Executive Summary / Key Takeaways

• Strategic Realignment & Focus: Keros Therapeutics is undergoing a significant strategic pivot, discontinuing its cibotercept program due to safety concerns and now exclusively prioritizing KER-065 for Duchenne muscular dystrophy (DMD) and supporting its partnered elritercept program. This sharp focus aims to streamline operations and concentrate resources on the highest-potential assets.
• Robust Capital Position & Return: Bolstered by a $200 million upfront payment from the Takeda collaboration for elritercept, Keros reported a net income of $117.8 million for the first half of 2025. The company plans to return $375 million in excess capital to stockholders, demonstrating a commitment to shareholder value while maintaining a cash runway into the first half of 2028.
• Pipeline Progress & Milestones: KER-065, targeting neuromuscular diseases, recently received U.S. FDA Orphan Drug Designation for DMD, with a Phase 2 trial expected to initiate in Q1 2026. Elritercept (KER-050) advanced to a Phase 3 clinical trial for myelodysplastic syndromes (MDS), triggering a $10 million milestone payment from Takeda in July 2025.
• Competitive Landscape & Technological Edge: Keros operates in highly competitive therapeutic areas but differentiates itself through its deep understanding and proprietary protein therapeutics targeting the TGF-ß family of proteins. This technological focus aims to deliver disease-modifying benefits, offering a potential edge against larger, more diversified competitors.
• Execution Risk & Shareholder Scrutiny: The success of this focused strategy hinges on successful clinical execution for KER-065 and the continued progress of elritercept under its partners. Shareholder activism highlights concerns about past capital allocation and the need for rigorous oversight, underscoring the importance of delivering on the announced capital return and pipeline milestones.

The Genesis of Innovation: Keros's Foundational Approach

Keros Therapeutics, Inc. (KROS) is a clinical-stage biopharmaceutical company rooted in the intricate science of the transforming growth factor-beta (TGF-ß) family of proteins. Since its inception in 2015, Keros has dedicated itself to developing novel therapeutics that address disorders linked to dysfunctional signaling within this critical protein family. These proteins are master regulators of growth, repair, and maintenance across vital tissues, including blood, bone, skeletal muscle, adipose, and heart tissue. Keros's core strategy revolves around leveraging this deep biological understanding to discover and develop protein therapeutics with the potential for meaningful, and potentially disease-modifying, benefits for patients.

The biopharmaceutical industry is characterized by intense competition and rapid innovation, with major multinational pharmaceutical companies, established biotechnology firms, and specialized research institutions vying for market share. Keros positions itself as an innovator in underserved therapeutic areas, aiming to carve out a niche through its specialized scientific approach. This strategy contrasts with the broader portfolios of larger players, allowing Keros to focus its resources on specific, high-potential targets.

Keros's technological differentiation lies in its engineered ligand traps and inhibitors designed to modulate TGF-ß signaling. For instance, KER-065 is designed to bind to and inhibit TGF-ß ligands, specifically myostatin GDF8 and activin A. These are known negative regulators of muscle and bone mass and strength. By inhibiting these ligands, KER-065 holds the potential to increase skeletal muscle regeneration, enhance muscle size and strength, reduce body fat, mitigate skeletal muscle fibrosis, and improve bone strength. While specific quantifiable performance metrics for these benefits are not yet publicly detailed in clinical trials, the strategic intent is clear: to offer a superior, disease-modifying treatment for neuromuscular disorders like Duchenne muscular dystrophy (DMD).

Similarly, elritercept (KER-050) is an engineered ligand trap comprising a modified ligand-binding domain of the activin receptor type IIA (ActRIIA) fused to an Fc domain. This design aims to increase red blood cell and platelet production by inhibiting a subset of TGF-ß family proteins, thereby promoting hematopoiesis. This mechanism offers a targeted approach to treating low blood cell counts (cytopenias), including anemia and thrombocytopenia, in patients with myelodysplastic syndromes (MDS) and myelofibrosis. The tangible benefit sought is a more effective and potentially safer option for patients with limited existing treatments. This specialized approach is Keros's primary competitive moat, allowing it to address specific biological pathways with precision.

A Pivotal Strategic Realignment

Keros has recently undergone a significant strategic realignment, a direct response to clinical trial outcomes and a re-evaluation of its pipeline. In May 2025, the company announced the early termination of its Phase 2 TROPOS clinical trial for cibotercept (KER-012) in pulmonary arterial hypertension (PAH). This decision followed the unanticipated observation of pericardial effusion adverse events, leading to the discontinuation of all development in PAH and the deprioritization of cibotercept. This move, while a setback for one asset, underscores Keros's data-driven operating model and commitment to portfolio management. The company will now pause all material, internal development activities associated with cibotercept, while evaluating strategic partnerships or other transactions for its future.

This strategic shift has led Keros to exclusively prioritize the clinical advancement of KER-065 for neuromuscular diseases, with an initial focus on DMD. This concentration of resources is a critical step in streamlining operations and focusing capital on the most promising internal program. The company plans to engage with regulatory authorities on the KER-065 program starting in the third quarter of 2025, with expectations to initiate a Phase 2 clinical trial in DMD patients in the first quarter of 2026, subject to regulatory interactions. The recent U.S. FDA Orphan Drug Designation granted to KER-065 for DMD in August 2025 further validates its potential and could provide significant market exclusivity benefits if approved.

Financial Performance and Capital Discipline

Keros's financial performance in the first half of 2025 reflects this strategic evolution, largely driven by a significant licensing agreement. For the three months ended June 30, 2025, Keros recognized $18.168 million in service and other revenue, entirely attributable to the Takeda (TAK) Agreement. This compares to a negligible $37 thousand in the same period of 2024. For the six months ended June 30, 2025, total revenue surged to $229.414 million, primarily from $195.355 million in license revenue and $34.059 million in service revenue related to the Takeda Agreement. This substantial revenue inflow contrasts sharply with the $120 thousand reported for the first half of 2024.

The Takeda Agreement, which became effective on January 16, 2025, included a $200 million upfront payment received in February 2025. This payment was the primary driver for Keros reporting a net income of $117.755 million for the six months ended June 30, 2025, a stark reversal from the net loss of $88.371 million in the prior-year period. Despite this, the company still reported a net loss of $30.696 million for the second quarter of 2025, and its accumulated deficit stood at $451.024 million as of June 30, 2025. This highlights the inherent R&D intensity of the biopharmaceutical sector and Keros's historical operating losses since its 2015 inception.

Operating expenses remain substantial. Research and development expenses for the three months ended June 30, 2025, were $43.503 million, up from $40.515 million in the prior-year quarter. This increase was primarily due to a $4.635 million rise in elritercept-related expenses, driven by increased clinical spend for ongoing Phase 2 trials in MDS and myelofibrosis, and the advancement of a Phase 3 trial in MDS, alongside increased manufacturing activities. Conversely, KER-65.00 related expenses decreased by $1.495 million, and cibotercept-related expenses fell by $2.672 million, reflecting the strategic reprioritization. General and administrative expenses also increased to $14.482 million from $9.961 million, primarily due to higher professional fees and other operational costs.

As of June 30, 2025, Keros held a robust cash and cash equivalents balance of $690.215 million. In a move signaling strong capital discipline and a response to shareholder feedback, Keros announced in June 2025 a plan to return $375 million in excess capital to stockholders. Even after this planned return, the company projects its existing capital will fund operating expenses and capital expenditure requirements into the first half of 2028. This provides a significant runway to advance its prioritized pipeline.

Competitive Landscape and Outlook

Keros operates in highly competitive therapeutic areas. In Duchenne muscular dystrophy (DMD), KER-065 faces competition from established corticosteroids like EMFLAZA (PTC Therapeutics (PTCT)) and Agamree (Catalyst Pharmaceuticals (CPRX)), as well as several exon skipping drugs from Sarepta Therapeutics (SRPT) and Nippon Shinyaku Co. Ltd. (4516.T). Gene therapies, such as Sarepta's ELEVIDYS, and other emerging treatments from companies like Italfarmaco S.p.A., REGENXBIO Inc. (RGNX), Solid Biosciences Inc. (SLDB), and Edgewise Therapeutics, Inc. (EWTX), further intensify the competitive pressure. Keros's success with KER-065 will depend on demonstrating superior efficacy, safety, and tolerability, particularly in its ability to increase muscle regeneration and strength.

For elritercept, targeting cytopenias in MDS and myelofibrosis, the competitive field is also crowded. Key players include Merck & Co. Inc. (MRK) and Bristol-Myers Squibb Company (BMY) with Reblozyl, Geron Corporation (GERN) with imetelstat (RYTELO), CTI BioPharma Corp. (CTIC) (now Swedish Orphan Biovitrum AB (SOBI.ST)) with pacritinib (Vonjo), and GSK plc (GSK) with Ojjaara. Other companies like FibroGen Inc. (FGEN), Astellas Pharma Inc. (4503.T), Disc Medicine (IRON), and Incyte Corporation (INCY) are also developing treatments in these areas. Keros's strategy here is largely de-risked through its partnerships with Takeda and Hansoh (3692.HK), which provide significant non-dilutive funding and leverage the commercialization expertise of larger pharmaceutical companies. The recent dosing of the first patient in the Phase 3 RENEW trial for elritercept, triggering a $10 million milestone from Takeda, highlights the ongoing progress and value of these collaborations.

Keros's competitive advantages stem from its focused scientific expertise in TGF-ß biology, allowing it to develop potentially differentiated therapies. However, its smaller scale and reliance on third parties for manufacturing and clinical trials present vulnerabilities. Larger competitors like Bristol-Myers Squibb, Gilead Sciences (GILD), Incyte Corporation, and Pfizer (PFE) possess significantly greater financial, technical, and marketing resources, enabling broader market penetration and more diversified pipelines. While Keros's innovation agility is a strength, it must translate this into clinical successes to capture meaningful market share.

The broader industry trends, including rising inflation, interest rates, and geopolitical tensions, could impact Keros's operating costs and ability to secure future financing. Evolving healthcare legislation, such as the Inflation Reduction Act (IRA) and the One Big Beautiful Bill Act (OBBBA), could also affect drug pricing and reimbursement, adding pressure on future commercialization efforts. Keros's ability to navigate these macro trends while executing on its streamlined pipeline will be critical.

Conclusion

Keros Therapeutics stands at a pivotal juncture, having made decisive strategic moves to sharpen its focus and enhance shareholder value. The discontinuation of cibotercept, while a clinical setback, demonstrates a commitment to disciplined portfolio management. The substantial Takeda partnership for elritercept provides significant financial backing and external validation, while the planned $375 million capital return underscores a renewed emphasis on capital efficiency.

The core investment thesis for KROS now hinges on the successful clinical advancement of KER-065 in DMD and the continued progress of elritercept under its global partners. The company's deep scientific expertise in TGF-ß biology offers a differentiated approach in competitive therapeutic landscapes. While risks remain, particularly around clinical trial outcomes and the execution of its capital return plan, Keros's strategic realignment, robust cash position, and clear pipeline priorities offer a compelling narrative for discerning investors seeking exposure to focused biopharmaceutical innovation. The coming quarters, with regulatory engagements for KER-065 and the ongoing Phase 3 for elritercept, will be crucial in validating this refined strategy and unlocking long-term value.