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, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to (Address of principal executive offices) (Zip Code) Tel: (617) 314-6297 (R ...

| --- | --- | |-----------|-----------------------------------------------------------------------| | | | | | | | | | | Selective | Inhibition of ALK‐2 Signaling Ameliorates Disease in a | | Novel | Model of Iron Refractory Iron Deficiency Anemia (IRIDA) | | | Thomas Backus Natalia Medeiros, Evan Lema, ffolliott | | | , Fisher, Jasbir Seehra, Jennifer Lachey | | | Keros Therapeutics, Lexington MA, USA | | | June 2020 | | | in Focus | | | | | | | Disclosure All listed authors are employees of and shareholder ...

[SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=4&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section clarifies that forward-looking statements are subject to risks and uncertainties, and actual results may differ materially - Forward-looking statements are identified by words like "anticipate," "believe," "expect," and "plan," and cover topics such as clinical trial timing, regulatory approvals, funding, and market acceptance[9](index=9&type=chunk)[10](index=10&type=chunk) - Actual results may differ materially due to various risks and uncertainties, as detailed in the "Risk Factors" section[9](index=9&type=chunk)[11](index=11&type=chunk) [SPECIAL NOTE REGARDING COMPANY REFERENCES](index=5&type=section&id=SPECIAL%20NOTE%20REGARDING%20COMPANY%20REFERENCES) Defines company references such as "Keros," "the Company," "we," "us," and "our" as Keros Therapeutics, Inc. and its subsidiary - "Keros," "the Company," "we," "us," and "our" refer to Keros Therapeutics, Inc. and its subsidiary[14](index=14&type=chunk) [SPECIAL NOTE REGARDING TRADEMARKS](index=5&type=section&id=SPECIAL%20NOTE%20REGARDING%20TRADEMARKS) States that all trademarks, trade names, and service marks within the report belong to their respective owners - All trademarks, trade names, and service marks in this report belong to their respective owners[16](index=16&type=chunk) [PART I. FINANCIAL INFORMATION](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2020 [Item 1. Financial Statements (Unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for Q1 2020 and 2019 - The unaudited interim condensed consolidated financial statements are prepared in conformity with U.S. GAAP and include Keros Therapeutics, Inc. and its wholly-owned Australian subsidiary[29](index=29&type=chunk) - All share and per share amounts have been retroactively adjusted to reflect a **one-for-2.1703 reverse stock split** effected on March 31, 2020[32](index=32&type=chunk) - The financial statements do not give effect to the IPO, which closed subsequent to March 31, 2020[33](index=33&type=chunk) [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the company's financial position, showing significant increases in cash and total assets due to Series C preferred stock issuance Condensed Consolidated Balance Sheets (In thousands) | Metric | March 31, 2020 | December 31, 2019 | Change | | :-------------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $54,518 | $7,020 | +$47,498 | | Total current assets | $58,539 | $8,927 | +$49,612 | | Total assets | $60,592 | $10,955 | +$49,637 | | Total current liabilities | $8,836 | $4,486 | +$4,350 | | Preferred stock tranche liability | $— | $4,956 | -$4,956 | | Total liabilities | $9,737 | $10,460 | -$723 | | Total stockholders' deficit | $(24,867) | $(19,446) | -$5,421 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Reports no revenue for Q1 2020, increased operating expenses, and a higher net loss compared to the prior-year period Condensed Consolidated Statements of Operations (In thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Research collaboration revenue | $— | $2,500 | -$2,500 | | Total revenue | $— | $2,500 | -$2,500 | | Research and development expenses | $(8,527) | $(4,867) | -$(3,660) | | General and administrative expenses | $(1,977) | $(491) | -$(1,486) | | Total operating expenses | $(10,504) | $(5,358) | -$(5,146) | | Loss from operations | $(10,504) | $(2,858) | -$(7,646) | | Change in fair value of preferred stock tranche obligation | $(1,490) | $(604) | -$(886) | | Net loss | $(11,892) | $(3,183) | -$(8,709) | | Net loss per share (basic and diluted) | $(5.11) | $(1.61) | -$(3.50) | [Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Deficit) Outlines changes in preferred stock and stockholders' deficit, primarily reflecting the Series C preferred stock issuance and accumulated deficit growth - Issuance of **4,169,822 shares of Series C convertible preferred stock** for **$55,781 thousand** (net of issuance costs) in Q1 2020[25](index=25&type=chunk) - Accumulated deficit increased from **$(19,650) thousand** at December 31, 2019, to **$(31,542) thousand** at March 31, 2020, primarily due to the net loss[25](index=25&type=chunk) - Settlement of preferred stock tranche liability resulted in a **$6,446 thousand increase** in additional paid-in capital[25](index=25&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Shows increased cash used in operations offset by substantial cash provided by financing activities, leading to a net increase in cash Condensed Consolidated Statements of Cash Flows (In thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | :----- | | Net cash used in operating activities | $(8,120) | $(2,513) | -$(5,607) | | Net cash used in investing activities | $(176) | $— | -$(176) | | Net cash provided by financing activities | $55,794 | $— | +$55,794 | | Net increase in cash, cash equivalents and restricted cash | $47,498 | $(2,513) | +$50,011 | | Cash, cash equivalents and restricted cash at end of period | $54,633 | $20,877 | +$33,756 | - Proceeds from issuance of Series C preferred stock totaled **$56,000 thousand** in Q1 2020[27](index=27&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, fair value measurements, and specific financial line items, including post-period IPO impact [1. NATURE OF BUSINESS AND BASIS OF PRESENTATION](index=10&type=section&id=1.%20NATURE%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) Describes Keros as a clinical-stage biopharmaceutical company with a history of operating losses, funded by preferred stock and collaboration - Keros Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on novel treatments for hematological and musculoskeletal disorders[28](index=28&type=chunk) - The company has not generated revenue from product sales since its inception in 2015 and has funded operations primarily through convertible preferred stock sales and a research collaboration with Novo Nordisk A/S[30](index=30&type=chunk)[31](index=31&type=chunk) - A **one-for-2.1703 reverse stock split** was effected on March 31, 2020, and an IPO was completed on April 13, 2020, raising approximately **$99.8 million net proceeds**, which are not reflected in the March 31, 2020 financial statements[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk) - Management believes existing cash and IPO proceeds will fund operations for at least the next 12 months, but continued viability depends on raising additional capital[34](index=34&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Details the company's accounting policies, the impact of COVID-19, and the treatment of deferred offering costs - No material changes to significant accounting policies occurred during the three months ended March 31, 2020[38](index=38&type=chunk) - The COVID-19 pandemic is expected to impact clinical development timelines, with the company closing its principal office and limiting research laboratory staff[39](index=39&type=chunk) - Deferred IPO costs of approximately **$2.0 million** were capitalized as of March 31, 2020, and were derecognized against IPO proceeds in April 2020[41](index=41&type=chunk) [3. FAIR VALUE MEASUREMENTS](index=12&type=section&id=3.%20FAIR%20VALUE%20MEASUREMENTS) Explains the fair value measurements of financial assets and liabilities, particularly the preferred stock tranche obligation Fair Value Measurements (In thousands) | Description | March 31, 2020 | December 31, 2019 | Fair Value Hierarchy | | :------------------------------ | :------------- | :---------------- | :------------------- | | Money market funds | $50,543 | $4,972 | Level 1 | | Preferred stock tranche obligation | $— | $(4,956) | Level 3 | - The preferred stock tranche obligation was remeasured prior to settlement, resulting in a **$1.5 million increase** in fair value recorded as other expense, net, and was fully settled to **$0** by March 31, 2020[46](index=46&type=chunk)[48](index=48&type=chunk)[50](index=50&type=chunk) [4. PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=14&type=section&id=4.%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) Reports a significant increase in prepaid expenses and other current assets, driven by service contracts and an income tax credit Prepaid Expenses and Other Current Assets (In thousands) | Item | March 31, 2020 | December 31, 2019 | | :-------------------------------- | :------------- | :---------------- | | Prepaid service contracts | $459 | $21 | | Income tax credit receivable | $172 | $— | | Total prepaid expenses and other current assets | $1,197 | $381 | [5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES](index=14&type=section&id=5.%20ACCRUED%20EXPENSES%20AND%20OTHER%20CURRENT%20LIABILITIES) Details a substantial increase in accrued expenses and other current liabilities, mainly due to higher R&D and manufacturing costs Accrued Expenses and Other Current Liabilities (In thousands) | Item | March 31, 2020 | December 31, 2019 | | :------------------------------------ | :------------- | :---------------- | | Accrued external R&D costs | $1,336 | $645 | | Accrued external manufacturing costs | $2,987 | $282 | | Accrued professional fees | $1,034 | $34 | | Total accrued expenses and other current liabilities | $6,022 | $2,022 | [6. CONVERTIBLE PREFERRED STOCK](index=14&type=section&id=6.%20CONVERTIBLE%20PREFERRED%20STOCK) Discusses the March 2020 Series C Preferred Stock issuance and its subsequent conversion to common stock post-IPO - On March 2, 2020, **4,169,822 shares of Series C Preferred Stock** were sold for gross proceeds of **$56.0 million**[53](index=53&type=chunk) Convertible Preferred Stock (In thousands, except share data) | Series | Shares Authorized (March 31, 2020) | Shares Issued & Outstanding (March 31, 2020) | Carrying Value (March 31, 2020) | Liquidation Value (March 31, 2020) | | :----------------------- | :--------------------------------- | :--------------------------------------- | :------------------------------ | :----------------------------- | | Series A | 10,000,000 | 4,607,652 | $9,891 | $12,471 | | Series A-1 | 800,000 | 368,612 | $944 | $1,191 | | Series B-1 | 3,427,004 | 1,579,043 | $9,106 | $12,826 | | Series C | 9,049,783 | 4,169,822 | $55,781 | $56,356 | | **Total** | **26,339,678** | **10,725,129** | **$75,722** | **$82,844** | - Upon IPO closing, all outstanding convertible preferred stock automatically converted into **10,725,129 shares of common stock**[33](index=33&type=chunk) [7. COMMON STOCK](index=15&type=section&id=7.%20COMMON%20STOCK) Outlines the authorized and outstanding common shares, their rights, and shares reserved for conversion and equity plans - As of March 31, 2020, **35,000,000 shares of common stock** were authorized, with **2,491,670 shares issued and outstanding**[60](index=60&type=chunk) - Common stock voting, dividend, and liquidation rights are subject to the rights of preferred stockholders[60](index=60&type=chunk)[61](index=61&type=chunk) Common Stock Reserved (Shares) | Item | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Preferred Stock | 10,725,129 | 6,555,307 | | Unvested restricted stock | 17,278 | 34,557 | | Options to purchase common stock | 1,116,301 | 1,164,017 | | **Total** | **11,858,708** | **7,753,881** | [8. STOCK-BASED COMPENSATION](index=17&type=section&id=8.%20STOCK-BASED%20COMPENSATION) Reports on the amended stock incentive plan, option activity, and the stock-based compensation expense for the period - The 2017 Stock Incentive Plan was amended to increase reserved shares by **921,531** in March 2020[63](index=63&type=chunk) Stock Option Activity (Three Months Ended March 31, 2020) | Metric | Number of Options | Weighted Average Exercise Price | | :-------------------------------- | :---------------- | :------------------------------ | | Outstanding as of Dec 31, 2019 | 1,164,017 | $0.35 | | Exercised | (44,686) | $0.28 | | Expired | (3,030) | $0.16 | | Outstanding as of Mar 31, 2020 | 1,116,301 | $0.36 | Stock-Based Compensation Expense (In thousands) | Category | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $8 | $6 | | General and administrative | $4 | $5 | | **Total** | **$12** | **$11** | [9. INCOME TAXES](index=18&type=section&id=9.%20INCOME%20TAXES) Explains the recognition of an income tax receivable related to the CARES Act for a 2019 net operating loss carryback - Keros recorded an income tax receivable of approximately **$0.2 million** due to the CARES Act, allowing carryback of 2019 net operating loss for a federal tax refund[68](index=68&type=chunk) [10. LOSS PER SHARE](index=18&type=section&id=10.%20LOSS%20PER%20SHARE) Presents basic and diluted net loss per share, noting the anti-dilutive effect of certain securities Net Loss Per Share (Basic and Diluted) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(12,698) | $(3,633) | | Weighted-average common stock outstanding | 2,484,057 | 2,258,335 | | Net loss per share | $(5.11) | $(1.61) | - Preferred Stock, unvested restricted stock, and stock options were excluded from diluted EPS calculation due to their anti-dilutive effect[69](index=69&type=chunk) [11. REVENUE FROM CONTRACTS WITH CUSTOMERS](index=19&type=section&id=11.%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) States no revenue was recognized in Q1 2020, as all revenue from the Novo Nordisk Agreement was fully recognized by December 31, 2019 Research Collaboration Revenue (In thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Research collaboration revenue | $— | $2,500 | - Revenue from the Novo Nordisk Agreement, which involved an exclusive license and R&D services, was fully recognized by December 31, 2019, hence no revenue in Q1 2020[71](index=71&type=chunk)[74](index=74&type=chunk)[76](index=76&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides an overview of Keros's business, product candidates, financial performance, liquidity, and critical accounting policies for Q1 2020 - Keros is a clinical-stage biopharmaceutical company focused on hematological and musculoskeletal disorders, leveraging its understanding of the TGF-ß family of proteins[80](index=80&type=chunk) - The company's lead product candidates are **KER-050** (for cytopenias in MDS and myelofibrosis, Phase 2 in H2 2020) and **KER-047** (for anemia and FOP, Phase 1 completion in mid-2020, Phase 2 in H1 2021); **KER-012** (for bone loss and PAH) is planned for Phase 1 in H2 2021[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) - The COVID-19 pandemic has caused disruptions and delays in clinical development timelines, supply chains, and third-party services, with potential material adverse effects on business and financial condition[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk)[90](index=90&type=chunk) - Keros completed an IPO in April 2020, raising approximately **$99.8 million net proceeds**, and believes existing cash plus IPO proceeds will fund operations for at least the next twelve months[95](index=95&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) [Overview](index=21&type=section&id=Overview) Keros is a clinical-stage biopharmaceutical company developing treatments for hematological and musculoskeletal disorders, with lead candidates in early clinical development - Keros is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing novel treatments for hematological and musculoskeletal disorders, targeting the TGF-ß family of proteins[80](index=80&type=chunk) - Lead product candidates include **KER-050** (Phase 2 for MDS and myelofibrosis in H2 2020/2021), **KER-047** (Phase 1 completion mid-2020, Phase 2 for IRIDA/anemias and FOP in H1 2021), and **KER-012** (Phase 1 in H2 2021 for bone loss/PAH)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) Financial Performance Summary (In millions) | Metric | Three Months Ended March 31, 2020 | | :---------------- | :-------------------------------- | | Net loss | $11.9 | | Accumulated deficit | $31.5 | | Cash and cash equivalents | $54.5 | [COVID-19 Business Update](index=22&type=section&id=COVID-19%20Business%20Update) Details the company's response to COVID-19, including remote work and anticipated disruptions to clinical development and supply chains - Keros closed its principal executive office and limited research laboratory staff in response to COVID-19, with administrative employees working remotely[86](index=86&type=chunk) - The company anticipates disruptions or delays in initiating trial sites, enrolling/assessing participants, and maintaining enrollment for clinical development programs due to the pandemic[87](index=87&type=chunk) - While adequate supply for product candidates is expected, prolonged pandemic impact on distribution systems could disrupt the supply chain[88](index=88&type=chunk)[89](index=89&type=chunk) - The global economic slowdown from COVID-19 could lead to an inability to access additional capital, negatively affecting operations[90](index=90&type=chunk) [Licensing Agreements](index=23&type=section&id=Licensing%20Agreements) Describes key licensing agreements with MGH and Novo Nordisk A/S, outlining milestone and royalty payment structures - Keros holds an exclusive, worldwide license from The General Hospital Corporation (MGH) for certain patents and technical information, requiring annual maintenance fees, clinical/regulatory milestones (**$8.6 million aggregate**), commercial milestones (**$18.0 million aggregate**), and tiered royalties on net sales[91](index=91&type=chunk)[92](index=92&type=chunk) - The Novo Nordisk Agreement provided **$20.0 million** in 2018 (**$16.0 million license fee, $4.0 million research funding**) and offers potential clinical/regulatory milestones (**$176.0 million** for first product, **$145.5 million** each for second/third) and commercial milestones (**$70.0 million aggregate**), plus mid-single digit royalties on net sales[93](index=93&type=chunk)[94](index=94&type=chunk) [Initial Public Offering](index=24&type=section&id=Initial%20Public%20Offering) Reports on the April 2020 IPO, which generated $99.8 million net proceeds and resulted in the conversion of all preferred stock to common stock - Keros completed its IPO on April 13, 2020, selling **6,900,000 shares of common stock** at **$16.00 per share**[95](index=95&type=chunk) - The IPO generated approximately **$99.8 million** in net proceeds after deducting underwriting discounts and offering expenses[95](index=95&type=chunk) - All outstanding convertible preferred stock converted into **10,725,129 shares of common stock** upon IPO completion[95](index=95&type=chunk) [Reverse Stock Split](index=24&type=section&id=Reverse%20Stock%20Split) Explains the one-for-2.1703 reverse stock split effected on March 31, 2020, and its retroactive adjustment in the report - A **one-for-2.1703 reverse stock split** was effected on March 31, 2020, for common and convertible preferred stock, with all related share and per share amounts retroactively adjusted[96](index=96&type=chunk) [Components of Our Results of Operations](index=24&type=section&id=Components%20of%20Our%20Results%20of%20Operations) Breaks down Keros's financial results into revenue, operating expenses (R&D, G&A), and other net expenses, detailing their composition - Revenue has been solely from the Novo Nordisk Agreement, with no product sales to date, and none expected in the foreseeable future[97](index=97&type=chunk) - Research and development expenses include personnel costs, third-party CRO/CMO expenses, license fees, and R&D supplies, and are expected to increase as product candidates advance[98](index=98&type=chunk)[100](index=100&type=chunk) - General and administrative expenses include personnel, professional fees (legal, accounting), and facility costs, and are expected to increase due to organizational growth and public company operating costs[101](index=101&type=chunk)[102](index=102&type=chunk) - Other expense, net includes interest, Australian R&D incentive income, and changes in the fair value of the preferred stock tranche obligation, which was settled in March 2020[103](index=103&type=chunk)[104](index=104&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Analyzes the Q1 2020 financial performance, highlighting no revenue, increased R&D and G&A expenses, and a higher net loss Key Financial Results (Three Months Ended March 31, In thousands) | Metric | 2020 | 2019 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Total revenue | $— | $2,500 | -$2,500 | | Research and development expenses | $(8,527) | $(4,867) | -$(3,660) | | General and administrative expenses | $(1,977) | $(491) | -$(1,486) | | Total operating expenses | $(10,504) | $(5,358) | -$(5,146) | | Net loss | $(11,892) | $(3,183) | -$(8,709) | - R&D expenses increased by **$3.7 million**, primarily due to KER-050 manufacturing and clinical trial advancement (**$2.6 million**) and KER-047 Phase 1 clinical trial advancement (**$0.6 million**), plus increased personnel costs[111](index=111&type=chunk) - G&A expenses increased by **$1.5 million**, mainly due to **$1.0 million** in professional fees for IPO preparation and a **$0.4 million increase** in personnel expenses for organizational growth[112](index=112&type=chunk) - Other expense, net increased by **$1.3 million** due to the increase in the fair value of the preferred stock tranche obligation prior to its settlement in March 2020[114](index=114&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses Keros's cash position, significant operating losses, and the impact of recent financing activities on its ability to fund future operations - Keros incurred net losses of **$11.9 million** and **$3.2 million** for Q1 2020 and Q1 2019, respectively, with an accumulated deficit of **$31.5 million** as of March 31, 2020[115](index=115&type=chunk) - Cash and cash equivalents were **$54.5 million** as of March 31, 2020[117](index=117&type=chunk) - The company raised approximately **$55.8 million** from Series C preferred stock in March 2020 and **$99.8 million net proceeds** from its IPO in April 2020[116](index=116&type=chunk) - Future funding requirements are substantial and depend on factors like clinical trial progress, milestone payments, new product candidates, and operating as a public company[117](index=117&type=chunk)[118](index=118&type=chunk) - The COVID-19 pandemic could hinder access to additional capital, potentially forcing delays or elimination of R&D programs[119](index=119&type=chunk) [Cash Flows](index=29&type=section&id=Cash%20Flows) Net cash used in operating activities increased by $5.6 million to $8.1 million in Q1 2020, primarily due to higher net loss and no revenue from the Novo Nordisk Agreement. Net cash provided by financing activities was $55.8 million, driven by Series C preferred stock issuance and stock option exercises, resulting in a net increase of $47.5 million in cash, cash equivalents, and restricted cash Cash Flow Summary (Three Months Ended March 31, In thousands) | Metric | 2020 | 2019 | Change | | :------------------------------------------ | :----- | :----- | :----- | | Net cash used in operating activities | $(8,120) | $(2,513) | -$(5,607) | | Net cash used in investing activities | $(176) | $— | -$(176) | | Net cash provided by financing activities | $55,794 | $— | +$55,794 | | Net increase in cash, cash equivalents and restricted cash | $47,498 | $(2,513) | +$50,011 | - The increase in cash used in operating activities was mainly due to an **$8.7 million increase** in net loss, driven by a lack of revenue from the Novo Nordisk Agreement in 2020[121](index=121&type=chunk) - Financing activities were significantly boosted by **$56.0 million** from Series C preferred stock issuance and proceeds from stock option exercises[123](index=123&type=chunk) [Contractual Obligations and Commitments](index=30&type=section&id=Contractual%20Obligations%20and%20Commitments) States there were no material changes to contractual obligations and commitments during the three months ended March 31, 2020 - No material changes to contractual obligations and commitments occurred in Q1 2020[124](index=124&type=chunk) [Critical Accounting Policies and Significant Judgments and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Explains the reliance on estimates and judgments in financial reporting, with no significant policy changes in Q1 2020, but uncertain COVID-19 effects - Financial statements rely on estimates and judgments, with actual results potentially differing under various assumptions or conditions[125](index=125&type=chunk) - No significant changes to critical accounting policies were made during the three months ended March 31, 2020[126](index=126&type=chunk) - The future effects of the COVID-19 pandemic on the company's estimates, assumptions, and judgments are unclear[125](index=125&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) Confirms that Keros Therapeutics had no off-balance sheet arrangements during the reported periods - Keros Therapeutics had no off-balance sheet arrangements during the reported periods[127](index=127&type=chunk) [Recently Issued Accounting Pronouncements](index=30&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) States that no new applicable accounting pronouncements were issued during the three months ended March 31, 2020 - No new applicable accounting pronouncements were issued in Q1 2020[128](index=128&type=chunk) [Emerging Growth Company Status](index=30&type=section&id=Emerging%20Growth%20Company%20Status) Keros is an "emerging growth company" electing an extended transition period for new accounting standards, potentially affecting financial statement comparability - Keros is an "emerging growth company" and has elected to use the extended transition period for new accounting standards, potentially affecting comparability of financial statements[129](index=129&type=chunk)[130](index=130&type=chunk)[373](index=373&type=chunk) - The company may remain an emerging growth company until December 31, 2025, or earlier if it meets certain revenue or market capitalization thresholds[130](index=130&type=chunk)[374](index=374&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Identifies interest rate sensitivity as the primary market risk, with conservative investments in money market funds and no variable interest rate debt - Keros's primary market risk is interest rate sensitivity, with cash and cash equivalents of **$54.5 million** (March 31, 2020) invested conservatively in money market funds[131](index=131&type=chunk)[132](index=132&type=chunk) - The company does not anticipate a material effect on its portfolio or operating results from a **one percentage point change** in interest rates[132](index=132&type=chunk) - Keros has no debt subject to interest rate variability, thus no interest rate risk related to debt[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control despite remote work - Disclosure controls and procedures were evaluated as **effective** at a reasonable assurance level as of March 31, 2020[135](index=135&type=chunk) - No material changes in internal control over financial reporting were identified during Q1 2020, despite changes to the working environment due to the COVID-19 pandemic[136](index=136&type=chunk)[137](index=137&type=chunk) - Control systems provide reasonable, not absolute, assurance and are subject to inherent limitations[138](index=138&type=chunk)[139](index=139&type=chunk) [PART II. OTHER INFORMATION](index=32&type=section&id=PART%20II.%20OTHER%20INFORMATION) Contains additional information not covered in Part I, including legal proceedings, risk factors, recent sales of unregistered securities, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Keros is not currently involved in any material legal proceedings, but acknowledges potential future litigation risks - Keros is not currently involved in any material arbitration or legal proceedings[141](index=141&type=chunk) - Future litigation could adversely impact the business due to defense costs and diversion of management resources[141](index=141&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) Details extensive risks related to financial position, product development, commercialization, intellectual property, third-party reliance, and operational matters - Keros has a limited operating history, incurred net losses since inception (**$11.9 million** in Q1 2020, **$31.5 million** accumulated deficit), and expects continued losses, requiring substantial additional funding[143](index=143&type=chunk)[147](index=147&type=chunk) - The success of product candidates (KER-050, KER-047, KER-012) is highly dependent on successful and timely completion of lengthy, expensive, and uncertain clinical trials, and obtaining regulatory approvals[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk) - Product candidates may be associated with serious adverse side effects, which could delay or halt clinical development, limit regulatory approval, or lead to significant negative consequences post-approval[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk)[178](index=178&type=chunk) - Keros faces significant competition from major pharmaceutical and biotechnology companies with greater resources, and its operating results could suffer if it fails to compete effectively[212](index=212&type=chunk)[213](index=213&type=chunk)[216](index=216&type=chunk) - The company relies heavily on third parties (CROs, CMOs) for preclinical studies, clinical trials, and manufacturing, and their failure to perform or comply with regulations could significantly harm the business[304](index=304&type=chunk)[311](index=311&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk) - The COVID-19 pandemic poses significant risks, including delays in clinical trials, supply chain disruptions, and potential inability to access additional capital[325](index=325&type=chunk)[326](index=326&type=chunk) [Risks Related to Our Financial Position and Need for Additional Capital](index=32&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) Highlights Keros's limited operating history, recurring losses, and the substantial need for additional funding to advance product candidates and operations - Keros has a limited operating history since 2015, with no product sales revenue to date, and has incurred net losses (**$11.9 million** in Q1 2020, **$31.5 million** accumulated deficit)[143](index=143&type=chunk) - Expenses are expected to increase substantially with the initiation of Phase 2 clinical trials for KER-050 and KER-047, advancement of KER-012, and costs associated with operating as a public company[144](index=144&type=chunk)[147](index=147&type=chunk) - The company will need substantial additional funding beyond its existing cash and **$99.8 million IPO proceeds** (expected to last into H2 2022), and failure to secure it could lead to delays or elimination of development programs[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Raising additional capital may dilute common stockholders, impose debt obligations, or require relinquishing rights to technologies or product candidates[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) [Risks Related to the Discovery, Development and Regulatory Approval of our Product Candidates](index=35&type=section&id=Risks%20Related%20to%20the%20Discovery%2C%20Development%20and%20Regulatory%20Approval%20of%20our%20Product%20Candidates) Focuses on the lengthy, expensive, and uncertain nature of clinical trials and regulatory approvals, with risks of delays, side effects, and non-predictive early results - Keros is heavily dependent on the success of its early clinical-stage product candidates (KER-050, KER-047, KER-012), which require extensive and uncertain clinical trials to demonstrate safety and efficacy[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk) - Clinical trials are lengthy, expensive, and prone to delays or termination due to factors like regulatory disagreements, patient enrollment difficulties (especially for rare diseases like FOP), supply issues, or adverse events[160](index=160&type=chunk)[161](index=161&type=chunk)[163](index=163&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk) - Undesirable side effects or safety risks could halt clinical development, lead to restrictive labeling, or prevent marketing approval, potentially resulting in product recalls or litigation post-approval[173](index=173&type=chunk)[175](index=175&type=chunk)[178](index=178&type=chunk) - Preclinical and early-stage clinical trial results may not be predictive of later-stage success, and interim data are subject to change and audit[170](index=170&type=chunk)[184](index=184&type=chunk) - The regulatory approval process is lengthy and unpredictable, with substantial discretion by authorities, and failure to obtain approval would substantially harm the business[188](index=188&type=chunk)[189](index=189&type=chunk) - Ongoing regulatory obligations post-approval, including cGMP compliance and post-marketing studies, could incur significant expense and penalties for non-compliance[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - Keros may seek orphan drug designation for product candidates, but exclusivity is not guaranteed and can be lost under certain conditions[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) [Risks Related to Commercialization of Our Product Candidates](index=47&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Our%20Product%20Candidates) Successful commercialization of approved product candidates depends on market acceptance, which is uncertain due to competition, physician/patient reluctance to switch therapies, and the need for effective sales and marketing infrastructure. Healthcare legislation and pricing regulations in the U.S. and internationally could increase costs, limit pricing, and affect reimbursement, potentially hindering profitability - Commercial success depends on launching sales, achieving market demand, establishing sales/marketing, manufacturing, and obtaining adequate reimbursement, which are all uncertain[210](index=210&type=chunk)[211](index=211&type=chunk) - Keros faces intense competition from established biopharmaceutical companies with greater resources, and competing products may be more effective, safer, or less costly[212](index=212&type=chunk)[216](index=216&type=chunk) - The company lacks a sales and marketing infrastructure and experience, and building or outsourcing these functions carries significant risks and costs[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - Market acceptance by physicians, patients, and third-party payors is crucial but uncertain, influenced by factors like efficacy, safety, cost, and reimbursement availability[221](index=221&type=chunk)[222](index=222&type=chunk) - Healthcare legislation (e.g., ACA, CARES Act) and pricing regulations in the U.S. and internationally could increase costs, reduce demand, and limit reimbursement, adversely affecting profitability[223](index=223&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) - Disruptions at regulatory agencies (FDA, SEC) due to funding shortages or global health concerns (e.g., COVID-19) could delay product approvals and impact business operations[233](index=233&type=chunk)[236](index=236&type=chunk) - Business operations are subject to healthcare regulatory laws (e.g., Anti-Kickback Statute, False Claims Act, HIPAA), and non-compliance could lead to significant penalties, fines, and reputational harm[237](index=237&type=chunk)[238](index=238&type=chunk)[240](index=240&type=chunk) - If market opportunities are smaller than estimated, or if third-party coverage and reimbursement are unfavorable, commercial success and revenue generation will be adversely affected[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk)[248](index=248&type=chunk) [Risks Related to Our Intellectual Property](index=55&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Keros's success depends on protecting its intellectual property (patents, trade secrets), which is difficult and costly. Patents may be challenged, narrowed, or invalidated, and the company relies on licensed IP, which could be lost if obligations are not met. Third-party infringement claims are a significant risk, potentially leading to litigation, substantial damages, or injunctions. Changes in patent law and limited foreign IP rights further complicate protection - Protecting intellectual property (patents, trademarks, trade secrets) is crucial but difficult, expensive, and uncertain, with risks of patents failing to issue, being challenged, narrowed, or invalidated[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[254](index=254&type=chunk)[256](index=256&type=chunk) - Keros relies on in-licensed intellectual property, and termination of these licenses due to non-compliance or disputes could result in loss of significant rights and harm commercialization efforts[257](index=257&type=chunk)[258](index=258&type=chunk)[260](index=260&type=chunk)[262](index=262&type=chunk) - Failure to protect trade secrets through contractual measures and security could harm competitive position if information is disclosed or misappropriated[264](index=264&type=chunk)[265](index=265&type=chunk) - Third-party claims of intellectual property infringement are a substantial risk, potentially leading to costly litigation, substantial damages, injunctions, or the need for expensive licenses[267](index=267&type=chunk)[269](index=269&type=chunk)[270](index=270&type=chunk)[272](index=272&type=chunk) - Changes in U.S. and foreign patent laws or their interpretation could diminish the value of patents and weaken the ability to obtain or enforce them[255](index=255&type=chunk)[289](index=289&type=chunk) - Some in-licensed IP from government-funded programs may be subject to "march-in" rights, reporting requirements, and preference for U.S. industry, potentially limiting exclusive rights[290](index=290&type=chunk)[291](index=291&type=chunk) - Limited foreign intellectual property rights mean Keros may not be able to protect its inventions globally, facing challenges from compulsory licensing laws and weaker enforcement in some countries[292](index=292&type=chunk)[293](index=293&type=chunk) - Patent terms may be inadequate to protect competitive position for a sufficient time, potentially leading to competition from biosimilars upon expiration[300](index=300&type=chunk) [Risks Related to Our Reliance on Third Parties](index=66&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) Keros heavily relies on third parties (CROs, CMOs, investigators) for preclinical studies, clinical trials, and manufacturing. Failure of these third parties to perform, comply with regulations (GLP, GCP, cGMP), or meet deadlines could significantly delay or halt product development and commercialization. Reliance on single-source suppliers and the impact of the COVID-19 pandemic on these partners pose additional risks. Future collaborations are important but also carry risks of non-performance or termination - Keros relies on third parties (clinical investigators, contracted laboratories, CROs) for preclinical studies and clinical trials, and their failure to comply with GLP/GCP requirements or meet deadlines could delay or terminate programs[304](index=304&type=chunk)[308](index=308&type=chunk) - The company relies on CMOs for manufacturing product candidates, often from single-source suppliers, creating risks of supply loss, delays, or failure to meet quality/regulatory standards (cGMP)[311](index=311&type=chunk)[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk) - The COVID-19 pandemic has impacted CROs and could further disrupt preclinical studies and clinical trials[307](index=307&type=chunk)[314](index=314&type=chunk) - Future collaborations are important for product development and funding, but they pose risks such as collaborators not performing as expected, diverting resources, or terminating agreements[316](index=316&type=chunk)[318](index=318&type=chunk) [Risks Related to Our Employee Matters, Managing Our Growth and Other Risks Relating to Our Operations](index=70&type=section&id=Risks%20Related%20to%20Our%20Employee%20Matters%2C%20Managing%20Our%20Growth%20and%20Other%20Risks%20Relating%20to%20Our%20Operations) Keros faces risks related to its highly dependent key personnel, the need to manage organizational growth, and potential failures or security breaches in internal computer systems. Compliance with health and data protection laws is critical, and misconduct by employees or third parties could lead to penalties. Operating internationally (e.g., Australia) introduces additional risks, including regulatory compliance, tax incentives, and geopolitical factors. The recent tax reform law (Tax Act, CARES Act) and limitations on NOL carryforwards also pose financial risks - The COVID-19 pandemic could adversely impact business, preclinical studies, and clinical trials through delays in approvals, patient enrollment, site initiation, supply chain disruptions, and changes in regulations[324](index=324&type=chunk)[325](index=325&type=chunk)[326](index=326&type=chunk) - Keros is highly dependent on key personnel (CEO, CSO, CMO) and its ability to attract, motivate, and retain qualified employees is critical for successful business strategy implementation[327](index=327&type=chunk)[328](index=328&type=chunk) - Future organizational growth will require additional personnel and impose significant responsibilities on management, with potential difficulties in effective management[329](index=329&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk) - Internal computer systems and those of third parties are vulnerable to security breaches (viruses, cyber-attacks), which could disrupt operations, delay development programs, and lead to liability[332](index=332&type=chunk)[333](index=333&type=chunk) - Failure to comply with health and data protection laws (HIPAA, CCPA, GDPR) could result in government enforcement actions, penalties, private litigation, and adverse publicity[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk) - Misconduct by employees or third parties (fraud, non-compliance with regulations, insider trading) could lead to regulatory sanctions, significant penalties, and reputational harm[338](index=338&type=chunk) - Operating in Australia exposes Keros to risks related to monitoring clinical activities, acceptance of foreign trial data by the FDA, and the potential loss or reduction of research and development incentive payments[339](index=339&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - International operations also involve risks such as differing standards of care, import/export rules, intellectual property protection, economic/political instability, and compliance with anti-corruption laws (FCPA)[342](index=342&type=chunk)[343](index=343&type=chunk)[344](index=344&type=chunk)[345](index=345&type=chunk) - Compliance with environmental, health, and safety laws is crucial, as non-compliance could lead to fines, penalties, or costly clean-up liabilities[346](index=346&type=chunk) - The Tax Act and CARES Act have revised U.S. federal corporate income taxation, including NOL carryforward limitations and deductibility, which could adversely affect financial condition[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) [Risks Related to Our Common Stock](index=78&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) This section outlines risks associated with Keros's common stock, including the potential for an inactive or volatile trading market, significant fluctuations in quarterly operating results, and the possibility of securities class action litigation. Future sales of common stock could cause dilution, and the company does not intend to pay dividends. Significant influence by executive officers, directors, and large stockholders, along with anti-takeover provisions in corporate documents, could limit other stockholders' influence and make acquisitions more difficult - An active, liquid, and orderly trading market for common stock may not develop or be sustained, making it difficult for investors to sell shares[353](index=353&type=chunk) - Quarterly operating results are expected to fluctuate significantly due to various factors (e.g., R&D expenses, clinical trial results, regulatory developments), potentially causing stock price volatility[354](index=354&type=chunk)[355](index=355&type=chunk) - The stock market, particularly for biopharmaceutical stocks, is highly volatile, and the COVID-19 pandemic adds to this uncertainty, potentially causing substantial fluctuations in Keros's stock price[355](index=355&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk) - Future sales and issuances of common stock or rights to purchase common stock (including under equity incentive plans) could result in additional dilution for existing stockholders and cause the stock price to fall[360](index=360&type=chunk)[362](index=362&type=chunk) - Keros does not intend to pay dividends on its common stock, so returns will be limited to stock appreciation, which may never occur[363](index=363&type=chunk) - Executive officers, directors, and significant stockholders (beneficially owning >5%) can exercise significant influence over the company, potentially delaying or preventing a change in corporate control[364](index=364&type=chunk) - Provisions in corporate charter documents and Delaware law (e.g., classified board, advance notice requirements, preferred stock issuance) could discourage, delay, or prevent mergers or acquisitions[381](index=381&type=chunk)[382](index=382&type=chunk) - Exclusive forum provisions in the certificate of incorporation designate Delaware courts for certain disputes, potentially limiting stockholders' ability to choose a favorable judicial forum[383](index=383&type=chunk)[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) [Item 2. Recent Sales of Unregistered Securities](index=81&type=section&id=Item%202.%20Recent%20Sales%20of%20Unregistered%20Securities) Reports on unregistered securities sales from January 1, 2020, to March 31, 2020, including stock options granted (1,147,434 shares), common stock issued upon option exercise (44,686 shares for $12,616), and Series C preferred stock sold (4,169,822 shares for $56.0 million). These sales were exempt from registration under Rule 701 or Section 4(a)(2) of the Securities Act. The net proceeds from the April 2020 IPO ($99.8 million) have not materially changed in their intended use Unregistered Securities Sales (January 1 - March 31, 2020) | Type of Security | Number of Shares | Exercise/Purchase Price | Aggregate Proceeds | Exemption | | :-------------------------------- | :--------------- | :---------------------- | :----------------- | :-------- | | Stock options granted | 1,147,434 | $16.00/share | N/A | Rule 701 | | Common stock from option exercise | 44,686 | $0.11 - $0.48/share | ~$12,616 | Rule 701 | | Series C preferred stock issued | 4,169,822 | $13.43/share | ~$56.0 million | Section 4(a)(2) / Reg D | - The net proceeds from the April 2020 IPO (approximately **$99.8 million**) have not materially changed in their use from what was disclosed in the final prospectus[392](index=392&type=chunk)[393](index=393&type=chunk) [Item 3. Defaults Upon Senior Securities](index=82&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms that there were no defaults upon senior securities during the reported period - No defaults upon senior securities occurred[395](index=395&type=chunk) [Item 4. Mine Safety Disclosures](index=82&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the company - Not applicable[396](index=396&type=chunk) [Item 5. Other Information](index=82&type=section&id=Item%205.%20Other%20Information) Indicates that no other information is reported under this item - No other information to report[397](index=397&type=chunk) [Item 6. Exhibits](index=83&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Amended and Restated Certificate of Incorporation, Bylaws, and various certifications (e.g., Section 302 and 906 of Sarbanes-Oxley Act), along with XBRL documents - Exhibits include corporate governance documents (Amended and Restated Certificate of Incorporation, Bylaws) and certifications (Section 302, Section 906)[398](index=398&type=chunk) - XBRL Instance Document and Taxonomy Extension documents are filed[398](index=398&type=chunk) [SIGNATURES](index=88&type=section&id=SIGNATURES) The report is formally signed by the Chief Executive Officer and Chief Financial Officer - The report is signed by Jasbir Seehra, Ph.D., CEO, and Keith Regnante, CFO, on May 22, 2020[402](index=402&type=chunk)