kros-20230630

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 June 30, 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 July 28, 2023, there were 29,663,192 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	29
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	83
Item 3.	Defaults Upon Senior Securities	84
Item 4.	Mine Safety Disclosures	84
Item 5.	Other Information	84
Item 6.	Exhibits	85
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 data from our ongoing Phase 2 clinical trial for KER-047 in MDS and myelofibrosis patients with functional iron deficiency;

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

▪the timing of commencement of our open-label Phase 2 biomarker clinical trial of KER-012 in patients with chronic heart failure with preserved ejection fraction and in such patients with reduced ejection fraction;

▪the timing of commencement of our Phase 1 clinical trial of KER-065 in healthy volunteers;

▪risks associated with public health crises, 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 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, KER-065 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 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)


	JUNE 30, 2023		DECEMBER 31, 2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	322,026	$	279,048

Prepaid expenses and other current assets	12,282		6,719


Total current assets	334,308		285,767
Operating lease right-of-use assets	16,010		15,548
Property and equipment, net	3,087		2,021
Restricted cash	1,327		1,327
Other long-term assets	$	1,574	$	2,118
TOTAL ASSETS	$	356,306	$	306,781
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	4,146	$	3,339
Current portion of operating lease liabilities	—		455
Accrued expenses and other current liabilities	11,949		12,753
Total current liabilities	16,095		16,547
Operating lease liabilities, net of current portion	13,951		12,811


Total liabilities	30,046		29,358

STOCKHOLDERS' EQUITY:
Common stock, par value of $0.0001 per share; 200,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 29,661,005 and 27,543,453 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	3		2
Additional paid-in capital	628,000		505,855
Accumulated deficit	(301,743)		(228,434)
Total stockholders' equity	326,260		277,423
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	356,306	$	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 JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2023		2022		2023		2022



OPERATING EXPENSES:
Research and development	(32,534)		(23,281)		(63,625)		(41,359)
General and administrative	(8,803)		(7,447)		(16,581)		(13,495)
Total operating expenses	(41,337)		(30,728)		(80,206)		(54,854)
LOSS FROM OPERATIONS	(41,337)		(30,728)		(80,206)		(54,854)
OTHER INCOME (EXPENSE), NET
Interest expense, net	—		—		—		(1)
Research and development incentive income	—		3,376		—		3,376

Other income, net	3,832		86		6,897		27
Total other income, net	3,832		3,462		6,897		3,402


Net loss	$	(37,505)	$	(27,266)	$	(73,309)	$	(51,452)
Net loss attributable to common stockholders—basic and diluted (Note 8)	$	(37,505)	$	(27,266)	$	(73,309)	$	(51,452)
Net loss per share attributable to common stockholders—basic and diluted	$	(1.27)	$	(1.13)	$	(2.53)	$	(2.14)
Weighted-average common stock outstanding—basic and diluted	29,602,458		24,053,977		28,989,361		24,024,004

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

Exercise of common stock options	112,356			1,740				1,740
Stock-based compensation				7,041				7,041
Net loss				—		(37,505)		(37,505)
As of June 30, 2023	29,661,005	$	3	$	628,000	$	(301,743)	$	326,260

	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
Issuance of common stock, net of underwriting discounts, commissions and offering costs of $153	355,425			$	9,684			$	9,684
Exercise of common stock options	70,854			$	502			$	502
Stock-based compensation		$	—	$	4,794			$	4,794
Net loss				$	—	$	(27,266)	$	(27,266)
As of June 30, 2022	24,429,382	$	2	$	386,413	$	(175,207)	$	211,208

See notes to condensed consolidated financial statements.

KEROS THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	SIX MONTHS ENDED JUNE 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(73,309)	$	(51,452)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	358		421
Loss on disposal of fixed asset	4		—
Stock-based compensation expense	12,728		9,182

Non-cash lease expense	876		409
Changes in operating assets and liabilities:
Accounts receivable	—		18,000

Prepaid expenses and other current assets	(5,563)		(3,338)

Accounts payable	752		3,991
Right-to-use assets and operating lease liabilities	(109)		(1,008)

Accrued expenses and other current liabilities	(804)		(222)

Net cash used in operating activities	(65,067)		(24,017)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(1,373)		(714)
Net cash used in investing activities	(1,373)		(714)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of offering cost	107,308		9,690



Proceeds from exercise of stock options	2,110		620
Net cash provided by financing activities	109,418		10,310

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	42,978		(14,421)
Cash, cash equivalents and restricted cash at beginning of period	280,375		231,369
Cash, cash equivalents and restricted cash at end of period	$	323,353	$	216,948

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	$	55	$	24
Issuance cost in accrued expenses	$	—	$	6

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


	JUNE 30,
	2023		2022
Cash and cash equivalents	$	322,026	$	215,621
Restricted cash	1,327		1,327
Total cash, cash equivalents and restricted cash	$	323,353	$	216,948

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 developing and commercializing novel therapeutics to treat a wide range of patients with disorders that are linked to dysfunctional signaling of the transforming growth factor-beta (“TGF-ß”) family of proteins.

The Company’s lead protein therapeutic product candidate, KER-050, is an engineered ligand trap comprised of a modified ligand-binding domain of the 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.

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.

The Company's fourth product candidate, KER-065, is designed to bind to and inhibit TGF-ß ligands, including myostatin (GDF8) and activin A, which are negative regulators of muscle and bone mass and strength. KER-065 is being developed for the treatment of neuromuscular diseases, with an initial focus on Duchenne muscular dystrophy.

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 $322.0 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 June 30, 2023 and for the three and six months ended June 30, 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 six months ended June 30, 2023.

Risks and Uncertainties

There have been significant disruptions to global financial markets that have contributed to a general global economic slowdown. While recent trends towards rising inflation have eased prices continue to rise, which 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 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 or higher interest rates have 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 rise more quickly) 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	JUNE 30, 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	$	319,101	$	319,101	$	—	$	—
Total financial assets	$	319,101	$	319,101	$	—	$	—


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 six months ended June 30, 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):


	JUNE 30, 2023		DECEMBER 31, 2022
Prepaid service contracts	$	8,477	$	3,319

Prepaid sales tax	181		872
Prepaid rent	—		96

Prepaid subscription	777		470
Prepaid insurance	1,507		941
Interest and dividend receivable	964		841
Other	376		180
Total prepaid expenses and other current assets	$	12,282	$	6,719

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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


	JUNE 30, 2023		DECEMBER 31, 2022
Accrued external R&D costs	$	3,260	$	2,429
Accrued external manufacturing costs	3,814		4,240
Accrued compensation and benefits	4,078		4,811
Accrued tax	20		50
Accrued professional fees	367		523
Other	410		700
Total accrued expenses and other current liabilities	$	11,949	$	12,753

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

6. COMMON STOCK

As of June 30, 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 (doing business as Leerink Partners LLC) (“Leerink”), as agent, pursuant to which the Company may offer and sell, from time to time, shares of its common stock through Leerink (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 six months ended June 30, 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 June 30, 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 June 30, 2023, there was an aggregate of 557,492 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 June 30, 2023, there was an aggregate of 3,894,030 shares of common stock issuable upon the exercise of outstanding options under the 2020 Plan. Additionally, there were an aggregate of 1,029,137 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 six months ended June 30, 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	1,161,395	51.69
Exercised	(126,625)	16.66
Cancelled or Forfeited	(108,649)	45.42
Expired	(7,768)	$	55.92
Outstanding as of June 30, 2023	4,451,522	$	35.82

Options exercisable as of June 30, 2023	2,124,360	$	23.84

The weighted-average grant date fair value price per share of options granted during the six months ended June 30, 2023 and 2022 was $36.96 and $32.17, respectively. As of June 30, 2023, there was $71.1 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 2.7 years.

The aggregate intrinsic value of the stock options outstanding and stock options exercisable was $50.1 million and $43.8 million as of June 30, 2023, respectively. The aggregate intrinsic value of stock options exercised was $3.7 million and $4.0 million during the six months ended June 30, 2023 and 2022, respectively.

Stock-Based Compensation Expense

Total stock-based compensation expense recorded for employees, directors and non-employees during the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):


	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2023		2022		2023		2022
Research and development	$	3,363	$	2,100	$	6,021	$	3,963
General and administrative	3,678		2,694		6,707		5,219
Total stock-based compensation expense	$	7,041	$	4,794	$	12,728	$	9,182

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 June 30, 2023 and 2022 because including them would have had an anti-dilutive effect:


	JUNE 30, 2023	JUNE 30, 2022
Options to purchase common stock	4,451,522	3,517,353

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 June 30, 2023, the Company has no reasonable certainty that this option to extend will be exercised.

Total lease costs were $1.5 million and $0.4 million for the six months ended June 30, 2023 and 2022, respectively. Cash paid for operating leases was $0.9 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively. The weighted average remaining lease term is 8.4 years at June 30, 2023. The weighted average discount rate is 10.34%.

Maturities of operating lease liabilities at June 30, 2023 are as follows (in thousands):



MATURITY OF LEASE LIABILITY
2023	1,455
2024	2,467
2025	2,542
2026	2,617
2027	2,696
2028	2,777
2029	2,861
2030	2,946
2031	1,243
Total lease payments	21,604
Less: imputed interest	(7,653)
Total operating lease liabilities	$	13,951
Included in the consolidated balance sheet:
Current portion of operating lease liabilities	—
Operating lease liabilities, net of current portion	13,951
Total operating lease liabilities	$	13,951

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 addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Territory.

Pursuant to the Hansoh Agreement, the Company received a one-time, net $18.0 million upfront license payment and will also be eligible to receive up to an aggregate of (i) $26.5 million upon the achievement of specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Territory. If a licensed product is approved for marketing in the Territory, the Company will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) 10 years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly nor indirectly commercialize a competing product in the Territory.

The Hansoh Agreement will continue in force on a region-by-region basis until the expiration of the royalty term. Hansoh may terminate the Agreement in its entirety for convenience, with notice. The Company may terminate the Hansoh Agreement in its entirety for a patent challenge brought by Hansoh or its affiliates or their sublicensees. Either party may terminate the Hansoh Agreement in its entirety (i) if the other party materially breaches the Hansoh Agreement and fails to cure such breach or (ii) upon the bankruptcy of the other party.

The Company evaluated the Hansoh Agreement and concluded that it was subject to ASC 606, as the Company viewed the Hansoh Agreement as a contract with a customer. As such, the Company assessed the terms of the Hansoh Agreement and identified a single performance obligation for the Company to provide Hansoh an exclusive license to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 in the Territory, including the underlying know-how related to such licenses. All other promised goods/services were deemed immaterial in the context of the Hansoh Agreement. Under the Hansoh Agreement, the Company recognized a one-time, upfront license fee of $20.0 million as revenue and $2.0 million in withholding tax expense during the year ended December 31, 2021. The Company received the net payment of $18.0 million during the six months ended June 30, 2022.

The Company will recognize development milestone payments as revenue at the point in time when it is determined that it is probable such milestones will be achieved as all performance obligations will have been satisfied at the point which a milestone might occur (i.e., Hansoh will have assumed all responsibility for the activities under the Hansoh Agreement). The Company will recognize royalty payments and commercial milestone payments as the associated sales of licensed products are recorded by Hansoh, as they predominantly relate to the license granted with the Hansoh Agreement. No milestones have been achieved as of June 30, 2023.

In connection with the Hansoh Agreement, the Company entered into a manufacturing technology transfer agreement (the “Tech Transfer Agreement”) with Hansoh, effective in June 2023. The Tech Transfer Agreement governs the transfer to Hansoh, by the Company of all documents and information required to complete the manufacturing technology transfer. Under the Tech Transfer Agreement, Hansoh is obligated to make certain payments to the Company, at the rates set forth in the Tech Transfer Agreement, as manufacturing technology transfer services are provided over the term of the Tech Transfer Agreement. The Tech Transfer Agreement is set to expire on December 30, 2024, unless extended pursuant to its terms. As of June 30, 2023, no work under the Tech Transfer Agreement has begun.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with (1) our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022, and filed with the Securities and Exchange Commission, or SEC, on March 3, 2023, which we refer to as the Annual Report.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section titled

“Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on developing and commercializing novel therapeutics to treat a wide range of patients with disorders that are linked to dysfunctional signaling of the transforming growth factor-beta, or TGF-ß, family of proteins. We are a leader in understanding the role of the TGF-ß family of proteins, which are master regulators of the growth, repair and maintenance of blood cells and a number of tissues, including bone, skeletal muscle, adipose and heart tissue. By leveraging this understanding, we have discovered and are developing large and small molecules that have the potential to provide meaningful and potentially disease-modifying benefit to patients.

Our lead protein therapeutic product candidate, KER-050, is an engineered ligand trap comprised of a modified ligand-binding domain of the TGF-ß superfamily receptor known as activin receptor type IIA, or ActRIIA, 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, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis. In June 2023, we announced additional data from our ongoing Phase 2 clinical trial evaluating KER-050 for the treatment of anemia and thrombocytopenia in patients with very low-, low-, or intermediate-risk MDS. We expect to complete enrollment in the transfusion-dependent cohorts of this trial in the second half of 2023, and expect to report additional data from Part 2 of the trial in the second half of 2023. Additionally, in December 2022, we announced initial data from our ongoing Phase 2 clinical trial evaluating KER-050 for the treatment of patients with myelofibrosis-associated cytopenias. Following recommendation by the Safety Review Committee, dosing for Cohort 4 of this trial was initiated at 4.5 mg/kg in both combination and monotherapy arms. We expect to announce dose escalation data from and initiate Part 2 of this trial in the second half of 2023.

Our lead small molecule product candidate, KER-047, is designed to selectively and potently inhibit activin receptor-like kinase-2, or ALK2, a TGF-ß superfamily receptor. KER-047 is being developed for the treatment of functional iron deficiency which is a consequence of elevated ALK2 signaling. We have initiated an open-label Phase 2 clinical trial in MDS and myelofibrosis patients with functional iron deficiency, and expect to report initial data from this trial in the first half of 2024.

Our 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). We believe that KER-012 has the potential to increase the signaling of bone morphogenic protein, or BMP, pathways through this inhibition of activin A and activin B signaling, and consequently treat diseases such as pulmonary arterial hypertension, or PAH, that are associated with reduced BMP signaling, including inactivating mutations in the BMP receptors. We are developing KER-012 for the treatment of PAH and for the treatment of cardiovascular disorders, and have initiated a Phase 2 clinical trial evaluating KER-012 in patients with PAH. We expect to dose our first patient in this trial in the third quarter of 2023. We also expect to commence an open-label Phase 2 biomarker clinical trial of KER-012 in patients with chronic heart failure with preserved ejection fraction and in such patients with reduced ejection fraction in the second half of 2023.

Our fourth product candidate, KER-065, is designed to bind to and inhibit TGF-ß ligands, including myostatin (GDF8) and activin A, which are negative regulators of muscle and bone mass and strength. Through inhibition of these TGF-ß ligands, we believe that KER-065 has the potential to induce muscle and bone anabolic effects, increase fat metabolism and reduce fibrosis. Mice treated with KER-065 showed an increase in lean mass, muscle function and bone mineral density. We are developing KER-065 for the treatment of neuromuscular diseases, with an initial focus on Duchenne muscular dystrophy. We plan to progress KER-065 into a Phase 1 clinical trial in healthy volunteers in the first quarter of 2024.

Since our inception in 2015, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including by conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, we have not generated any revenue from product sales as none of our product candidates have been approved for commercialization. We have historically financed our operations primarily through the sale of convertible preferred stock, common stock and cash received from licensing agreements.

2021 ATM Sales Agreement

In May 2021, we entered into a Sales Agreement with SVB Securities LLC (doing business as Leerink Partners LLC), or Leerink, as sales agent, which we refer to as the ATM Sales Agreement, under which we may offer and sell, from time to time, shares of our common stock, or the ATM Shares, through Leerink, which we refer to as the ATM Offering. In May 2021, we filed a registration statement on Form S-3, which we refer to as 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 our common stock under the ATM Sales Agreement. In December 2022, we 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 our common stock under the ATM Sales Agreement. Under the ATM Sales Agreement, Leerink may sell the ATM Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Exchange Act of 1934, as amended. We may sell the ATM Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the ATM Sales Agreement, but we have no obligation to sell any of the ATM Shares in the ATM Offering. For the year ended December 31, 2022, we 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 during 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 six months ended June 30, 2023, we raised additional 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 that period were approximately $107.3 million after deducting sales agent commissions of $1.6 million and offering expenses of less than $0.1 million. As of June 30, 2023, we may offer and sell ATM shares at an aggregate offering price of up to the remaining $141.0 million available under the ATM Offering.

We have incurred recurring operating losses since inception in 2015. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was $37.5 million and $73.3 million for the three and six months ended June 30, 2023, respectively. As of June 30, 2023, we had an accumulated deficit of $301.7 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future in connection with our ongoing activities. As of June 30, 2023, we had cash and cash equivalents of $322.0 million.

Clinical Update

KER-047 Update

We are conducting an open label, two-part Phase 2 clinical trial to evaluate response-guided dose titration of KER-047 in MDS and myelofibrosis patients with functional iron deficiency. The primary objectives of this trial are to assess the safety and tolerability of KER-047. The secondary objectives of this trial are to evaluate the pharmacokinetics, pharmacodynamics and preliminary efficacy of KER-047.

Part 1 of this trial will consist of approximately ten patients who will be dosed for an initial period of 24 weeks. The starting dose regimen of KER-047 will be 30 mg daily in all participants. For the first 12 weeks of treatment, pharmacodynamic and efficacy parameters will be evaluated every week for the first four weeks, then every two weeks starting at Week 5.

After completion of a 28-day dose-limiting toxicity, or DLT, assessment period without a DLT at the same dose level, the investigator will determine whether to continue treatment with the same, a higher, or a lower dose level, based on pharmacodynamic, efficacy and dose reduction parameters according to a prespecified dose titration strategy. While the dose level may not be increased after the start of Week 13, dose levels may be reduced at any time during the treatment period for treatment-related concerns.

We expect to use the data from Part 1 of this trial to determine if Part 2 of this trial will be an expansion cohort or will evaluate an alternate dose titration strategy. Part 2 is expected to involve an additional ten patients, with a dosing period of 24 weeks.

We expect to report initial data from this trial in the first half of 2024.

Preclinical Update

KER-065 Overview and Update

KER-065 is a novel ligand trap comprised of a modified ligand-binding domain derived from ActRIIA and activin receptor type IIB, or ActRIIB, that is fused to the portion of the human antibody known as the Fc domain. KER-065 is designed to act as a ligand trap and inhibit the biological effects of myostatin and activin A, two ligands that signal through activin receptors, to increase skeletal muscle and bone mass, increase fat metabolism and reduce fibrosis. We are developing KER-065 for the treatment of neuromuscular diseases, with an initial focus on Duchenne muscular dystrophy.

Neuromuscular Disease, including Duchenne Muscular Dystrophy

Neuromuscular disease is a broad term that encompasses many diseases that either directly (via intrinsic muscle pathology) or indirectly (via nerve pathology) impair the functioning of muscles. Symptoms of neuromuscular disease include increasing generalized weakness and fatigue, dysphagia, dyspnea on exertion and at rest, sleepiness, morning headache, difficulties with concentration and mood changes. Most neuromuscular diseases are characterized by progressive muscular impairment leading to loss of muscle function and can lead to loss of ambulation, being wheelchair-bound, swallowing difficulties, respiratory muscle weakness and death. Neuromuscular disorders can progress rapidly or slowly. Decline in muscle mass can also be associated with secondary osteoporosis and obesity.

One example of a rapidly progressive condition is Duchenne muscular dystrophy, or DMD, which is the most common form of muscular dystrophy and results in muscle degeneration and premature death. DMD results from the lack of functional dystrophin protein that helps promote myofiber stability, caused by a gene mutation. The lack of dystrophin, an important structural component of muscle cells, causes muscle cells to have increased susceptibility to damage and to progressively die. Additionally, the absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and the replacement of muscle with fibrotic and fatty tissue. The replacement of muscle fibers with fatty and fibrotic tissue leads to progressive loss of muscle strength and function leading to immobility and respiratory and cardiac complications. In DMD patients, heart muscle cells progressively die and are replaced with scar tissue. This cardiomyopathy eventually leads to heart failure, which is currently the leading cause of death among those with DMD. The National Organization for Rare Disorders estimates that approximately one in every 3,500 male births is affected by DMD worldwide. The symptoms of DMD typically manifest in the first few years of life. Patients experience progressive muscle weakness and muscle wasting and have difficulty standing up, climbing stairs, running, breathing and performing daily functions. As the disease progresses, the severity of damage to skeletal and cardiac muscles results in most patients experiencing total loss of ambulation in the pre-teenage or early teenage years. Progressive loss of upper extremity function is often observed in the mid-to-late teens followed by paralysis, respiratory and/or cardiac failure, resulting in early mortality in the third or fourth decade of life.

Reduced muscle strength, loss of ambulation and use of glucocorticoids in DMD contribute to the development of secondary osteoporosis. The most significant clinical complications are bone fragility and higher risk of bone fracture. Additionally, fracture can lead to premature loss of ambulation, which can have a detrimental effect on independent mobility and quality of life.

Decreased mobility along with the use of glucocorticoids are associated with increased risk of obesity and the associated negative health consequences, including type 2 diabetes and cardiovascular disease, in DMD patients.

Limitations of Current Treatment Options for DMD

Glucocorticoids have been the standard of care in DMD and help preserve muscle strength and function, leading to extension of independent ambulation for several years. While glucocorticoids help to maintain muscle function in DMD patients, long-term treatment with them can have significant negative side effects, including fluid retention, hyperglycemia, severe weight gain with fat deposits in the abdomen, face and neck, bone fragility, cataracts, high blood pressure and mood effects, leading many patients to forego long-term treatment. Additionally, glucocorticoid treatment is associated with lean mass loss, an effect mediated by myostatin.

There are four therapies approved by U.S. Food and Drug Administration, or the FDA, related to phosphorodiamidate morpholino oligomers-based oligonucleotide skipping, each addressing a specific exon skipping mutation: casimersen (exon 45), eteplirsen (exon 51), golodirsen (exon 53) and viltolarsen (exon 53). These products have all been approved using the accelerated approval pathway on the basis of dystrophin production. However, the FDA-approved labels for all four drugs state that continued approval may be contingent upon the verification of a clinical benefit in confirmatory clinical trials. A fifth drug, ataluren, has only been conditionally approved outside of the United States in certain territories for nonsense mutations in ambulatory patients with DMD aged five years and older. These therapies require weekly intravenous infusions. Additionally, in June 2023, the FDA accelerated approval of ELEVIDYS, an adeno-associated virus-based gene therapy for the treatment of ambulatory pediatric patients aged four through five years with DMD with a confirmed mutation in the DMD gene. This product was approved using the accelerated approval pathway on the basis of expression of ELEVIDYS micro-dystrophin in patients treated with ELEVIDYS. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory clinical trials.

Based on our preclinical data, we believe that KER-065 has the potential to treat multiple pathophysiologies of DMD by improving muscle and bone strength and reducing fat mass and cardiac fibrosis.

Clinical Development Strategy

We plan to commence a randomized, double-blind, placebo-controlled, two-part Phase 1 clinical trial to evaluate the safety and tolerability of single and multiple ascending doses of KER-065 in healthy volunteers in the first quarter of 2024.

Preclinical Data

We have generated preclinical data that we believe demonstrated proof-of-mechanism of KER-065 for the treatment of neuromuscular diseases, such as DMD. Specifically, in preclinical studies, KER-065:

•showed high affinity for and potent inhibition of ligands involved in the regulation of muscle and bone homeostasis;

•increased muscle mass, muscle function and bone mass in wild-type mice; and

•increased muscle mass, grip strength and trabecular bone in a mouse model of DMD.

KER-065 targeted ligands that signal through ActRIIA and ActRIIB to increase skeletal muscle and bone in preclinical studies

KER-065 is a modified ActRII ligand trap that contains sequences from both wild-type ActRIIB and wild-type ActRIIA. In preclinical studies, KER-065 bound to and inhibited multiple ligands that signal through these cell surface receptors, including activin A and myostatin (GDF8). These ligands are key negative regulators of muscle and bone growth. Consequently, we believe KER-065 has the potential to increase skeletal muscle and bone mass, increase fat metabolism and reduce fibrosis.

Treatment with RKER-065 increased muscle mass and muscle strength in mice

In preclinical studies conducted in wild-type mice, once weekly, intraperitoneal 10 mg/kg dosing of RKER-065, a research version of KER-065, increased lean mass and forelimb grip strength compared to vehicle-treated mice.

Observed Change in Lean Mass

****P value <0.0001

Observed Forelimb Grip Strength

*P value <0.05; ***P value <0.001

Treatment with RKER-065 increased muscle mass, grip strength and trabecular bone in a mouse model of DMD

Additionally, in preclinical studies conducted in the mdx mouse model of DMD, once weekly, intraperitoneal 10 mg/kg dosing of RKER-065 increased lean mass, forelimb grip strength and trabecular bone compared to vehicle-treated mice.

Known Trends, Events and Uncertainties

While recent trends towards rising inflation have eased prices continue to rise, which may also materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and supplies relating to our clinical trials, interest rates and overhead costs may adversely affect our operating results. Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists

suggests that we 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 our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation or higher interest rates have had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates rise more quickly) on our operating costs, including our 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, including as a result of bank failures, and employee availability and wage increases, which may result in additional stress on our working capital resources.

Preclinical and Clinical Development

With respect to preclinical and clinical development, we have taken measures to implement remote and virtual approaches, including remote participant monitoring where possible, to maintain participant safety and trial continuity and to preserve study integrity. For several of our clinical development programs, we are experiencing, and expect to continue to experience, a disruption or delay in our ability to initiate trial sites and enroll and assess participants. As a result of the COVID-19 pandemic, we experienced an impact on our ability to enroll participants in our clinical trials. Additionally, we have experienced and expect to continue to experience an impact on the ability to supply study drug, report trial results or interact with clinicians, investigators, regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations, or CROs, or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner. We could experience significant disruptions to our preclinical and clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Supply Chain

As for our third-party manufacturers, distributors and other partners, we are working closely with them to manage our supply chain activities and mitigate potential disruptions to our clinical supply that continue to persist as a result of the COVID-19 pandemic. We expect to have adequate supply for the development of our product candidates. However, we may experience supply chain constraints in the future due to rising inflation rates as labor costs, material costs and overall research and development costs continue to increase. We do not believe that inflation has had a material impact on our financial position or results of operations to date.

Licensing Agreements

2016 Exclusive Patent License Agreement with The General Hospital Corporation

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, and such agreement was subsequently amended in May 2017 and February 2018. Under the license agreement with MGH, or the MGH Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technical information of MGH, to make, have made, use, have used, sell, have sold, lease, have leased, import, have imported or otherwise transfer licensed products and processes for use in the treatment, diagnosis, palliation and prevention of diseases and disorders in humans and animals. We are required to use commercially reasonable efforts to develop and commercialize licensed products and processes, and must achieve certain required diligence milestones.

Under the terms of the MGH Agreement, we made an initial license payment of $0.1 million in 2016 and reimbursed MGH approximately $0.3 million of prior patent prosecution expenses related to the licensed patents in 2017. We also issued MGH an aggregate of 358,674 shares of our common stock. Additionally, we are required to pay a nominal annual maintenance fee prior to the first commercial sale of our first product or process, a mid-five digit annual maintenance fee after the first commercial sale of our first product or process that is creditable against royalties, certain clinical and regulatory milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $8.6 million in the aggregate, and certain commercial milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $18.0 million in the aggregate. We made payments of $50,000 and $300,000 in 2020 and 2021, respectively, for the achievement of the clinical and regulatory milestones of (i) filing of an IND in the first country and (ii) the completion of a Phase 1 clinical trial, respectively. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits to mid-single digits. The royalty rates are subject to up to a maximum 50% reduction for lack of a valid claim, in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed products, and generic competition. The obligation to pay royalties under the MGH Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of expiry of the last

valid claim of the licensed patents that cover such licensed product in such country and ten years from the first commercial sale of such product in such country. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging in the sub-teen double digits and a change of control fee equal to a low-single digit percentage of the payments received as part of any completed transaction up to a low-seven digit amount.

2021 License Agreement with Hansoh (Shanghai) Healthtech Co., Ltd.

On December 12, 2021, we entered into a license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh. Under the terms of the license agreement with Hansoh, or the Hansoh Agreement, we 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, which we refer to collectively as the Territory.

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of KER-050 from us, 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 addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Territory.

Pursuant to the terms of the Hansoh Agreement, we received a net $18.0 million upfront payment in January 2022. In addition to the upfront payment, we are entitled to receive up to an aggregate of (i) $26.5 million upon the achievement of specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Territory. If a licensed product is approved for marketing in the Territory, we will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) ten years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly or indirectly commercialize a competing product in the Territory.

Effective in June 2023, in connection with the Hansoh Agreement, we entered into a manufacturing technology transfer agreement, or the Tech Transfer Agreement, with Hansoh. The Tech Transfer Agreement governs the transfer to Hansoh of all documents and information required to complete the manufacturing technology transfer. Under the Tech Transfer Agreement, Hansoh is obligated to make certain payments to us, at the rates set forth in the Tech Transfer Agreement, as manufacturing technology transfer services are provided over the term of the Tech Transfer Agreement. The Tech Transfer Agreement is set to expire on December 30, 2024, unless extended pursuant to its terms.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue, and do not expect to generate any revenue in the foreseeable future, from product sales. We have generated revenue solely from research collaborations or licensing of intellectual property. We may in the future generate revenue from other strategic collaborations.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the preclinical and clinical development of our current and potential future product candidates, and include:

▪salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

▪expenses incurred under agreements with third parties, including CROs that conduct research, preclinical and clinical activities on our behalf, as well as contract manufacturing organizations, or CMOs, that manufacture drug product for use in our preclinical studies and clinical trials;

▪license fees incurred in connection with license agreements;

SEC Form 10-Q filed by Keros Therapeutics Inc.