,~~ or ~~testing.~~distribution. We ~~will be~~are dependent on third parties to manufacture the clinical supplies of our product candidates. ~~The facilities used by our contract manufacturers~~Moreover, under the Everest License Agreement, we have committed to ~~manufacture our~~providing Everest with supply of zetomipzomib for the development and commercialization of zetomipzomib in the greater China region, South Korea and certain Southeast Asian countries, which we will have to source from third party manufacturers. Any significant delay in the supply of a product ~~candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit our NDA~~candidate or raw material components for an ongoing clinical trial due to the ~~FDA.~~need to replace a third-party CMO could considerably delay the completion of our clinical trials or cause us to breach our obligations under the Everest License Agreement. We ~~do not control the manufacturing process of, and~~ are completely dependent on our ~~contract manufacturing partners~~CMOs for compliance with ~~the regulatory requirements, known as cGMPs~~cGMP for manufacture of both active drug substances and finished ~~product candidates, and the quality system regulation, or QSR, applicable to the self-administered dual-chamber system for KZR-616.~~drug products. If our ~~contract manufacturers~~CMOs cannot successfully manufacture ~~material~~active drug substances and finished drug product that ~~conforms~~conform to our specifications and the strict regulatory requirements of the FDA ~~or others,~~and comparable foreign regulatory authorities, we will not be able to secure ~~and/~~or maintain regulatory approval for our product candidates. In addition, we have

no control over the ability of our ~~contract manufacturers~~CMOs to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our timelines and ability to develop, obtain regulatory approval for or market our product candidates, if approved.

~~Further,~~The facilities used by our CMOs to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be conducted after we submit an NDA for any of our product candidates. We also ~~will~~expect to rely on third-party manufacturers to supply us with sufficient quantities of our product candidates ~~including KZR-616,~~ to be used, if approved, for commercialization. Any significant delay in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates.

~~Further, our~~Our reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates ourselves, including:

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~~inability to meet our product specifications and quality requirements consistently;~~

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inability to meet our product specifications and quality requirements consistently;

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~~delay or inability to procure or expand sufficient manufacturing capacity;~~

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delay or inability to procure or expand sufficient manufacturing capacity;

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~~issues related to scale-up of manufacturing;~~

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issues related to scale-up of manufacturing;

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~~costs and validation of new equipment and facilities required for scale-up;~~

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costs and validation of new equipment and facilities required for scale-up;

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~~our third-party manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately;~~

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our third-party manufacturers may not be able to execute our manufacturing procedures and other logistical support requirements appropriately;

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~~our third-party manufacturers may fail to comply with cGMP-compliance and other inspections by the FDA or other comparable regulatory authorities;~~

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our third-party manufacturers may fail to comply with cGMP and other inspections by the FDA or comparable foreign regulatory authorities;

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~~our inability to negotiate manufacturing agreements with third parties under commercially reasonable terms, if at all;~~

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our inability to negotiate manufacturing agreements with third parties under commercially reasonable terms, if at all;

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~~breach, termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us;~~

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breach, termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us;

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~~reliance on single sources for drug components;~~

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reliance on single sources for drug components;

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~~lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier;~~

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lack of qualified backup suppliers for those components that are currently purchased from a sole or single source supplier;

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~~our third-party manufacturers may not devote sufficient resources to our product candidates;~~

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our third-party manufacturers may not devote sufficient resources to our product candidates;

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we may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our product candidates;

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~~we may not own, or may have to share, the intellectual property rights to any improvements made by our third-party manufacturers in the manufacturing process for our product candidates;~~

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operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier; and

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~~operations of our third-party manufacturers or suppliers could be disrupted by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier; and~~

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carrier disruptions or increased costs that are beyond our control.

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~~carrier disruptions or increased costs that are beyond our control.~~

Any of these events could lead to clinical trial delays, failure to obtain regulatory approval or impact our ability to successfully commercialize our current or any future product candidates once approved. Some of these events could be the basis for FDA action, including injunction, request for recall, seizure, or total or partial suspension of production.

Our business involves the use of hazardous materials and we and our third-party manufacturers and suppliers must comply with environmental laws and regulations, which can be expensive and restrict how we do business.

Our research and development activities and our third-party manufacturers’ and suppliers’ activities involve the controlled storage, use and disposal of hazardous materials owned by us, including the components of our product candidates and other hazardous compounds. We and our manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at our and our manufacturers’ facilities pending their use and disposal. We cannot eliminate the risk of contamination, which could cause an interruption of our commercialization efforts, research and development efforts and business operations, environmental damage resulting in costly clean-up and liabilities under applicable laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products. Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, we may be held liable for any resulting damages and such liability could exceed our resources and state or federal or other applicable authorities may curtail our use of certain materials and/or interrupt our business operations. Furthermore,

environmental laws and regulations are complex, change frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. We do not currently carry hazardous waste insurance coverage.

We rely on third parties to conduct, supervise and monitor our clinical trials and preclinical studies, ~~and clinical trials,~~ and if those third parties perform in an unsatisfactory manner, it may harm our business.

We do not currently have the ability to independently conduct ~~any~~ clinical trials. We intend to rely on CROs and clinical trial sites to ensure the proper and timely conduct of our ~~preclinical studies and~~ clinical trials, and we expect to have limited influence over their actual performance. We rely upon CROs to monitor and manage data for our clinical ~~programs, as well as the execution of future nonclinical studies.~~programs. We expect to control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our preclinical studies and clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of our regulatory responsibilities. For example, we have engaged and intend to use a single CRO to manage the PALIZADE trial, and although we will oversee their performance and maintain certain regulatory responsibilities, the ultimate success of initiating, enrolling and completing this trial, and ensuring regulatory and quality compliance across several countries, will depend significantly on the CRO’s performance.

We and our CROs are required to comply with the good laboratory practices and good clinical practices, or ~~GLPs, and GCPs,~~GCP, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities in the form of International ~~Conference on Harmonization~~Council for Harmonisation guidelines for any of our product candidates that are in preclinical and clinical ~~development.~~development, respectively. The regulatory authorities enforce ~~GCPs~~GCP through periodic inspections of trial sponsors, principal investigators and clinical trial sites. Although we rely on CROs to conduct GCP-compliant clinical trials, we remain responsible for ensuring that each of our ~~GLP preclinical studies and~~ clinical trials is conducted in accordance with its investigational plan and protocol and applicable laws and regulations, and our reliance on the CROs does not relieve us of our regulatory responsibilities. If we or our CROs fail to comply with ~~GCPs,~~GCP, the clinical data generated in our clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. Accordingly, if our CROs fail to comply with these regulations, ~~or fail to recruit a sufficient number of subjects,~~ we may be required to repeat clinical trials, which would delay the regulatory approval process.

Our reliance on third parties to conduct clinical trials ~~will result~~results in less direct control over the management of data developed through clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with CROs and other third parties can be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. ~~Such~~In addition, such parties may:

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~~have staffing difficulties;~~

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have staffing difficulties;

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~~fail to comply with contractual obligations;~~

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fail to comply with contractual obligations;

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~~experience regulatory compliance issues; or~~

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not devote sufficient time and resources to our clinical trials;

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~~undergo changes in priorities or become financially distressed.~~

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experience regulatory compliance issues; or

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undergo changes in priorities or become financially distressed.

These factors may materially adversely affect the ~~willingness or ability~~timelines of ~~third parties to conduct~~ our clinical trials and may subject us to unexpected cost increases that are beyond our control. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, fail to comply with regulatory requirements, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, ~~any~~the product candidate ~~that we develop.~~being developed. As a result, our financial results and ~~the~~ commercial prospects ~~for any product candidate that we develop~~ would be harmed, our costs could increase, and our ability to generate revenue from the product candidate could be delayed. While we will have agreements governing their activities, our CROs will not be our employees, and we will not control whether or not they devote sufficient time and resources to our future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities which could ~~harm our business. We face the risk of potential unauthorized disclosure or misappropriation~~compete with recruitment of our ~~intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology.~~clinical trials.

If our relationship with any of these CROs terminates, we may ~~not~~ be ~~able to enter~~delayed in entering into new arrangements with alternative CROs or unable to do so on commercially reasonable terms. ~~Switching or adding additional~~Changing CROs during an ongoing clinical trial involves substantial cost, ~~and~~ requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays

occur, which can negatively impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a negative impact on our business, financial condition and prospects.

In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA. The FDA may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the trial. The FDA may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and may ultimately lead to the denial of marketing approval of ~~KZR-616 and any future~~our product candidates.

Risks Related to Our Intellectual Property

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. If we breach the Onyx License Agreement, we could lose the ability to continue the development and commercialization of zetomipzomib.

The licensing of intellectual property is of critical importance to our business and to our current and future product candidates, and we expect to enter into additional such agreements in the future. In particular, our immunoproteasome program, including zetomipzomib, is dependent on the Onyx License Agreement. Pursuant to the Onyx License Agreement, Onyx granted us an exclusive license under certain patent rights, and a non-exclusive license to certain know-how, in each case controlled by Onyx, to develop, manufacture and commercialize certain types of compounds, including zetomipzomib, that are selective inhibitors of the immunoproteasome for any and all uses, other than those related to the diagnosis or treatment in humans of cancerous or pre-cancerous diseases or conditions, including those related to hematological diseases or conditions.

The licensed compounds, including zetomipzomib, are selective for the immunoproteasome and therefore are not known or believed, based on scientific literature and the Company’s own research and development activities, to have any application in cancer or pre-cancerous conditions. However, notwithstanding these known characteristics of the licensed compounds, Onyx retains all rights under the licensed intellectual property rights that are not granted to the Company, and therefore Onyx retains rights under such intellectual property rights to develop and commercialize the licensed compounds in connection with the diagnosis or treatment in humans of cancerous or pre-cancerous diseases or conditions, including those related to hematological diseases or conditions, and also has the rights to transfer these rights to a third-party. If Onyx or its licensee develops and commercializes any of the licensed compounds in cancer or pre-cancerous indications that are commercially interchangeable with our product candidates, including zetomipzomib, sales by Onyx or its licensee of such compounds for cancer and pre-cancerous indications could result in the threat of off-label use in our licensed field, potentially diminishing our sales of the applicable licensed compounds in our licensed field.

The Onyx License Agreement may limit or delay our ability to consummate certain transactions, may impact the value of those transactions, or may limit our ability to pursue certain activities. Specifically, under the Onyx License Agreement, Onyx has a right of first negotiation under certain circumstances to obtain a license or a similar transfer of rights, if we are seeking to out-license rights to develop and/or commercialize certain licensed products.

Disputes may arise between us and any of these counterparties regarding intellectual property rights that are subject to such agreements, including, but not limited to:

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the scope of rights granted under the agreement and other interpretation-related issues;

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whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the agreement;

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our right to sublicense patent and other rights to third parties;

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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations;

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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners;

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our right to transfer or assign our license; and

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the effects of termination.

These or other disputes over intellectual property that we have licensed, or will license or acquire in the future, may prevent or impair our ability to maintain our current arrangements on acceptable terms or may impair the value of the arrangement to us. Any such dispute could have an adverse effect on our business.

If we fail to meet our obligations under these agreements in any material respect, the counterparty may have the right to terminate the respective agreement. Any uncured, material breach under a license could result in our loss of exclusive rights and may lead to a complete termination of our product development and any commercialization efforts for each of our product candidates. While we would expect to exercise all rights and remedies available to us, including seeking to cure any breach by us, and otherwise seek to preserve our rights under the technology licensed to or acquired by us, we may not be able to do so in a timely manner, at an acceptable cost or at all.

Furthermore, certain provisions in our intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we are unable to obtain ~~adequate protection for our proprietary know-how or obtain~~ and maintain patent protection for ~~KZR-616~~zetomipzomib, KZR-261 or any future product candidates, or if the scope of the patent protection obtained is not sufficiently broad, or if our patents are insufficient to protect our product candidates for an adequate amount of time, we may not be able to compete effectively in our markets.

We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our development programs and product candidates. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates. We seek to protect our proprietary position by, among other methods, filing patent applications in the United States and abroad related to our current and future ~~development~~research programs and product candidates. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. ~~We also rely on trade secrets, know-how and continuing technological innovation to develop and maintain our proprietary and intellectual property position.~~

We ~~acquire, in-license and~~ file patent applications directed to our product candidates in an effort to establish intellectual property positions directed to their compositions of matter as well as uses of these product candidates in the treatment of diseases. Our intellectual property includes patents and patent applications that we own as well as patents and patent applications that we in-license. For example, we have a field-specific exclusive license under the Onyx ~~license agreement~~License Agreement to ~~some of our~~certain patents and patent applications ~~and patents~~ relating to ~~KZR-616.~~zetomipzomib.

We or our licensors have not pursued or maintained, and may not pursue or maintain in the future, patent protection for our product candidates in every country or territory in which we may sell our products, if approved. In addition, we cannot be sure that any of our pending patent ~~applications or pending trademark~~ applications will issue or that, if issued, they have or will issue in a form that will be advantageous to us. The United States Patent and Trademark Office, or the USPTO, international patent offices or judicial bodies may deny or significantly narrow claims made under our patent applications and our issued patents may be successfully challenged, may be designed around, or may otherwise be of insufficient scope to provide us with protection for our commercial products.

It is possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, patent prosecution is a lengthy process, during which the scope of the claims initially submitted for examination by the USPTO may be significantly narrowed by the time they issue, if issued at all. The claims of our issued patents or patent applications when issued may not cover our current or future product candidates, or even if such patents provide coverage, the coverage obtained may not provide any competitive advantage. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our current or any future product candidates in the United States or in other foreign countries. There is no assurance that all of the potentially relevant prior art relating to our patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue and even if such patents cover our current or any future product candidates, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful opposition to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of any product candidates or companion diagnostic that we may develop. Further, if we encounter delays in clinical trials or regulatory approvals, the period of time during which we could market aour product ~~candidate and companion diagnostic~~candidates under patent protection ~~could~~would be reduced.

If the patent applications we hold or have in-licensed with respect to our development programs and product candidates fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for ~~KZR-616~~zetomipzomib, KZR-261 or any future product candidates, it could dissuade companies from collaborating with us to develop and commercialize product candidates and future drugs and threaten our ability to commercialize, future drugs. Any such outcome could have a negative effect on our business.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our

rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of

treatment of the human body more than United States law does. Furthermore, other parties may have developed or may develop technologies that may be related or competitive to our own, and such parties may have filed or may file patent applications, or may have received or may receive patents, claiming inventions that may overlap or conflict with those claimed in our patent applications or issued ~~patents, with respect to either the same methods or formulations or the same subject matter, in either case, that we may rely upon to dominate our patent position in the market.~~patents. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after ~~filing, or in some cases not at all.~~the initial filing. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such ~~inventions.~~inventions until such publication dates have passed. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or drugs, in whole or in part, or which effectively prevent others from commercializing competitive technologies and drugs. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to the United States patent law. These include provisions that affect the way patent applications are prosecuted and may affect the scope, strength and enforceability of our patent rights or the nature of proceedings that may be brought by or against us related to our patent rights. The Leahy-Smith Act in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could harm our business and financial condition.

Moreover, we may be subject to a third-party pre-issuance submission of prior art to the USPTO or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or drugs and compete directly with us without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize ~~KZR-616~~zetomipzomib, KZR-261 or any future product candidates.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. For example, we may be subject to a third-party submission of prior art to the USPTO challenging the priority of an invention claimed within one of our patents, which submissions may also be made prior to a patent’s issuance, precluding the granting of any of our pending patent applications. An adverse determination in any such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and drugs, or limit the duration of the patent protection of our technology and drugs. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years from the earliest filing date of a non-provisional patent application. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. ~~Without~~Upon the expiration of patent protection for ~~KZR-616~~zetomipzomib, KZR-261 or any future product candidates, we may be open to competition from generic versions of such drugs. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting ~~such~~our product candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing drugs similar or identical to ours.

Even if they are unchallenged, our ~~issued~~ patents ~~and our pending patent applications, if issued,~~ may not provide us with any meaningful protection or prevent competitors from designing around our patent claims to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. For example, a third-party may develop a competitive drug that ~~provides benefits~~is structurally similar to one or more of our product candidates but that has a different composition that falls outside the scope of our patent protection. If the patent protection provided by ~~the~~our patents ~~and patent applications we hold or pursue with respect to our product candidates~~ is not sufficiently broad to impede such competition, or if the breadth, strength or term (including any extensions or adjustments) of protection provided by ~~the~~our patents ~~and patent applications we hold or pursue with respect to our product candidates or any future product candidates~~ is successfully challenged, our ability to successfully commercialize our product candidates could be negatively affected, which would harm our business. ~~Further,~~

Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates such as zetomipzomib and KZR-261, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we ~~encounter delays in our clinical trials,~~are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication, or any additional

indications approved during the period of ~~time during which~~extension. However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we ~~could market~~request. If this occurs, our ~~product candidates or any future product candidates under patent protection would~~competitors may be ~~reduced.~~able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their drug earlier than might otherwise be the case.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In addition, periodic maintenance fees, renewal fees, annuity fees and various other government fees on patents ~~and/or~~and applications will have to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of our owned and licensed patents ~~and/or~~and applications and any patent rights we may own or license in the future. We rely on our outside counsel or our licensing partners to pay these fees due to non-U.S. patent agencies. The USPTO and various non-U.S. government patent agencies require compliance with several procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and we are also dependent on our licensors to take the necessary action to comply with these requirements with respect to our licensed intellectual property. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our products or technologies, we may not be able to stop a competitor from marketing products that are the same as or similar to our product candidates, which would have a material adverse effect on our business. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market and this circumstance could harm our business.

In addition, if we fail to apply for applicable patent term extensions or adjustments, we will have a more limited time during which we can enforce our granted patents. In addition, if we are responsible for patent prosecution and maintenance of patent rights in-licensed to us, any of the foregoing could expose us to liability to the applicable patent owner.

~~Patent terms may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.~~

Given the amount of time required for the development, testing and regulatory review of new product candidates such as KZR-616, patents protecting such candidates might expire before or shortly after such candidates are commercialized. We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their drug earlier than might otherwise be the case.

~~Intellectual property rights do not necessarily address all potential threats to our business.~~

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business. The following examples are illustrative:

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~~others may be able to make compounds or formulations that are similar to our product candidates but that are not covered by the claims of any patents, should they issue, that we own or control;~~

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~~we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or control;~~

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~~we might not have been the first to file patent applications covering certain of our inventions;~~

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~~others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;~~

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~~it is possible that our pending patent applications will not lead to issued patents;~~

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~~issued patents that we own or control may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;~~

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our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive drugs for sale in our major commercial markets;

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~~we may not develop additional proprietary technologies that are patentable; and~~

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~~the patents of others may have an adverse effect on our business.~~

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a negative impact on the success of our business.

Our commercial success depends, in part, upon our ability and the ability of our future collaborators to develop, manufacture, market and sell ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates and use our proprietary technologies without infringing the proprietary rights and intellectual property of third parties. The biotechnology and pharmaceutical industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to ~~KZR-616~~zetomipzomib, KZR-261 and any future product candidates and technology, including interference proceedings, post grant review and inter partes review before the USPTO. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future, regardless of their merit. There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patent rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable and infringed, which could have a negative impact on our ability to commercialize ~~KZR-616 and~~zetomipzomib, KZR-261 or any future product candidates. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. Moreover, given the vast number of patents in our field of technology, we cannot be certain that we do not infringe existing patents or that we will not infringe patents that may be granted in the future. Many companies and research institutions have filed, and continue to file, patent applications related to selective immunoproteasome inhibitors and protein secretion inhibitors. Some of these patent applications have already been allowed or issued, and others may issue in the future. While we may decide to initiate proceedings to challenge the validity of these or other patents in the future, we may be unsuccessful, and courts or patent offices in the United States and abroad could uphold the validity of any such patent. Furthermore, because patent applications can take many years to issue and may be confidential for 18 months or more after filing, and because pending patent claims can be revised before issuance, there may be applications now pending which may later result in issued patents that may be infringed by the manufacture, use or sale of our product candidates. Regardless of when filed, we may fail to identify relevant third party patents or patent applications, or we may incorrectly conclude that a ~~third party~~third-party patent is invalid or not infringed by our product candidates or activities. If a patent holder believes our product candidate infringes its patent, the patent holder may sue us even if we have received patent protection for our technology. Moreover, we may face patent infringement claims from

non-practicing entities that have no relevant drug revenue and against whom our own patent portfolio may thus have no deterrent effect. If a patent infringement suit were threatened or brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the drug or product candidate that is the subject of the actual or threatened ~~suit~~suit.

If we are found to infringe a third party’s valid and enforceable intellectual property rights, we could be required to obtain a license from such third party to continue developing, manufacturing and marketing our product candidate(s) and technology. Under any such license, we would most likely be required to pay various types of fees, milestones, royalties or other amounts. Moreover, we may not be able to obtain any required license on commercially reasonable terms or at all.

The licensing or acquisition of third-party intellectual property rights is a competitive area, and more established companies may also pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third-party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing and commercializing the infringing technology or product candidate. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. We may be required to indemnify collaborators or contractors against such claims. A finding of infringement could prevent us from manufacturing and commercializing ~~KZR-616 or any future~~our product candidates or force us to cease some or all of our business operations, which could materially harm

our business. Even if we are successful in defending against such claims, litigation can be expensive and time consuming and would divert management’s attention from our core business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations and prospects.

We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.

Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, we may in the future be subject to claims by our former employees or consultants asserting an ownership right in our patents or patent applications, as a result of the work they performed on our behalf. Although it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own, and we cannot be certain that our agreements with such parties will be upheld in the face of a potential challenge or that they will not be breached, for which we may not have an adequate remedy. The assignment of intellectual property rights may not be self-executing or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property.

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. If we breach the Onyx license agreement or any of the other agreements under which we acquired, or will acquire, our product candidates, we could lose the ability to continue the development and commercialization of the related product.

~~The licensing of intellectual property is of critical importance to our business and to our current and future product candidates, and we expect to enter into additional such agreements in the future.~~

In particular, our immunoproteasome program, including KZR-616, is dependent on our license agreement with Onyx. Pursuant to the Onyx license agreement, Onyx granted us an exclusive license under certain patent rights, and a non-exclusive license to certain know-how, controlled by Onyx and relating to our immunoproteasome program, to develop, manufacture or commercialize certain types of compounds, including KZR-616, that are selective for the immunoproteasome, for any and all uses other than those related to the diagnosis and/or treatment in humans of cancerous or pre-cancerous diseases and/or conditions, including those related to hematological diseases and/or conditions.

The licensed compounds, including KZR-616, are selective for the immunoproteasome and therefore are not known or believed (based on scientific literature and the Company’s own research and development activities) to have any application in cancer or pre-cancerous conditions. However, notwithstanding these known characteristics of the licensed compounds, Onyx retains all rights under the licensed intellectual property rights that are not granted to the Company, and therefore Onyx retains rights under such intellectual property rights to develop and commercialize the licensed compounds in connection with the diagnosis and/or treatment in humans of cancerous or pre-cancerous diseases and/or conditions, including those related to hematological diseases and/or conditions, and also has the rights to transfer these rights to a third-party. If one or more of the licensed compounds were found to have any application in cancer or pre-cancerous indications, and if Onyx or a third-party commercialized these compounds in such indications in forms that are commercially interchangeable with our licensed compounds during time periods in which we also commercialize such licensed compounds within our licensed field, sales of such compounds for such cancer and pre-cancerous indications could result in a threat of off-label use of such compounds in our licensed field, potentially diminishing our sales of the applicable licensed compounds in our licensed field.

The Onyx license agreement may limit or delay our ability to consummate certain transactions, may impact the value of those transactions, or may limit our ability to pursue certain activities. Specifically, under the Onyx license agreement, Onyx has a right of first negotiation under certain circumstances to obtain a license or a similar transfer of rights, if we are seeking to out-license rights to develop and/or commercialize certain licensed products.

~~Disputes may arise between us and any of these counterparties regarding intellectual property rights that are subject to such agreements, including, but not limited to:~~

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~~the scope of rights granted under the agreement and other interpretation-related issues;~~

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~~whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the agreement;~~

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~~our right to sublicense patent and other rights to third parties;~~

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~~the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners;~~

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~~our right to transfer or assign our license; and~~

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~~the effects of termination.~~

These or other disputes over intellectual property that we have licensed (or will license or acquire in the future) may prevent or impair our ability to maintain our current arrangements on acceptable terms, or may impair the value of the arrangement to us. Any such dispute could have an adverse effect on our business.

We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful.

Competitors may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time consuming and is likely to divert significant resources from our core business, including distracting our technical and management personnel from their normal responsibilities. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, non-enablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as ex parte reexaminations, inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. We cannot be certain that there is or will be no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and patent applications that we have licensed, we may have limited or no right to participate in the defense of any licensed patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on our current or future product candidates. Such a loss of patent protection could harm our business.

We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license, and such a license may not be on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be

public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock.

We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating or from successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Changes in U.S. patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect ~~KZR-616 and any future~~our product candidates.

The United States has recently enacted and implemented wide ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.

~~We may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.~~

Filing, prosecuting and defending patents covering KZR-616 and any future product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

~~Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.~~

Since we rely on third parties to discover, develop, manufacture or commercialize KZR-616 or any future product candidates, or if we collaborate with third parties for the development of KZR-616 or any future product candidates, we must, at times, share trade secrets with them. We may also conduct joint research and development programs that may require us to share trade secrets under the terms of our research and development partnerships or similar agreements. We seek to protect our proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure could have an adverse effect on our business and results of operations.

In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Moreover, we

cannot guarantee that we have entered into such agreements with each party that may have or have had access to our confidential information or proprietary technology and processes. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, scientific advisors, employees, contractors and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidential information that is licensed or disclosed to us by our partners, collaborators, or others is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that a third-party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

~~Any trademarks we may obtain may be infringed or successfully challenged, resulting in harm to our business.~~

We expect to rely on trademarks as one means to distinguish any of our product candidates that are approved for marketing from the products of our competitors. We have not yet selected trademarks for KZR-616 and have not yet begun the process of applying to register trademarks for KZR-616 or any other product candidate. Once we select trademarks and apply to register them, our trademark applications may not be approved. Third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks, and we may not have adequate resources to enforce our trademarks.

In addition, any proprietary name we propose to use with KZR-616 or any other product candidate in the United States must be approved by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA typically conducts a review of proposed product names, including an evaluation of the potential for confusion with other product names. If the FDA objects to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patent ~~and trademark~~ protection for our product candidates, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect our trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. In addition, we may not be able to obtain adequate remedies for any such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

Moreover, our competitors may independently develop knowledge, methods and know-how equivalent to our trade secrets. Competitors could purchase our products and replicate some or all of the competitive advantages we derive from our development efforts for technologies on which we do not have patent protection. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.

We also seek to preserve the integrity and confidentiality of our data and other confidential information by maintaining physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached and detecting the disclosure or misappropriation of confidential information and enforcing a claim that a party illegally disclosed or misappropriated confidential information is difficult, expensive and time-consuming, and the outcome is unpredictable. Further, we may not be able to obtain adequate remedies for any breach. In addition, our confidential information may otherwise become known or be independently discovered by competitors, in which case we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us.

Reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed.

Since we rely on third parties to develop and manufacture zetomipzomib and KZR-261, and if we collaborate with third parties for the development of our research programs or product candidates, we must, at times, share trade secrets with them. We may also conduct collaborative research and development programs that may require us to share trade secrets and proprietary know how. We seek to protect our proprietary information by entering into agreements containing confidentiality obligations and ownership provisions relating to intellectual property prior to disclosing proprietary information or beginning research projects with third party collaborators. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including

our trade secrets. Despite the contractual provisions employed when working with third parties, sharing trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, the unauthorized disclosure or use of our confidential information could have an adverse effect on our business and results of operations.

In addition, these agreements typically restrict the ability of our collaborators, advisors, employees, investigators, contractors and consultants to publish data potentially relating to our trade secrets. Despite our efforts to protect our trade secrets, we may not be able to prevent the unauthorized disclosure or use of our technical know-how or other trade secrets by the parties to these agreements. Moreover, we cannot guarantee that we have entered into such agreements with each party that may have or have had access to our confidential information or proprietary technology and processes. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. If any of the collaborators, advisors, employees, investigators, contractors and consultants who are parties to these agreements breaches or violates the terms of any of these agreements, we may not have adequate remedies for any such breach or violation, and we could lose our trade secrets as a result. Moreover, if confidential information that is licensed or disclosed to us by our partners, collaborators, or others is inadvertently disclosed or subject to a breach or violation, we may be exposed to liability to the owner of that confidential information. Enforcing a claim that a third-party illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets.

We may not be able to protect our intellectual property rights throughout the world, which could negatively impact our business.

Filing, prosecuting and defending patents covering zetomipzomib, KZR-261 and any future product candidates throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection but where patent enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.

Intellectual property rights do not necessarily address all potential threats to our business.

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others may be able to make compounds or formulations that are similar to our product candidates but that are not covered by the claims of any patents, should they issue, that we own or control;

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we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or control;

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we might not have been the first to file patent applications covering certain of our inventions;

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others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

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it is possible that our pending patent applications will not lead to issued patents;

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issued patents that we own or control may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;

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we may not develop additional proprietary technologies that are patentable; and

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the patents of others may prevent us from fully exploiting our product candidates or technologies.

Risks Related to Our Business Operations, Employee Matters and Managing Growth

We are highly dependent on the services of our ~~Chief Executive Officer, John Fowler, and our President and Chief Scientific Officer, Dr. Christopher Kirk,~~executive officers, and if we are not able to retain these members of our management team or recruit and retain additional management, clinical and scientific personnel, our business will be harmed.

We are highly dependent on our Chief Executive Officer, John Fowler, and our President and Chief Scientific Officer, Dr. Christopher Kirk. Each of them may currently terminate their employment with us at any time. The loss of the services of either of these persons could impede the achievement of our research, development and commercialization objectives.

Recruiting and retaining ~~other~~ senior executives, qualified scientific and clinical personnel and, if we progress the development of any of our product candidates, commercialization, manufacturing and sales and marketing personnel, will be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of our research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. ~~Furthermore, replacing~~Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. Replacing executive officers and key employees may be difficult and may take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to successfully develop, gain regulatory approval of and commercialize our product candidates. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high-quality personnel, our ability to pursue our growth strategy will be limited.

~~Our future performance will also depend,~~Further, our Workforce Reduction announced in ~~part, on~~October 2023 may make retention of our ~~ability to successfully integrate newly hired executive officers into our management team~~current personnel both more important and our ability to develop an effective working relationship among senior management. Our failure to integrate these individuals and create effective working relationships among them and other members of management could result in inefficienciesmore challenging. This Workforce Reduction resulted in the ~~development~~loss of certain longer-term employees, the loss of institutional knowledge and ~~commercialization~~expertise and the reallocation and combination of certain roles and responsibilities across the organization, all of which could adversely affect our ~~product candidates, harming future regulatory approvals, sales of our product candidates and our results of~~ operations. ~~Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees.~~

We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

~~As of August 1, 2018, we had 24 full-time employees.~~ As the clinical development of our product candidates progresses, we also expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of research, drug development, medical affairs, regulatory affairs and, if any of our product candidates receives marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. This could be a particular challenge as a result of the Workforce Reduction announced in October 2023. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of our business operations; reputational harm; and other adverse business consequences.

In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit and share personal data and other sensitive information, including proprietary and confidential business data, trade secrets, intellectual property, data we collect about trial participants in connection with clinical trials, and sensitive third-party data. Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contracts, and other obligations relating to data privacy and security.

In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws, personal data privacy laws, and consumer protection laws. For example, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, imposes specific requirements relating to the privacy, security, and transmission of individually identifiable health information. If we become subject to new data privacy laws, at the state level, the risk of enforcement action against us could increase because we may become subject to additional obligations, and the number of individuals or entities that can initiate actions against us may increase (including individuals, via a private right of action, and state actors). In addition, data privacy and security laws have been proposed at the federal, state, and local levels in recent years, which could further complicate compliance efforts.

Outside the United States, an increasing number of laws, regulations, and industry standards apply to data privacy and security. For example, the European Union’s General Data Protection Regulation, or EU GDPR and the United Kingdom’s GDPR, or UK GDPR impose strict requirements for processing the personal data of individuals located, respectively within the European Economic Area, or EEA and the United Kingdom, or UK. For example, under the EU GDPR, government regulators may impose temporary or definitive bans on data processing, as well as fines of up to 20 million euros or 4% of annual global revenue, whichever is greater. Further, companies may face private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. In Canada, the Personal Information Protection and Electronic Documents Act and various related provincial laws, as well as Canada’s Anti-Spam Legislation, may apply to our operations.

In addition, we may be unable to transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross-border data flows. Although there are various mechanisms that may be used in some cases to lawfully transfer personal data to the United States or other countries, these mechanisms are subject to legal challenges and may not be available to us. An inability or material limitation on our ability to transfer personal data to the United States or other countries could materially impact our business operations. In the ordinary course of business, we may transfer personal data from Europe and other jurisdictions to the United States or other countries. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the EEA and the UK have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA and UK’s standard contractual clauses, these mechanisms are subject to legal challenges, and there is no assurance that we can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for us to transfer personal data from the EEA, the UK or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, we could face significant adverse consequences, including the interruption or degradation of our operations, the need to relocate part of or all of our business or data processing activities to other jurisdictions at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against our processing or transferring of personal data necessary to operate our business. Additionally, companies that transfer personal data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activist groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers out of Europe for allegedly violating the EU GDPR’s cross-border data transfer limitations.

Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion. These obligations may be subject to differing applications and interpretations, which may be inconsistent or in conflict among jurisdictions. Preparing for and complying with these obligations requires us to devote significant resources (including, without limitation, financial and time-related resources). These obligations may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations which could impact our compliance posture. If we fail, or are perceived to have failed, to address or comply with data privacy and security obligations, we could face significant consequences. These consequences may include, but are not limited to, government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-related claims); additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials. Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.

Significant disruptions of our, or our contractors' or vendors', information technology systems or data security incidents could result in significant financial, legal, regulatory, business and reputational harm to us.

In the ordinary course of our business, we and the third parties upon which we rely may process proprietary, confidential, and sensitive data, including personal data (such as health-related data), intellectual property, and trade secrets. We may rely upon third parties (such as service providers) for our data processing–related activities. We may share or receive sensitive data with or from third parties. We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. ~~In the ordinary course~~Cyberattacks, malicious internet-based activity, and online and offline fraud are prevalent and continue to increase. These threats are becoming increasingly difficult to detect. These threats come from a variety of ~~our business, we collect, store, process~~sources, including traditional computer “hackers,” threat actors, personnel (such as through theft or misuse), sophisticated nation states, and ~~transmit large amounts~~nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of ~~sensitive information, including intellectual property, proprietary business information, personal information~~war and other ~~confidential information. It is critical~~major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services. We and the third parties upon which we rely may be subject to a variety of evolving threats, including but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats. Ransomware attacks, including those perpetrated by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly prevalent and severe and

can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do sonot contain exploitable defects or bugs that could result in a ~~secure manner~~breach of or disruption to ~~maintain the confidentiality, integrity and availability of such sensitive information. We have also outsourced elements of our operations (including elements of~~ our information technology ~~infrastructure) to third parties, and as a result, we manage a number of~~systems or the third-party vendors who may or could have access to our computer networks or our confidential information. In addition, many of those third parties in turn subcontract or outsource some of their responsibilities to third parties. While all information technology ~~operations are inherently vulnerable~~systems that support us and our services.

Remote work has become more common and has increased risks to ~~inadvertent or intentional security breaches, incidents, attacks and exposures, the accessibility and distributed nature of~~ our information technology systems and the sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on our technology environment. Potential vulnerabilities can be exploited from inadvertent or intentional actionsdata, as more of our employees ~~third-party vendors,~~utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations. Future or past business ~~partners,~~transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by ~~malicious third parties. Attacks~~vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may discover security issues that were not found during due diligence of ~~this nature are increasing in their frequency, levels of persistence, sophistication~~such acquired or integrated entities, and ~~intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of~~

~~motives (including, but not limited~~it may be difficult to industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. In addition, the prevalent use of mobile devices increases the risk of data security incidents.

~~Significant disruptions of~~integrate companies into our ~~our third-party vendors’ and/or business partners’~~ information technology ~~systems~~environment and security program.

Any of the previously identified or ~~other~~ similar ~~data~~threats could cause a security ~~incidents~~incident. A security incident could ~~adversely affect our business operations or~~ result in ~~the~~unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, ~~misappropriation, or unauthorized access, use or~~alteration, encryption, disclosure of, or ~~the prevention of~~ access to ~~sensitive information, which~~data. A security incident could ~~result in financial, legal, regulatory, business and reputational harm~~disrupt our ability (and that of third parties upon whom we rely) to ~~us. In addition, information technology system disruptions, whether from attacks on~~conduct our technology environment or from computer viruses, natural disasters, terrorism, war and telecommunication and electrical failures, could result in a material disruption of our development programs and our business operations.business. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data.

There is no way of knowing with certainty whether we have experienced any data security incidents that have not been discovered. While we have no reason to believe this to be the case, attackers have become very sophisticated in the way they conceal access to systems, and many companies that have been attacked are not aware that they have been attacked. Any event that leads to unauthorized access, use We may expend significant resources or ~~disclosure of personal information, including but not limited to personal information regarding our patients or employees, could disrupt~~modify our business ~~harm~~activities (including our ~~reputation, compel us~~clinical trial activities) in an effort to ~~comply with applicable federal and/or state breach notification laws~~protect against security incidents. Certain data privacy and ~~foreign law equivalents, subject us to time consuming, distracting and expensive litigation, regulatory investigation and oversight, mandatory corrective action,~~security obligations may require us to ~~verify the correctness of database contents, or otherwise subject us to liability under laws, regulations~~implement and contractual obligations, including those that protect the privacy and security of personal information. This could result in increased costs to us, and result in significant legal and financial exposure and/or reputational harm. In addition, any failure or perceived failure by us or our vendors or business partners to comply with our privacy, confidentiality or data security-related legal or other obligations to third parties, or any further security incidents or other inappropriate access events that result in the unauthorized access, release or transfer of sensitive information, which could include personally identifiable information, may result in governmental investigations, enforcement actions, regulatory fines, litigation, or public statements against us by advocacy groups or others, and could cause third parties, including clinical sites, regulators or current and potential partners, to lose trust in us or we could be subject to claims by third parties that we have breached our privacy- or confidentiality-related obligations, which could materially and adversely affect our business and prospects. Moreover, data security incidents and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. While we have implementedmaintain specific security measures, ~~intended~~industry-standard or reasonable security measures to protect our information technology systems and ~~infrastructure,~~data. While we have implemented security measures designed to protect against security incidents, there can be no assurance that ~~such~~these measures will ~~successfully prevent service~~be effective. Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing data (including personal data); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms. Security incidents and attendant consequences may negatively impact our ability to grow and operate our business.

Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security ~~incidents.~~obligations. Additionally, we cannot be sure that our insurance coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.

Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct by these parties could include intentional failures to comply with FDA regulations or the regulations applicable in other jurisdictions, provide accurate information to the FDA and ~~other~~comparable foreign regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Such misconduct also could involve the improper use of information obtained in the course of clinical trials or interactions with the FDA or ~~other~~comparable foreign regulatory authorities, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If ~~any such~~ actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participating in government funded healthcare programs, such as Medicare and Medicaid, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, contractual damages, reputational harm and the curtailment or restructuring of our operations, any of which could have a negative impact on our business, financial condition, results of operations and prospects.

If we engage in future acquisitions or strategic collaborations, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities and subject us to other risks.

From time to time, we may evaluate various acquisitions and strategic collaborations, including licensing or acquiring complementary drugs, intellectual property rights, technologies or businesses, as deemed appropriate to carry out our business plan. Any potential acquisition or strategic partnership may entail numerous risks, including:

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~~increased operating expenses and cash requirements;~~

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increased operating expenses and cash requirements;

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~~the assumption of additional indebtedness or contingent liabilities;~~

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the assumption of additional indebtedness or contingent liabilities;

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~~assimilation of operations, intellectual property and drugs of an acquired company, including difficulties associated with integrating new personnel;~~

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assimilation of operations, intellectual property and drugs of an acquired company, including difficulties associated with integrating new personnel;

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~~the diversion of our management’s attention from our existing drug programs and initiatives in pursuing such a strategic partnership, merger or acquisition;~~

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the diversion of our management’s attention from our existing drug programs and initiatives in pursuing such a strategic partnership, merger or acquisition;

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~~retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;~~

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retention of key employees, the loss of key personnel, and uncertainties in our ability to maintain key business relationships;

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~~risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or product candidates and regulatory approvals; and~~

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risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing drugs or product candidates and regulatory approvals; and

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our inability to generate revenue from acquired technology and/or drugs sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.

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In addition, if we engage in future acquisitions or strategic partnerships, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities, and this inability could impair our ability to grow or obtain access to technology or drugs that may be important to the development of our business.

Risks Related to Ownership of Our Common Stock and Other General Matters

The market price of our common stock may be volatile and fluctuate substantially, and you could lose all or part of your investment.

The market price of our common stock ~~is likely~~has at times experienced price volatility and may continue to be volatile. For example, during the nine months ended September 30, 2023, the closing price of our common stock on The Nasdaq Global Select Market ranged from $1.08 per share to $7.31 per share. The stock market in general and the market for biopharmaceutical and pharmaceutical companies in particular, has experienced extreme ~~volatility~~price and volume fluctuations that ~~has~~have often been unrelated or disproportionate to the operating performance of ~~particular companies.~~these companies, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Broad market and industry factors, including potentially worsening economic conditions, including higher inflation rates and changes in interest rates, and other adverse effects or developments, may negatively affect the market price of our common stock, regardless of our actual operating performance. As a result of this volatility, you may not be able to sell your common stock at or above the price paid for the shares. In addition to the factors discussed in this “Risk Factors” section, the market price for our common stock may be influenced by the following:

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~~the commencement, enrollment or results of our planned or future clinical trials of KZR-616 and any future product candidates or those of our competitors;~~

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the commencement, enrollment or results of our planned or future clinical trials of zetomipzomib, KZR-261 and any future product candidates;

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~~the success of competitive drugs or therapies;~~

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the clinical or commercial success of competitive drugs, therapies or technologies;

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~~regulatory or legal developments in the United States and other countries;~~

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regulatory or legal developments in the United States and other countries;

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~~the success of competitive products or technologies;~~

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disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain and maintain patent protection for our technologies;

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~~developments or disputes concerning patent applications, issued patents or other proprietary rights;~~

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negative or inconclusive results from our clinical trials, such as the May 2022 topline data from the PRESIDIO Phase 2 clinical trial;

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~~the recruitment or departure of key personnel;~~

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failure or discontinuation of any of our clinical development or research programs;

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~~the level of expenses related to KZR-616 and any future product candidates or clinical development programs;~~

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the recruitment or departure of key personnel;

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~~the results of our efforts to discover, develop, acquire or in-license additional product candidates;~~

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the level of expenses related to our product candidates and clinical development or research programs;

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our ability to discover, develop and broaden our pipeline beyond our current product candidates;

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~~actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;~~

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commencement or termination of collaborations for our research and development programs;

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~~our inability to obtain or delays in obtaining adequate drug supply for any approved drug or inability to do so at acceptable prices;~~

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actual or anticipated changes in estimates as to financial results or development timelines;

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~~disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;~~

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changes in estimates or recommendations by securities analysts, if any, that cover our stock;

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our inability to obtain or delays in manufacturing adequate supply for our clinical trials or the inability to do so at acceptable costs;

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significant lawsuits, including patent or stockholder litigation or products liability claims;

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variations in our financial results or those of companies that are perceived to be similar to us;

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announcement, expectation or completion of additional financing efforts;

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changes in the structure of healthcare payment systems;

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market conditions in the pharmaceutical and biotechnology sectors;

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general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad, including as a result of bank failures, public health crises or geopolitical tensions, such as the Russia-Ukraine and Israel-Hamas wars; and

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investors’ general perception of us and our business.

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~~significant lawsuits, including patent or stockholder litigation;~~

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~~variations in our financial results or those of companies that are perceived to be similar to us;~~

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~~changes in the structure of healthcare payment systems;~~

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~~market conditions in the pharmaceutical and biotechnology sectors;~~

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~~general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad; and~~

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~~investors’ general perception of us and our business.~~

These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from selling their shares at or above the price paid for the shares and may otherwise negatively affect the liquidity of our common stock. In addition, the stock market in general, and biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.

Some companies that have experienced volatility in the trading price of their shares have been the subject of securities class action litigation. Any lawsuit to which we are a party, with or without merit, may result in an unfavorable judgment. We also may decide to settle lawsuits on unfavorable terms. Any such negative outcome could result in payments of substantial damages or fines, damage to our reputation or adverse changes to our business practices. Defending against litigation is costly and time-consuming, and could divert our management’s attention and our resources. Furthermore, during the course of litigation, there could be negative public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a negative effect on the market price of our common stock.

~~A public market may not develop~~If securities or ~~be liquid enough for you to sell your shares quickly or at market price.~~

Prior to our IPO in June 2018, there had not been a public market for our common stock. If an active trading market for our common stock does not develop, you may not be able to sell your shares quickly or at the market price. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares of our common stock and may impair our ability to acquire other companies or technologies by using our common stock as consideration.

~~Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.~~

Based upon our shares of our common stock outstanding as of June 30, 2018, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock will, in the aggregate, beneficially own shares representing approximately 45.2% of our outstanding common stock. If our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock acted together, they may be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. The concentration of voting power and transfer restrictions could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in the management of our company in ways with which other stockholders disagree.

~~If research~~industry analysts do not publish research or reports, or publish unfavorable research or reports, about ~~us,~~ our business or our market, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or financial analysts publish about us or our business. Equity research analysts may discontinue research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. We do not have any control over the analysts or the content and opinions included in their reports. The price of our shares could decline if one or more equity research analysts downgrade our shares or issue other unfavorable commentary or research about us. If one or more equity research analysts ceases coverage of us or fails to publish reports on us regularly, demand for our shares could decrease, which in turn could cause the trading price or trading volume of our common stock to decline.

Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and share price.

The global economy, including credit and financial markets, has experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, increases in inflation rates, changes in interest rates and uncertainty about economic stability. For example, the Russia-Ukraine war has created extreme volatility in the global capital markets and is expected to have further global economic consequences, including disruptions of the global supply chain and energy markets. Any such volatility and disruptions may have adverse consequences on us or the third parties on whom we rely. If the equity and credit markets deteriorate, including as a result of recent bank failures, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive.

A severe or prolonged global economic downturn could result in a variety of risks to our business. For example, inflation rates, particularly in the United States, have increased recently to levels not seen in years, and increased inflation may result in increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital on

acceptable terms, if at all. In addition, the U.S. Federal Reserve has raised, and may again raise, interest rates inresponse to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks. A weak or declining economy could also strain our suppliers and manufacturers, possibly resulting in supply and clinical trial disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

Our common stock is thinly traded and our stockholders may be unable to sell their shares quickly or at market price.

Although we have had periods of high-volume daily trading in our common stock, generally our stock is thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our stockholders may disproportionately influence the price of those shares in either direction. Our common stock price could, for example, decline significantly as a result of sales of a large number of shares of our common stock on the market without commensurate demand, as compared to a seasoned issuer that could better absorb those sales without adverse impact on its share price, or from the perception that these sales could occur.

Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Based upon our shares of our common stock outstanding as of September 30, 2023, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock do, in the aggregate, beneficially own shares representing approximately 55% of our outstanding common stock. If our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock acted together, they may be able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. The concentration of voting power and transfer restrictions could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in the management of our company in ways with which other stockholders disagree.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

You should not rely on an investment in our common stock to provide dividend income. We have never declared or paid cash dividends on our capital stock. Furthermore, our ability to pay cash dividends is currently restricted by the terms of the Loan Agreement. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.

~~We have broad discretion in the use of our cash and cash equivalents and may use them in ways in which you do not agree or in ways that do not increase the value of your investment.~~

Our management will have broad discretion in the application of our cash and cash equivalents, and could spend the proceeds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a negative impact on our business, cause the price of our common stock to decline and delay the development of our product candidates. ~~Pending their use, we may invest our cash and cash equivalents, in a manner that does not produce income or that loses value.~~

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of our common stock to drop significantly, even if our business is performing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain restrictions described below. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. We have outstanding 19,108,221 shares of common stock as of June 30, 2018. This includes the shares that we sold in the IPO, which may be resold in the public market immediately without restriction, unless purchased by our affiliates. The remaining 13,358,221 shares are currently restricted as a result of securities laws or lock-up agreements. Moreover, holders of an aggregate of 12,263,126 shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We intend to register all shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements.

We are an “emerging growth company” and a “smaller reporting company,” and the reduced disclosure requirements applicable to ~~emerging growth~~such companies may make our common stock less attractive to investors.

We are an “emerging growth company,” or EGC, as defined in the ~~Jumpstart Our Business Startups Act of 2012, or the~~ JOBS Act, and we ~~intend~~expect to ~~take advantage of some of the~~cease to be an EGC on December 31, 2023. As an EGC, we have been and will until December 31, 2023 be permitted to rely on exemptions from certain reporting requirements that are applicable to other public companies that are not ~~emerging growth companies,~~EGC, including:

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~~not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;~~

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not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;

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not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

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~~reduced disclosure obligations regarding executive compensation; and~~

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reduced disclosure obligations regarding executive compensation; and

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~~not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.~~

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not being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

We currently take advantage of some or all of these reporting exemptions until we are no longer an EGC. We will remain an EGC until the earlier of (i) December 31, 2023, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the first fiscal year in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (iv) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We cannot predict whether investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.

In addition, under Section 107(b) of the JOBS Act, EGCs can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised

accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not EGCs.

We are also a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by nonaffiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

We will continue to incur increased costs ~~as a result of operating~~ as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, and particularly after we are no longer an EGC, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC and The Nasdaq Stock Market LLC have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and ~~costly.~~costlier. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.

Pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, we will be required to furnish a report by our management on our internal control over financial reporting, including an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. However, even after we are no longer an EGC, and while we remain a smaller reporting company that is not an ~~EGC,~~accelerated filer, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404, ~~within the prescribed period,~~ we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that neither we nor our independent registered public accounting firm will be able to conclude ~~within the prescribed timeframe~~ that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements.

If we are unable to successfully remediate the existing material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

In connection with the audit of our consolidated financial statements as of and for the years ended December 31, 2016 and 2017, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. The material weakness is related to a lack of sufficient number of qualified personnel within our accounting function to adequately segregate duties, a lack of sufficient review and approval of manual journal entries posted to the general ledger and a lack of adequate review procedures over general ledger account reconciliations.

~~We are implementing measures designed to improve our internal control over financial reporting to remediate this material weakness, including the following:~~

∎

~~we have added additional qualified accounting personnel, including our Chief Financial Officer and controller and began segregating duties among accounting personnel; and~~

∎

~~we are formalizing our internal control documentation and strengthening supervisory reviews by our management.~~

We, and our independent registered public accounting firm, were not required to perform an evaluation of our internal control over financial reporting as of December 31, 2017 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot provide assurance that we have identified all, or that we will not in the future have additional, material weaknesses.

If we fail to remediate the material weakness or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. There is no assurance that we will be able to remediate the material weakness in a timely manner, or at all, or that in the future, additional material weaknesses will not exist or otherwise be discovered. If our efforts to remediate the material weakness identified are not successful, or if other material weaknesses or other deficiencies occur, our ability to accurately and timely report our financial position could be impaired.

Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:

∎

~~establish a classified board of directors such that not all members of the board are elected at one time;~~

•

establish a classified board of directors such that not all members of the board are elected at one time;

∎

~~allow the authorized number of our directors to be changed only by resolution of our board of directors;~~

•

allow the authorized number of our directors to be changed only by resolution of our board of directors;

∎

~~limit the manner in which stockholders can remove directors from the board;~~

•

limit the manner in which stockholders can remove directors from the board;

∎

~~establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;~~

•

establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;

∎

~~require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;~~

•

require that stockholder actions must be affected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;

∎

~~limit who may call stockholder meetings;~~

•

limit who may call stockholder meetings;

•

authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and

∎

•

require the approval of the holders of at least 66 2⁄3% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.

∎

~~require the approval of the holders of at least 66~~²⁄₃~~% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our charter or bylaws.~~

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, ~~or DGCL,~~ which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware and the federal district courts of the United States ~~of America~~ will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum ~~for:~~for the following types of actions or proceedings under Delaware statutory or common law:

∎

•

any derivative action or proceeding brought on our behalf;

•

any action asserting a breach of fiduciary duty;

•

any action asserting a claim against us or any of our directors, officers, employees or agents arising under the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws;

•

any action or proceeding to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; and

•

any action asserting a claim against us or any of our directors, officers, employees or agents that is governed by the internal-affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our ~~behalf;~~

∎

~~any action asserting a breach of fiduciary duty;~~

∎

~~any action or proceeding to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; and~~

∎

~~any action asserting a claim against us or any of our directors, officers, employees or agents that is governed by the internal-affairs doctrine.~~

~~Our~~ amended and restated certificate of incorporation further provides that the federal district courts of the United States ~~of America~~ will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities ~~Act.~~Act of 1933, as amended. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~Recent Sales of Unregistered Equity Securities~~

During the three months ended June 30, 2018 and pursuant to our 2018 Equity Incentive Plan and 2015 Equity Incentive Plan, as amended, we granted stock options to purchase up to an aggregate of 860,128 shares of our common stock to our employees and directors at a weighted-average exercise price of $6.77 per share. The sales of these securities were deemed to be exempt from registration under Rule 701 promulgated under the Securities Act of 1933, as amended, or the Securities Act, as transactions pursuant to compensatory benefit plans or contracts relating to compensation as provided under Rule 701.66

~~Use of Proceeds from the IPO~~

On June 25, 2018, we completed our IPO and issued 5,750,000 shares of our common stock at an initial offering price of $15.00 per share (inclusive of 750,000 shares of common stock pursuant to the full exercise of an overallotment option granted to the underwriters in connection with the offering). We received net proceeds from the IPO of approximately $77.6 million, after deducting underwriting discounts and commissions of approximately $6.0 million, and expenses of approximately $2.6 million. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of equity securities, or to their associates. Jefferies LLC and Cowen and Company, LLC acted as lead book-running managers. Wells Fargo Securities, LLC and William Blair & Company, L.L.C. acted as joint book-running manager for the IPO.

Shares of our common stock began trading on The Nasdaq Global Select Market on June 21, 2018. The offer and sale of the shares were registered under the Securities Act on Registration Statement on Form S-1 (Registration No. 333-225194), which was declared effective on June 20, 2018.

There has been no material change in the planned use of proceeds from our IPO as described in our Prospectus. We invested the funds received in cash equivalents and other marketable securities in accordance with our investment policy. As of June 30, 2018, we have used approximately $0.2 million of the net offering proceeds primarily to advance our product candidates through clinical trial programs and for working capital and general corporate purposes.

~~Item 3. Defaults Upon Senior Securities.~~

~~Not applicable~~

~~Item 4. Mine Safety Disclosures.~~

~~Not applicable~~

~~Item 5. Other Information.~~

~~None~~

Item 6. E~~xhibits.~~Exhibits.


Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38542), filed with the SEC on June 26, 2018).
3.2		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-38542), filed with the SEC on June 16, 2023).
3.3		Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 001-38542), filed with the SEC on June 26, 2018).
4.1		Form of ~~Common Stock Certificate of the Company~~Pre-Funded Warrant (incorporated herein by reference to Exhibit 4.1 to the Company’s ~~Registration Statement~~Current Report on Form ~~S-1~~8-K (File No. ~~333-225194)~~001-38542), filed with the SEC on ~~June 8, 2018)~~February 3, 2020).
~~4.2~~10.1+		Amended and Restated Investors’ Rights Agreement, by and among the Company and certain of its stockholders, dated June 26, 2017 (incorporated herein by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (File No. 333-225194), filed with the SEC on May 24, 2018).
~~10.1+~~		~~2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.9 to the Company’s Registration Statement on Form S-8 (File No. 333-225769), filed with the SEC on June 21, 2018).~~
~~10.2+~~		Forms of Option Grant Notice and Option Agreement under 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-225194), filed with the SEC on May 24, 2018).
~~10.3+~~		Form of Restricted Stock Unit Grant Notice and Unit Award Agreement under 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No. 333-225194), filed with the SEC on May 24, 2018).
~~10.4+~~		~~2018 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4.12 to the Company’s Registration Statement on Form S-8 (File No. 333-225769), filed with the SEC on June 21, 2018).~~
~~10.5+~~		Amended and Restated Executive Employment Agreement between the Company and John Fowler, dated June 7, 2018 (incorporated herein by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No. 333-225194), filed with the SEC on June 8, 2018).
~~10.6+~~		~~Amended and Restated~~ Executive Employment Agreement, between the Company and Christopher J. Kirk, Ph.D., dated ~~June~~as of November 7, ~~2018 (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-225194), filed with the SEC on June 8, 2018)~~.2023.
~~31.1~~10.2+		Separation and Consulting Agreement, between the Company and John Fowler, dated October 3, 2023.
10.3+		Separation Agreement, between the Company and Noreen Henig, M.D., dated October 23, 2023.
10.4†		Collaboration and License Agreement, by and between the Company and Everest Medicines II (HK) Limited, dated as of September 20, 2023.
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibit 101).

+	~~Indicates a management contract or compensatory plan.~~

Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

~~SIGNATURES~~

* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act (whether made before or after the date of this Quarterly Report on Form 10-Q), irrespective of any general incorporation language contained in such filing.

+ Indicates a management contract or compensatory plan.

† Certain information has been omitted from this document in accordance with Regulation S-K, Item 601(b)(10).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	~~Company Name~~Kezar Life Sciences, Inc. (Registrant)

Date: ~~August 9, 2018~~November 13, 2023	By:	~~/s/ John Fowler~~ /s/ Christopher Kirk
		~~John Fowler~~Christopher Kirk
		Chief Executive Officer (Principal Executive Officer)

Date: ~~August 9, 2018~~November 13, 2023	By:	~~/s/~~ /s/ Marc Belsky
		Marc Belsky
		Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

6068


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	KZR	The Nasdaq Stock Market LLC


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
~~Non-accelerated filer~~	☒ ~~(Do not check if a smaller reporting company)~~	~~Smaller reporting company~~	☐

Emerging growth company	☒


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	21
	Condensed Consolidated Balance Sheets	21
	Condensed Consolidated Statements of Operations	32
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss	43
	Condensed Consolidated Statement of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1520
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2129
Item 4.	Controls and Procedures	2129
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	2230
Item 1A.	Risk Factors	2230
Item 2.6.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits	5867
~~Item 3.~~		~~Defaults Upon Senior Securities~~	58
~~Item 4.~~	~~Mine Safety Disclosures~~	58
~~Item 5.~~	~~Other Information~~	58
~~Item 6.~~	~~Exhibits~~	59


	September 30, 2023			December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	26,498		$	40,456
Marketable securities		191,707			236,105
Accounts receivable		7,000			—
Prepaid expenses		4,376			8,241
Other current assets		935			920
Total current assets		230,516			285,722
Property and equipment, net		4,403			3,431
Operating lease right-of-use asset		8,072			9,741
Other assets		6,335			674
Total assets	$	249,326		$	299,568
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,120		$	2,479
Accrued and other current liabilities		10,657			5,953
Operating lease liabilities, current		2,895			2,565
Total current liabilities		16,672			10,997
Operating lease liabilities, noncurrent		6,650			8,865
Long-term debt		10,010			9,834
Total liabilities		33,332			29,696
Stockholders' equity:
Common stock, $0.001 par value, 250,000,000 and 125,000,000 shares authorized as of September 30, 2023 (unaudited) and December 31, 2022, respectively; 72,692,963 and 68,493,429 shares issued and outstanding as of September 30, 2023 (unaudited) and December 31, 2022, respectively		73			68
Preferred stock, $0.001 par value, 10,000,000 shares authorized; zero shares issued and outstanding as of September 30, 2023 (unaudited) and December 31, 2022		—			—
Additional paid-in capital		535,111			519,620
Accumulated other comprehensive loss		(687	)		(923	)
Accumulated deficit		(318,503	)		(248,893	)
Total stockholders' equity		215,994			269,872
Total liabilities and stockholders' equity	$	249,326		$	299,568

	June 30, 2018			December 31, 2017
	(Unaudited)			(Note 2)
Assets
Current assets:
Cash and cash equivalents	$	101,973		$	51,033
Marketable securities		16,412			—
Prepaid expenses		1,538			785
Other current assets		661			508
Total current assets		120,584			52,326
Restricted cash		—			13
Property and equipment, net		4,805			1,540
Other assets		282			343
Total assets	$	125,671		$	54,222
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable	$	1,105		$	547
Accrued liabilities		2,007			911
Deferred rent, current		332			—
Other liabilities, current		158			26
Total current liabilities		3,602			1,484
Deferred rent, noncurrent		2,728			494
Total liabilities		6,330			1,978
Redeemable convertible preferred stock, $0.001 par value, zero and 75,533,240 shares authorized as of June 30, 2018 and December 31, 2017, respectively; zero and 12,263,126 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		—			77,931
Stockholders' equity (deficit):
Common stock, $0.001 par value, 125,000,000 and 96,000,000 shares authorized as of June 30, 2018 and December 31, 2017, respectively; 19,108,221 and 948,578 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively		19			5
Preferred stock, $0.001 par value, 10,000,000 and 0 shares authorized as of June 30, 2018 and December 31, 2017, respectively; zero shares issued and outstanding as of June 30, 2018 and December 31, 2017		—			—
Additional paid-in capital		157,192			447
Accumulated other comprehensive loss		(120	)		(111	)
Accumulated deficit		(37,750	)		(26,028	)
Total stockholders' equity (deficit)		119,341			(25,687	)
Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit)	$	125,671		$	54,222


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022
Collaboration revenue	$	7,000		$	—		$	7,000		$	—
Operating expenses:
Research and development		23,738			13,860			63,055			36,150
General and administrative		8,789			5,067			20,780			14,978
Total operating expenses		32,527			18,927			83,835			51,128
Loss from operations		(25,527	)		(18,927	)		(76,835	)		(51,128	)
Interest income		2,820			1,390			8,376			1,906
Interest expense		(396	)		(310	)		(1,151	)		(836	)
Net loss	$	(23,103	)	$	(17,847	)	$	(69,610	)	$	(50,058	)
Net loss per common share, basic and diluted	$	(0.32	)	$	(0.25	)	$	(0.96	)	$	(0.76	)
Weighted-average shares used to compute net loss per common share, basic and diluted		72,681,645			72,153,952			72,491,870			65,730,202

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Operating expenses:
Research and development	$	5,228		$	1,445		$	8,800		$	3,276
General and administrative		1,722			436			3,236			862
Total operating expenses		6,950			1,881			12,036			4,138
Loss from operations		(6,950	)		(1,881	)		(12,036	)		(4,138	)
Interest income		175			1			314			1
Net loss	$	(6,775	)	$	(1,880	)	$	(11,722	)	$	(4,137	)
Net loss per common share, basic and diluted	$	(3.31	)	$	(3.30	)	$	(8.35	)	$	(7.67	)
Weighted-average shares used to compute net loss per common share, basic and diluted		2,044,027			569,364			1,404,392			539,419


	COMMON STOCK				ADDITIONAL PAID-IN			ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL			INCOME (LOSS)			DEFICIT			EQUITY
Balance as of December 31, 2022		68,493,429	$	68	$	519,620		$	(923	)	$	(248,893	)	$	269,872
Cashless exercise of pre-funded warrants		2,236,233		2		(2	)		—			—			—
Issuance of common stock under equity incentive plans		86,338		1		153			—			—			154
Stock-based compensation expense		—		—		4,263			—			—			4,263
Other comprehensive income		—		—		—			400			—			400
Net loss		—		—		—			—			(22,199	)		(22,199	)
Balance as of March 31, 2023		70,816,000	$	71	$	524,034		$	(523	)	$	(271,092	)	$	252,490
Cashless exercise of pre-funded warrants		1,556,643		2		(2	)		—			—			—
Issuance of common stock under equity incentive plans		160,171		—		382			—			—			382
Stock-based compensation expense		—		—		4,020			—			—			4,020
Other comprehensive loss		—		—		—			(307	)		—			(307	)
Net loss		—		—		—			—			(24,308	)		(24,308	)
Balance as of June 30, 2023		72,532,814	$	73	$	528,434		$	(830	)	$	(295,400	)	$	232,277
Issuance of common stock under equity incentive plans		160,149		—		43			—			—			43
Stock-based compensation expense		—		—		6,634			—			—			6,634
Other comprehensive income		—		—		—			143			—			143
Net loss		—		—		—			—			(23,103	)		(23,103	)
Balance as of September 30, 2023		72,692,963	$	73	$	535,111		$	(687	)	$	(318,503	)	$	215,994


	COMMON STOCK				ADDITIONAL PAID-IN			ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL			LOSS			DEFICIT			EQUITY
Balance as of December 31, 2021		56,259,747	$	56	$	377,765		$	(291	)	$	(180,654	)	$	196,876
Issuance of common stock under the ATM Agreement, net of offering costs of $1,504		3,245,738		4		48,638			—			—			48,642
Issuance of common stock under equity incentive plans		59,174		—		208			—			—			208
Stock-based compensation expense		—		—		3,104			—			—			3,104
Other comprehensive loss		—		—		—			(491	)		—			(491	)
Net loss		—		—		—			—			(16,024	)		(16,024	)
Balance as of March 31, 2022		59,564,659	$	60	$	429,715		$	(782	)	$	(196,678	)	$	232,315
Issuance of common stock under the ATM Agreement, net of offering costs of $2,409		8,665,961		8		77,892			—			—			77,900
Issuance of common stock under equity incentive plans		111,022		—		420			—			—			420
Stock-based compensation expense		—		—		3,298			—			—			3,298
Other comprehensive loss		—		—		—			(382	)		—			(382	)
Net loss		—		—		—			—			(16,187	)		(16,187	)
Balance as of June 30, 2022		68,341,642	$	68	$	511,325		$	(1,164	)	$	(212,865	)	$	297,364
Issuance of common stock under equity incentive plans		30,473		—		185			—			—			185
Stock-based compensation expense		—		—		3,787			—			—			3,787
Other comprehensive loss		—		—		—			(301	)		—			(301	)
Net loss		—		—		—			—			(17,847	)		(17,847	)
Balance as of September 30, 2022		68,372,115	$	68	$	515,297		$	(1,465	)	$	(230,712	)	$	283,188

	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	101,973	$	51,033
Restricted cash		—		13
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	101,973	$	51,046


	September 30, 2023
	Total		Level 1		Level 2		Level 3
Financial Assets:
Cash equivalents:
U.S. Treasury money market funds	$	25,724	$	25,724	$	—	$	—
Marketable securities:
U.S. Treasury securities		46,768		46,768		—		—
Commercial paper		48,629		—		48,629		—
U.S. agency bonds		96,310		—		96,310		—
Total	$	217,431	$	72,492	$	144,939	$	—


	September 30, 2023		December 31, 2022
Advance for clinical-related costs, current	$	2,233	$	6,760
Licenses, dues and subscriptions		591		376
Insurance		1,065		741
Others		487		364
Total prepaid expenses	$	4,376	$	8,241

	June 30, 2018			December 31, 2017
Leasehold improvements	$	3,255		$	155
Furniture, laboratory and office equipment		1,978			1,242
Computer equipment		120			34
Construction in progress		—			464
Total property and equipment		5,353			1,895
Less accumulated depreciation and amortization		(548	)		(355	)
Property and equipment, net	$	4,805		$	1,540


	September 30, 2023		December 31, 2022
Advance for clinical related costs, non-current	$	5,503	$	—
Deposits for operating lease		674		674
Others		158		—
Total other assets	$	6,335	$	674


Years Ending December 31,
2023	$	—
2024		—
2025		5,217
2026		4,783
Total	$	10,000

	Number of Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2017		1,213,010		$	1.54		8.7	$	999
Additional shares authorized
Options granted		1,111,901		$	5.77
Options exercised		(136,328	)	$	1.56			$	237
Options cancelled		(10,917	)	$	0.90
Outstanding at June 30, 2018		2,177,666		$	3.70		9.0	$	29,609
Options exercisable at June 30, 2018		535,218		$	1.46		7.8	$	8,478


	Number of Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2022		9,684,810		$	8.12		7.6	$	15,407
Options granted		4,788,994		$	5.35
Options exercised		(155,871	)	$	1.65			$	376
Options cancelled/forfeited		(986,022	)	$	8.16
Outstanding as of September 30, 2023		13,331,911		$	2.76		7.3	$	48
Vested and exercisable as of September 30, 2023		6,614,659		$	2.65		6.3	$	48

	Number of RSUs Outstanding			Weighted Average Grant-Date Fair Price
Outstanding at December 31, 2017		—
						Number of RSUs Outstanding			Weighted Average Grant-Date Fair Price
Outstanding as of December 31, 2022							434,790		$	9.80
RSUs granted		10,189		$	17.75		81,619		$	6.84
RSUs vested		(10,189	)	$	17.75		(125,188	)	$	9.88
Outstanding at June 30, 2018		—
RSUs forfeited							(86,675	)	$	9.20
Outstanding as of September 30, 2023							304,546		$	9.14


	September 30, 2023		December 31, 2022
Accrued clinical costs	$	5,524	$	1,007
Accrued preclinical and research costs		1,758		1,368
Accrued employee-related costs		2,908		3,260
Accrued professional services		407		53
Other		60		265
Total accrued liabilities	$	10,657	$	5,953


	Three months ended September 30, 2023		Nine months ended September 30, 2023
Cash paid for operating lease liabilities	$	649	$	1,885
Operating lease costs		866		2,598
Variable lease costs		380		1,115

Maturities of lease liabilities as of September 30, 2023 were as follows:
Less than 12 months			$	3,859
13 - 24 months				3,991
25 - 36 months				3,437
Total undiscounted lease payments				11,287
Less: imputed interest				(1,742	)
Total lease liabilities			$	9,545

Operating lease liabilities, current				2,895
Operating lease liabilities, noncurrent				6,650
Total operating lease liabilities				9,545

Redeemable Convertible Preferred Stock	Shares Authorized		Shares Issued and Outstanding		Net Proceeds After Issuance Costs		Liquidation Preference
Series A		33,533,240		5,966,753	$	28,176	$	28,369
Series B		42,000,000		6,296,373		49,755		50,000
Total		75,533,240		12,263,126	$	77,931	$	78,369


	September 30, 2023			December 31, 2022
Principal loan balance	$	10,000		$	10,000
Unamortized debt discount and issuance costs		(268	)		(342	)
Cumulative accretion of final fee		278			176
Long-term debt, net	$	10,010		$	9,834

	~~Number of Shares~~
~~Nonvested—December 31, 2017~~		~~193,394~~
~~Vested~~		~~(104,537~~	)
~~Nonvested—June 30, 2018~~		~~88,857~~

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		Three Months Ended September 30,				Nine Months Ended September 30,
									2023		2022		2023		2022
Research and development									$	3,140	$	1,836	$	7,421	$	4,754
General and administrative	$	558	$	20	$	625	$	41		3,494		1,951		7,496		5,435
Research and development		430		18		489		35
Total stock-based compensation expense	$	988	$	38	$	1,114	$	76	$	6,634	$	3,787	$	14,917	$	10,189

	Unrecognized Compensation Cost		Weighted Average Remaining Amortization Period (Years)
Employee options	$	4,664		3.5
Nonemployee options		7		1.0
Total unrecognized stock-based compensation expense	$	4,671


	Three and Nine Months Ended September 30,
	2023		2022
Stock options to purchase common stock		13,331,911		9,552,954
Restricted stock units subject to future vesting		304,546		438,415
Total		13,636,457		9,991,369

	Three and Six Months ended June 30,
	2018		2017
Redeemable convertible preferred stock on an if converted basis		—		11,334,414
Stock options to purchase common stock		2,177,666		734,663
Common stock subject to future vesting		190,680		357,190
Total		2,368,346		12,426,267

	Three Months Ended June 30,
(dollars in thousands)	2018			2017			$ Change
Operating expenses:
Research and development	$	5,228		$	1,445		$	3,783
General and administrative		1,722			436			1,286
Total operating expenses		6,950			1,881			5,069
Loss from operations		(6,950	)		(1,881	)		(5,069	)
Interest income		175			1			174
Net loss	$	(6,775	)	$	(1,880	)	$	(4,895	)