Keros Therapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited consolidated results include Keros and its wholly owned Australian subsidiary. Keros is a clinical-stage biopharmaceutical company and had no approved products or product-sale revenue. Financial amounts below are in U.S. dollars.
Financial and liquidity highlights
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $0 | $2.5 million, from the Novo Nordisk collaboration; all contract revenue had been recognized by December 31, 2019 |
| Research and development expense | $8.5 million | $4.9 million; increased $3.7 million, primarily for KER-050 and KER-047 development |
| General and administrative expense | $2.0 million | $0.5 million; increase primarily reflected IPO-related professional fees and personnel costs |
| Operating loss | $10.5 million | $2.9 million |
| Net loss | $11.9 million | $3.2 million |
| Net loss attributable to common stockholders per share | $5.11 | $1.61; amounts reflect the March 31, 2020 reverse stock split |
| Operating cash flow | $(8.1) million | $(2.5) million |
| Cash and cash equivalents at period end | $54.5 million | $7.0 million at December 31, 2019 |
| Total assets / total liabilities at period end | $60.6 million / $9.7 million | Stockholders’ deficit was $24.9 million |
Cash and cash equivalents plus restricted cash totaled $54.6 million at March 31, 2020. Q1 financing cash flow was $55.8 million, principally from the March Series C preferred-stock financing; investing cash outflow was $0.2 million. The company reported no debt subject to variable interest rates; lease liabilities remained on the balance sheet. Product margins were not applicable because there were no product sales.
Material changes and significant transactions
- Revenue fell by $2.5 million year over year as the two-year Novo Nordisk collaboration revenue had been fully recognized by the end of 2019.
- R&D costs rose 75% to $8.5 million, led by KER-050 manufacturing, Phase 1 advancement and Phase 2 MDS trial start-up, as well as KER-047 Phase 1 work. G&A expense rose to $2.0 million, including higher IPO preparation costs.
- In March, Keros issued 4,169,822 Series C preferred shares for $56.0 million gross proceeds (approximately $55.8 million net). The associated preferred-stock tranche obligation was remeasured, producing $1.5 million of expense, then settled; the $6.4 million settlement was recorded as a capital contribution.
- After quarter end, on April 13, 2020, Keros completed its IPO of 6.9 million shares at $16.00 per share, receiving approximately $99.8 million net proceeds. Preferred shares converted into 10,725,129 common shares at the IPO closing. The IPO is a subsequent event and is not reflected in the March 31 balance sheet.
- A one-for-2.1703 reverse stock split was effected March 31, 2020; share and per-share figures were retroactively adjusted.
Outlook, management commentary and risks
- Management expected cash on hand at March 31 plus IPO proceeds to fund operations for at least 12 months; the risk-factor discussion estimated funding into the second half of 2022. These are estimates dependent on assumptions, and the company cautioned that it could use capital sooner than expected.
- Management expected operating losses and negative operating cash flows to continue, with expenses increasing as clinical programs advance. KER-050 Phase 2 in MDS was planned for the second half of 2020 and in myelofibrosis for 2021. KER-047 Phase 1 completion was expected in mid-2020, with data in the second half of 2020; Phase 2 trials were planned for the first half of 2021. KER-012 Phase 1 was planned for the second half of 2021.
- COVID-19 had partially affected operations: administrative staff worked remotely and laboratory staffing was limited. Management anticipated possible delays to trial-site initiation, enrollment, monitoring, assessment and supply, and warned that prolonged disruption could affect development timelines and access to capital. It expected adequate product-candidate supply at the time of filing, while noting uncertainty.
- The company remained dependent on additional financing in the longer term and had no committed external funding source. Failure to raise capital could require delaying, reducing or discontinuing programs.
- Other key risks include early-stage clinical and regulatory uncertainty, dependence on third-party manufacturers and CROs (including single-source suppliers for KER-050 and KER-047), competition, intellectual-property and licensing risks, and the lack of commercialization infrastructure. Keros reported no material legal proceedings. Management concluded disclosure controls were effective as of March 31, 2020.
Important facts for investors to verify
- Confirm post-IPO cash, cash runway and subsequent spending against the company’s stated second-half-2022 funding estimate.
- Track whether COVID-19 or other factors changed the stated clinical-trial start, completion, enrollment or data-readout timelines.
- Assess the scale and drivers of continuing R&D spending and operating cash burn now that collaboration revenue has ended.
- Review the terms and dilution implications of the IPO, preferred-stock conversion, outstanding equity awards and any future financing.
- Monitor manufacturing continuity, CRO performance, regulatory acceptance of trials conducted in Australia, and any material changes to clinical or safety findings.