Keros Therapeutics (KROS) (~$420MM market cap) is a what I’m labeling a pre-strategic alternatives broken biotech, the company in two separate press releases (here and here) announced the halting of all dosages in their Phase 2 clinical trial of Cibotercept (KER-012) due to observations of pericardial effusions, which is a condition where excess fluid accumulates in a membrane that surrounds the heart. What I find interesting in this situation is:
- KROS has a significant cash position, my estimates put it around $650MM for a reverse merger, much higher than beaten up biotechnology companies I usually highlight
- KER-012 is described as KROS’s second program, their most advanced asset, Elritercept (KER-050) was out licensed to Takeda for $200MM plus milestone payments, so this failure might be obscuring the larger story here
- KROS doesn’t screen like a classic broken biotech because of the Takeda payment and their liberal use of their at-the-market equity offering program
Below is my basic back of envelope math on a potential liquidation value (again, not predicting a liquidation, more as a base case valuation for a potential merger/reverse merger):
The company has not declared a review of strategic alternatives, hasn’t recently announced a reduction in force related to the failed KER-012 trials, etc., so this a riskier situation than others, but I think the absolute cash amount and sale of their primary asset makes this an interesting broken biotech to watch.
Other thoughts:
- My ATM estimate is using their 10/31 sharecount, based on their previous cadence, they likely issued more shares well above the current price into their December data disappointment, so the above NAV might be conservative
- The Takeda deal for KER-050 includes $370MM in development milestones and $720MM in sales milestones (plus a tiered royalty structure), how much is that worth today? I’m not including any value in my liquidation NAV
Disclosure: I own shares of KROS
