kros-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________

FORM 10-Q

________________________________________

(Mark One)


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

For the quarterly period ended March 31, 2023


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

For the transition period from to

Commission File Number: 001-39264

________________________________________

KEROS THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

________________________________________


Delaware		81-1173868
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
1050 Waltham Street,	Suite 302	02421
Lexington,	Massachusetts
(Address of principal executive offices)		(Zip Code)

Tel: (617) 314-6297

(Registrant's telephone number, including area code)

________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

KROS

The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted 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 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.

Large Accelerated Filer

☐

Accelerated Filer

☑

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☑

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 April 27, 2023, there were 29,584,173 outstanding shares of the registrant's common stock, par value $0.0001 per share.

TABLE OF CONTENTS


		Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		2
SPECIAL NOTE REGARDING COMPANY REFERENCES		3
SPECIAL NOTE REGARDING TRADEMARKS		3
SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS		4

PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25

PART II.	OTHER INFORMATION	25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	78
Item 6.	Exhibits	79
Signatures

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about:

▪the timing of completion of enrollment and announcement of additional data for our ongoing Phase 2 clinical trial for our lead protein therapeutic product candidate, KER-050, in patients with myelodysplastic syndromes, or MDS;

▪the timing of announcement of additional data from our ongoing Phase 2 clinical trial for KER-050 in patients with myelofibrosis-associated cytopenias;

▪the timing of announcement of additional data from our ongoing Phase 2 clinical trial for our lead small molecule product candidate, KER-047, in patients with iron-refractory iron deficiency anemia;

▪the timing of initiation of, and announcement of data from, our Phase 2 clinical trial for KER-047 in MDS and myelofibrosis patients with functional iron deficiency;

▪the timing of initiation of our Phase 2 clinical trial for our third product candidate, KER-012, in patients with pulmonary arterial hypertension;

▪the timing of initiation of our open-label Phase 2 biomarker clinical trial of KER-012;

▪risks associated with public health crises, such as the COVID-19 pandemic, which may adversely impact our business, preclinical studies and clinical trials;

▪our ability to receive the required regulatory approvals and clearances to successfully market and sell our products, if approved in the United States and certain other countries;

▪our ability to successfully advance our pipeline of additional product candidates;

▪our ability to develop sales and marketing capabilities;

▪the rate and degree of market acceptance of any products we are able to commercialize;

▪the effects of increased competition as well as innovations by new and existing competitors in our market;

▪our ability to obtain funding for our operations;

▪our ability to establish and maintain collaborations;

▪our ability to effectively manage our anticipated growth;

▪our ability to maintain, protect and enhance our intellectual property rights and proprietary technologies;

▪our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

▪costs associated with defending intellectual property infringement, product liability and other claims;

▪regulatory developments in the United States, Australia, New Zealand, Europe, the United Kingdom, South Korea and other foreign countries;

▪our ability to attract and retain qualified employees;

▪our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012;

▪statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance; and

▪the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.

In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not

be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

SPECIAL NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “Keros,” the “Company,” “we,” “us” and “our” refer to Keros Therapeutics, Inc. and its subsidiaries.

SPECIAL NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Some of the more significant risks include the following:

•We have a limited operating history, have incurred net losses in every year since our inception and anticipate that we will continue to incur net losses in the future.

•We will need substantial additional funding in order to complete the development and commence commercialization of our product candidates. Failure to obtain this necessary capital when needed may force us to delay, reduce or eliminate certain of our product development or research operations.

•We are heavily dependent on the success of our product candidates, which are in clinical development. If we are unable to advance our current or future product candidates through clinical trials, obtain marketing approval and ultimately commercialize any product candidates we develop, or experience significant delays in doing so, our business will be materially harmed.

•All of our product candidates are in preclinical or clinical development stages. Clinical trials are difficult to design and implement, and they involve a lengthy and expensive process with uncertain outcomes. We may experience delays in completing, or ultimately be unable to complete, the development and commercialization of KER-050, KER-047, KER-012 or any future product candidates.

•If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.

•We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

•Our success depends in part on our ability to protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.

•We rely, and expect to continue to rely, on third parties, including independent clinical investigators, contracted laboratories and contract research organizations, to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.

•We rely on third parties to supply and manufacture our product candidates, and we expect to continue to rely on third parties to manufacture our products, if approved. The development of such product candidates and the commercialization of any products, if approved, could be stopped, delayed or made less profitable if any such third party fails to provide us with sufficient quantities of product candidates or products or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.

•Our future collaborations will be important to our business. If we are unable to enter into new collaborations, or if these collaborations are not successful, our business could be adversely affected.

•Public health crises, such as the COVID-19 pandemic, could adversely impact our business, including the timing or results of our preclinical studies and clinical trials.

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (unaudited)

KEROS THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	MARCH 31, 2023		DECEMBER 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	351,429	$	279,048

Prepaid expenses and other current assets	10,793		6,719


Total current assets	362,222		285,767
Operating lease right-of-use assets	16,364		15,548
Property and equipment, net	2,933		2,021
Restricted cash	1,327		1,327
Other long-term assets	$	1,590	$	2,118
TOTAL ASSETS	$	384,436	$	306,781
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,682	$	3,339
Current portion of operating lease liabilities	—		455
Accrued expenses and other current liabilities	10,776		12,753
Total current liabilities	15,458		16,547
Operating lease liabilities, net of current portion	13,994		12,811


Total liabilities	29,452		29,358

STOCKHOLDERS' EQUITY:
Common stock, par value of $0.0001 per share; 200,000,000 shares authorized as of March 31, 2023 and December 31, 2022, respectively; 29,548,649 and 27,543,453 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	3		2
Additional paid-in capital	619,219		505,855
Accumulated deficit	(264,238)		(228,434)
Total stockholders' equity	354,984		277,423
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	384,436	$	306,781

See notes to condensed consolidated financial statements.

KEROS THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)


	THREE MONTHS ENDED MARCH 31,
		2023		2022



OPERATING EXPENSES:
Research and development		(31,091)		(18,078)
General and administrative		(7,778)		(6,048)
Total operating expenses		(38,869)		(24,126)
LOSS FROM OPERATIONS		(38,869)		(24,126)
OTHER INCOME (EXPENSE), NET
Interest expense, net		—		(1)


Other income (expense), net		3,065		(59)
Total other income (expense), net		3,065		(60)


Net loss		$	(35,804)	$	(24,186)
Net loss attributable to common stockholders—basic and diluted (Note 8)		$	(35,804)	$	(24,186)
Net loss per share attributable to common stockholders—basic and diluted		$	(1.26)	$	(1.01)
Weighted-average common stock outstanding—basic and diluted		28,369,453		23,993,698

See notes to condensed consolidated financial statements.

KEROS THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share data)

(Unaudited)



	COMMON STOCK $0.0001 PAR VALUE			ADDITIONAL PAID-IN CAPITAL		ACCUMULATED DEFICIT		TOTAL STOCKHOLDERS’ EQUITY

	SHARES	AMOUNT
As of December 31, 2022	27,543,453	$	2	$	505,855	$	(228,434)	$	277,423
Issuance of common stock under the ATM agreement, net of commissions and offering cost of $1,665	1,990,927	1		107,307		—		107,308
Exercise of common stock options	14,269	—		370		—		370
Stock-based compensation	—	—		5,687		—		5,687
Net loss	—	—		—		(35,804)		(35,804)
As of March 31, 2023	29,548,649	$	3	$	619,219	$	(264,238)	$	354,984

	COMMON STOCK $0.0001 PAR VALUE			ADDITIONAL PAID-IN CAPITAL		ACCUMULATED DEFICIT		TOTAL STOCKHOLDERS’ EQUITY

	SHARES	AMOUNT
As of December 31, 2021	23,974,834	$	2	$	366,927	$	(123,755)	$	243,174
Exercise of common stock options	28,269	—		118		—		118
Stock-based compensation	—	—		4,388		—		4,388
Net loss	—	—		—		(24,186)		(24,186)
As of March 31, 2022	24,003,103	$	2	$	371,433	$	(147,941)	$	223,494

See notes to condensed consolidated financial statements.

KEROS THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	THREE MONTHS ENDED MARCH 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(35,804)	$	(24,186)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	167		113
Loss on disposal of fixed asset	4		—
Stock-based compensation expense	5,687		4,388

Non-cash lease expense	522		203
Changes in operating assets and liabilities:
Accounts receivable	—		18,000

Prepaid expenses and other current assets	(4,074)		764

Accounts payable	1,322		(668)
Right-to-use assets and operating lease liabilities	(82)		(402)

Accrued expenses and other current liabilities	(1,977)		361

Net cash used in operating activities	(34,235)		(1,427)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(1,062)		(147)
Net cash used in investing activities	(1,062)		(147)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of offering cost	107,308		—



Proceeds from exercise of stock options	370		118
Net cash provided by financing activities	107,678		118

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	72,381		(1,456)
Cash, cash equivalents and restricted cash at beginning of period	280,375		231,369
Cash, cash equivalents and restricted cash at end of period	$	352,756	$	229,913

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Right-of-use assets obtained in exchange for operating lease obligation	$	1,338	$	—
Property and equipment purchases in accounts payable	$	21	$	87

The following table provides a reconciliation of the ending cash, cash equivalents and restricted cash as of each of the periods shown above:


	MARCH 31,
	2023		2022
Cash and cash equivalents	$	351,429	$	228,586
Restricted cash	1,327		1,327
Total cash, cash equivalents and restricted cash	$	352,756	$	229,913

See notes to condensed consolidated financial statements.

KEROS THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Keros Therapeutics, Inc. (“Keros” or the “Company”) was incorporated in 2015 as a Delaware corporation. Its principal offices are in Lexington, Massachusetts. The Company is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel treatments for patients suffering from hematological, pulmonary and cardiovascular disorders with high unmet medical need.

The Company’s lead protein therapeutic product candidate, KER-050, is an engineered ligand trap comprised of a modified ligand-binding domain of the transforming growth factor-beta (“TGF-ß”) receptor known as activin receptor type IIA that is fused to the portion of the human antibody known as the Fc domain. KER-050 is being developed for the treatment of low blood cell counts (“cytopenias”), including anemia and thrombocytopenia, in patients with myelodysplastic syndromes (“MDS”) and in patients with myelofibrosis.

The Company’s lead small molecule product candidate, KER-047, is designed to selectively and potently inhibit activin receptor-like kinase-2 (“ALK2”), a TGF-ß receptor. KER-047 is being developed for the treatment of functional iron deficiency which is a consequence of elevated ALK2 signaling, including the Company’s initial target, iron-refractory iron deficiency anemia (“IRIDA”).

The Company’s third product candidate, KER-012, is designed to bind to and inhibit the signaling of TGF-ß ligands that stimulate smooth muscle hypertrophy and fibrosis, including activin A, activin B and myostatin (GDF8). KER-012 is being developed for the treatment of pulmonary arterial hypertension (“PAH”) and for the treatment of cardiovascular disorders.

Since its inception in 2015, the Company has devoted the majority of its resources to business planning, research and development of its product candidates, including conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, the Company has not generated any revenue from product sales as none of its product candidates have been approved for commercialization.

In May 2021, the Company filed a registration statement on Form S-3, which was automatically effective upon filing (the "Shelf Registration Statement"). Pursuant to the Shelf Registration Statement, the Company could issue up to $150.0 million in common stock in sales deemed to be an “at the market offering,” as defined by the Securities Act of 1933, as amended (“Securities Act”), and, so long as the Company qualifies as a “well-known seasoned issuer” as defined in Rule 405 of the Securities Act, an unspecified amount of shares of the Company common stock, preferred stock, debt securities and warrants. In December 2022, the Company filed a prospectus supplement to the Shelf Registration Statement for the issuance and sale, if any, of up to an additional $250.0 million in common stock in sales deemed to be an “at the market offering,” as defined by the Securities Act.

Liquidity and Capital Resources

The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Management believes that the Company’s existing $351.4 million in cash and cash equivalents will allow the Company to continue its operations for at least the next 12 months. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. If the Company is unable to obtain additional funding, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

The accompanying unaudited interim condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate. These unaudited interim condensed consolidated financial statements should be read in

conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 3, 2023 (the “Annual Report”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the unaudited interim condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Annual Report. Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.

Risks and Uncertainties

Recent trends towards rising inflation may materially affect the Company's business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and supplies relating to the Company's clinical trials, interest rates and overhead costs may adversely affect its operating results. Rising interest rates impacting the U.S. economy also present a recent challenge impacting the U.S. economy and could make it more difficult for the Company to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists suggests that the Company should expect a higher recession risk to continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect the Company's operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although the Company does not believe that inflation has had a material impact on its financial position or results of operations to date, the Company may experience increases in the near future (especially if inflation rates continue to rise) on its operating costs, including its labor costs and research and development costs, due to supply chain constraints, consequences associated with public health crises and global geopolitical tensions as a result of the ongoing war between Russia and Ukraine, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on the Company's working capital resources.

3. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):


DESCRIPTION	MARCH 31, 2023		QUOTED PRICES ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 3)
Assets
Money market funds	$	346,660	$	346,660	$	—	$	—
Total financial assets	$	346,660	$	346,660	$	—	$	—


DESCRIPTION	DECEMBER 31, 2022		QUOTED PRICES ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 3)
Assets
Money market funds	$	271,734	$	271,734	$	—	$	—
Total financial assets	$	271,734	$	271,734	$	—	$	—

There have been no transfers between fair value levels during the three months ended March 31, 2023. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in thousands):


	MARCH 31, 2023		DECEMBER 31, 2022
Prepaid service contracts	$	8,040	$	3,319

Prepaid sales tax	92		872
Prepaid rent	—		96

Prepaid subscription	847		470
Prepaid insurance	154		941
Interest and dividend receivable	1,145		841
Other	515		180
Total prepaid expenses and other current assets	$	10,793	$	6,719

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in thousands):


	MARCH 31, 2023		DECEMBER 31, 2022
Accrued external R&D costs	$	2,136	$	2,429
Accrued external manufacturing costs	5,179		4,240
Accrued compensation and benefits	2,761		4,811
Accrued tax	50		50
Accrued professional fees	389		523
Other	261		700
Total accrued expenses and other current liabilities	$	10,776	$	12,753

Accrued compensation and benefits consisted primarily of accrued payroll and accrued vacation.

6. COMMON STOCK

As of March 31, 2023, the Company’s amended and restated certificate of incorporation authorized the Company to issue 200,000,000 shares of common stock at a par value of $0.0001 per share.

On May 3, 2021, the Company entered into a Sales Agreement (the “ATM Sales Agreement”) with SVB Securities LLC (formerly SVB Leerink LLC) (“SVB Securities”), as agent, pursuant to which the Company may offer and sell, from time to time, shares of its common stock through SVB Securities (the "ATM Offering"). On May 3, 2021, the Company filed the Shelf Registration Statement, including a base prospectus and sales agreement prospectus, with the SEC, which became effective immediately upon filing, for the issuance and sale of up to $150.0 million of shares of the Company’s common stock under the ATM Sales Agreement. On December 12, 2022, the Company filed a prospectus supplement to the Shelf Registration Statement for the issuance and sale, if any, of up to an additional $250.0 million of shares of its common stock under the ATM Sales Agreement.

For the year ended December 31, 2022, the Company raised gross proceeds of $121.4 million pursuant to the ATM Offering through the sale of 3,410,384 shares of common stock at a weighted average price of $35.60 per share. The net proceeds from the ATM Offering for the year ended December 31, 2022 were approximately $119.4 million after deducting sales agent commissions of $1.8 million and offering expenses of $0.2 million.

During the three months ended March 31, 2023, the Company raised gross proceeds of $109.0 million pursuant to the ATM Offering through the sale of 1,990,927 shares of common stock at a weighted average price of $54.74 per share. The net proceeds from the ATM Offering during this period were approximately $107.3 million after deducting sales agent commissions of $1.6 million and offering expense of less than $0.1 million. As of March 31, 2023, the Company was eligible to offer and sell, from time to time, shares of its common stock for an aggregate offering amount of up to the remaining $141.0 million available under the ATM Offering.

7. STOCK-BASED COMPENSATION

2017 Stock Incentive Plan

The Board adopted the 2017 Stock Incentive Plan (the "2017 Plan") in February 2017, and the stockholders approved the 2017 Plan in March 2017. The 2017 Plan was most recently amended in March 2020.

As of March 31, 2023, there was an aggregate of 582,831 shares of common stock issuable upon the exercise of outstanding options under the 2017 Plan. Any options or awards outstanding under the 2017 Plan remain outstanding and effective.

2020 Equity Incentive Plan

In April 2020, the 2020 Equity Incentive Plan (the "2020 Plan") became effective, and, as a result, no further awards will be made under the 2017 Plan. The 2020 Plan provides for the grant of stock options qualifying as incentive stock options ("ISOs"), to employees and for the grant of nonstatutory stock options ("NSOs"), restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to employees, consultants and directors. The 2020 Plan also provides for the grant of performance cash awards to employees, consultants and directors. Any previously granted awards under the 2017 Plan will remain outstanding in accordance with their respective terms.

Under the 2020 Plan, there is an annual increase on January 1 of each year from January 1, 2021 continuing through January 1, 2030, by 4.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board. On January 1, 2023, the Company increased the number of shares available for future grant under the 2020 Plan by 1,101,738 shares. As of March 31, 2023, there was an aggregate of 3,704,733 shares of common stock issuable upon the exercise of outstanding options under the 2020 Plan. Additionally, there were an aggregate of 1,305,451 shares reserved for future issuance under the 2020 Plan, including shares forfeited from the 2017 Plan.

Stock Options

A summary of option activity during the three months ended March 31, 2023 is as follows (in thousands except share and per share data):


	NUMBER OF OPTIONS	WEIGHTED-AVERAGE EXERCISE PRICE
Outstanding as of December 31, 2022	3,533,169	$	30.26
Granted	826,895	54.36
Exercised	(14,269)	25.87
Cancelled or Forfeited	(55,138)	41.80
Expired	(3,093)	$	48.84
Outstanding as of March 31, 2023	4,287,564	$	34.76

Options exercisable as of March 31, 2023	2,022,137	$	22.29

The weighted-average grant date fair value price per share of options granted during the three months ended March 31, 2023 and 2022 was $39.02 and $33.64, respectively. As of March 31, 2023, there was $69.4 million of unrecognized stock-based compensation expense related to unvested stock options. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 2.87 years.

The aggregate intrinsic value of the stock options outstanding and stock options exercisable was $58.5 million and $48.2 million for the three months ended March 31, 2023, respectively. The aggregate intrinsic value of stock options exercised was $0.4 million and $1.3 million during the three months ended March 31, 2023 and 2022, respectively.

Stock-Based Compensation Expense

Total stock-based compensation expense recorded for employees, directors and non-employees during the three months ended March 31, 2023 and 2022 was as follows (in thousands):


	THREE MONTHS ENDED MARCH 31,
		2023		2022
Research and development		$	2,658	$	1,863
General and administrative		3,029		2,525
Total stock-based compensation expense		$	5,687	$	4,388

8. LOSS PER SHARE

The Company’s potentially dilutive securities, which includes stock options, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following from the computation of diluted net loss per share attributable to common stockholders at March 31, 2023 and 2022 because including them would have had an anti-dilutive effect:


	MARCH 31, 2023	MARCH 31, 2022
Options to purchase common stock	4,287,564	3,373,110

9. COMMITMENTS AND CONTINGENCIES

Operating Leases

Operating lease liabilities are measured based on the present value of future lease payments over the expected remaining lease term. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and are initially equal to their corresponding lease liabilities, subject to certain adjustments such as prepaid lease payments, initial direct costs and lease incentives. When the rate implicit in the lease is not readily determinable, the Company uses an incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate represents the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term at an amount equal to the lease payments in a similar economic environment. The Company estimates this rate based on prevailing market conditions, comparable company and credit analyses, the impact of collateralization, and the term of each of the Company’s lease agreements.

On September 7, 2021, the Company entered into an indenture of lease (as amended, the “1050 Waltham Lease”) with Revolution Labs Owner LLC (the “Landlord”), pursuant to which the Company is leasing approximately 35,662 square feet of office, laboratory and vivarium space located at 1050 Waltham Street, Lexington, Massachusetts (the “Premises”) for its new principal executive office. In December 2022, the Company received access to approximately 31,991 square feet of the Premises (the “Phase A Premises”) pertaining to the office and laboratory space in order to prepare for use. Accordingly, the 1050 Waltham Lease for the Phase A Premises, which is considered a distinct lease component, was determined to be classified as an operating lease and the Company recorded an ROU asset of $15.4 million, inclusive of lease payments made prior to commencement of the 1050 Waltham Lease, and a lease liability of $12.9 million on the consolidated balance sheets as of December 31, 2022.

In January 2023, the Company entered into a first amendment to the 1050 Waltham Lease (the “Lease Amendment”). Under the terms of the Lease Amendment, a phased delivery of the Premises by the Landlord was established as follows: (i) the delivery of the Phase A Premises in January 2023 and (ii) the delivery of the additional approximately 3,671 rentable square feet of vivarium space (the “Phase B Premises”) in March 2023.

As a result of the Lease Amendment, the lease liability for the Phase A Premises was remeasured, resulting in a non-cash decrease to the Company’s operating lease liabilities and ROU assets of $0.5 million in the quarter ended March 31, 2023. Upon delivery of the Phase B Premises in March 2023, the Phase B Premises was determined to be classified as an operating lease and the Company recorded an ROU asset of $1.9 million, inclusive of lease payments made prior to commencement, and a lease liability of $1.4 million on the consolidated balance sheets. Upon delivery of the Phase B Premises, the rent commencement date of the Premises was determined to begin in November 2023, with base rent initially fixed at $0.2 million per month in total for the Premises. Under the 1050 Waltham Lease, base rent will increase by approximately 3% per annum until the 1050 Waltham Lease expires on November 30, 2031. The Company is obligated to reimburse the Landlord for certain variable costs, including its proportional share of taxes and operating expenses which are not included in the measurement of the 1050 Waltham Lease liability. In connection with its entry into the 1050 Waltham Lease, the Company has provided the Landlord a letter of credit in the amount of approximately $1.2 million, which is recognized as restricted cash within other assets on the consolidated balance sheets. The Company has the option to extend the term of the 1050 Waltham Lease for a period of an additional 5 years. As of March 31, 2023, the Company has no reasonable certainty that this option to extend will be exercised.

Total lease costs were $0.8 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. Cash paid for operating leases was $0.5 million and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. The weighted average remaining lease term is 8.7 years at March 31, 2023. The weighted average discount rate is 10.34%.

Maturities of operating lease liabilities at March 31, 2023 are as follows (in thousands):



MATURITY OF LEASE LIABILITY
2023	1,248
2024	2,449
2025	2,523
2026	2,598
2027	2,676
2028	2,757
2029	2,839
2030	2,925
2031	1,988
Total lease payments	22,003
Less: imputed interest	(8,009)
Total operating lease liabilities	$	13,994
Included in the consolidated balance sheet:
Current portion of lease liabilities	—
Lease liabilities	13,994
Total operating lease liabilities	$	13,994

10. REVENUE FROM CONTRACTS WITH CUSTOMERS

Hansoh License Agreement

On December 12, 2021, the Company entered into a license agreement (the “Hansoh Agreement”) with Hansoh (Shanghai) Healthtech Co., Ltd. ("Hansoh"). Under the Hansoh Agreement, the Company granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the territories of mainland China, Hong Kong and Macau (the “Territory”).

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of KER-050 from the Company, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Territory. In add