Keros Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Keros is a clinical-stage biopharmaceutical company developing treatments for hematological and musculoskeletal disorders. It has no approved products and has generated no product-sale revenue.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $2.5 million | $0 | $5.0 million |
| Research and development expense | $7.3 million | $4.5 million | $15.8 million | $9.4 million |
| General and administrative expense | $3.7 million | $0.7 million | $5.6 million | $1.1 million |
| Net loss | $10.8 million | $2.9 million | $22.6 million | $6.0 million |
| Net loss per share, basic and diluted | $0.62 | $1.44 | $2.35 | $3.05 |
Revenue in 2019 came from the Novo Nordisk collaboration; all revenue under that agreement had been recognized by December 31, 2019. No product gross margin was reported. Higher operating costs and the absence of collaboration revenue drove the larger year-over-year net losses. Q2 R&D growth primarily reflected KER-050 manufacturing and pipeline-support hiring; higher G&A reflected increased staffing, public-company costs, and directors’ and officers’ insurance.
- Liquidity: Cash and cash equivalents were $144.7 million at June 30, 2020, versus $7.0 million at December 31, 2019. Current assets were $148.5 million and current liabilities $8.3 million. Accumulated deficit was $42.3 million.
- Cash flow, six months: Operating cash use was $18.0 million; investing cash use was $0.2 million; financing provided $155.9 million. Cash, cash equivalents and restricted cash increased by $137.7 million to $144.8 million.
- Capital raises: April IPO proceeds were approximately $100.1 million net. The Series C financing generated $56.0 million gross proceeds; it converted to common stock when the IPO closed. Preferred stock was fully converted and none remained outstanding at quarter-end.
- Debt and leases: The filing reports no debt subject to variable interest rates. Operating lease liabilities totaled approximately $1.1 million, including current and long-term portions.
Material changes and developments
- Compared with Q2 2019, quarterly revenue fell by $2.5 million to zero, while operating expenses rose from $5.2 million to $10.9 million. Six-month net loss increased to $22.6 million from $6.0 million.
- The IPO materially strengthened the balance sheet and converted preferred shares into common stock. Common shares outstanding were 20,158,080 at June 30; 20,172,546 were reported outstanding as of August 7.
- Preferred-stock tranche-obligation fair-value expense was $1.5 million for the first half of 2020; the obligation was settled in March. The filing records the settlement as a capital contribution.
Outlook, commentary, and risks
- Pipeline plans: Keros planned to start a KER-050 Phase 2 trial in MDS in the second half of 2020 and a myelofibrosis Phase 2 trial in 2021. It expected to expand KER-047 Phase 1 testing by two cohorts and start Phase 2 trials in IRIDA/elevated-hepcidin anemia and FOP in the first half of 2021. A KER-012 Phase 1 trial was planned for the second half of 2021.
- KER-047 update after quarter-end: On August 4, 2020, the company announced completion of planned Phase 1 dose cohorts. It reported no serious adverse events, but observed dose-related lymphocyte decreases at the highest doses and other adverse events, including gastrointestinal symptoms and liver-enzyme increases. Hepcidin reductions and increases in serum iron and reticulocyte hemoglobin were reported. These are early findings, and further cohorts were planned.
- Runway statements differ: The financial-statement and liquidity discussion says existing cash should fund operations for at least the next 12 months; the risk factors section estimates funding into the second half of 2022. Both are management estimates subject to assumptions, and the filing does not reconcile the difference.
- COVID-19: Keros reported limited financial impact to date but anticipated possible delays in trial initiation, enrollment, assessment, supply, and regulatory interactions. It used remote work and limited laboratory staffing; longer disruption could materially affect development schedules and access to capital.
- Key risks: Continued operating losses and future financing needs; early-stage clinical and regulatory uncertainty; reliance on third-party manufacturers and CROs, including single-source manufacturing for KER-050 and KER-047; competition; intellectual-property and licensing exposure; and dependence on Australian R&D incentives. The company said it had no material legal proceedings and no material changes to contractual obligations during the period.
Important facts for investors to verify
- Clarify the basis for the differing cash-runway estimates and track cash burn against the stated clinical-development plans.
- Review complete KER-047 Phase 1 results, including the significance and follow-up of lymphocyte decreases and liver-enzyme increases.
- Confirm whether planned KER-050 and KER-047 trials began on schedule and assess COVID-19 effects on enrollment, sites, and drug supply.
- Monitor R&D spending, future financing requirements, and potential dilution from equity awards or additional capital raises.
- Track manufacturing continuity, regulatory acceptance of trials conducted outside the United States, and progress under Novo Nordisk and other license agreements.