KROS - Keros Therapeutics: Hematological Therapies Continue To Advance

2023-08-02 13:19:28 ET

Summary

• Keros Therapeutics is a biopharmaceutical company focused on developing treatments for hematological and musculoskeletal disorders.
• The company's financials show increased investment in R&D and organizational growth, with a net loss of $35.8 million in Q1 2023.
• Keros has a diverse pipeline of product candidates, including KER-050 and KER-047, which have shown promising results in clinical trials.

Keros Therapeutics (KROS) is a clinical-stage biopharmaceutical company primarily focusing on the discovery, development, and commercialization of novel treatments for patients suffering from hematological and musculoskeletal disorders. Keros' innovative approach harnesses the power of the Transforming Growth Factor-Beta family of proteins, one of nature's key regulators of cellular growth and differentiation. Their leading drug candidates, KER-050 and KER-047 , show promising potential in treating myelodysplastic syndromes ((MDS)) and anemia, as well as fibrodysplasia ossificans progressiva (FOP) and anemia of inflammation, respectively.

I think this company's unique position lies in its deep scientific understanding of bone morphogenetic proteins (BMPs) and activins signaling pathways , allowing them to target a broad range of severe diseases. Keros' research into these underexplored biological pathways could significantly broaden our therapeutic arsenal against blood and bone diseases. The company's pipeline, financial position, and the potential market for their novel treatments all point towards a cautiously optimistic outlook.

Financials

Keros' first quarter 2023 financial results reported in May show a trend of increased investment into R&D and organizational growth, reflected in both their net loss and the rise in their operating expenses. The net loss of $35.8 million, compared to $24.2 million in the same period last year, marks a 48% increase, signaling a shift in the company's approach to capital allocation.

This upward trend is also evident in the rise of R&D expenses from $18.1 million in the first quarter of 2022 to $31.1 million in the same period of 2023, a noteworthy increase of 71%. Such an expansion suggests Keros is ramping up efforts to advance its pipeline, likely a strategic move designed to speed up the progression of its promising candidates, KER-050 and KER-047.

Furthermore, G&A expenses saw a hike from $6.0 million to $7.8 million year-over-year. While this represents a less significant increase (approximately 30%) compared to R&D expenses, it's an important indicator of the company's growth trajectory. As Keros scales up its operations, additional personnel and external resources are necessary, resulting in increased expenses.

In terms of cash position, Keros' cash and cash equivalents as of March 31, 2023, were $351.4 million, a notable jump from $279.0 million at the end of 2022. I think this leaves the company in a strong cash position to continue investing in its R&D and overall growth.

An analysis of the company's cash burn rate can provide insight into its financial sustainability. With a net loss of $35.8 million in the first quarter of 2023, the company's burn rate stands at approximately $143.2 million annually (assuming the net loss is consistent across all quarters). Considering their cash reserves of $351.4 million, Keros could continue at this pace for approximately 10 more quarters without additional financing. This roughly aligns with Keros' expectation that its current cash reserves will sustain operations until the fourth quarter of 2025.

Products

Keros is building a strong and diverse pipeline, with three main product candidates in various stages of development, each based on the innovative approach of modulating the Transforming Growth Factor-Beta (TGF-?) family of proteins.

KER-050 is an engineered ligand trap with selective inhibition properties against certain TGF-? superfamily ligands. Its design aims to increase the production and maturation of red blood cells and platelets, potentially providing a significant treatment option for diseases characterized by low blood cell counts such as MDS, myelofibrosis ((MF)), and chemotherapy-induced thrombocytopenia (CIT). The ongoing Phase 2 clinical trials for MDS and MF reflect KER-050's potential, given the promising results in hemoglobin and platelet level increases in MDS patients.

In the case of KER-047, Keros has developed a monoclonal antibody that blocks Activin A activity. Activin A is another TGF-? superfamily ligand with a role in iron metabolism, inflammation, and fibrosis. KER-047 is poised to offer new treatment avenues for patients with iron-refractory iron deficiency anemia (IRIDA) and FOP. Early phase clinical trials demonstrate the drug's safety and tolerability, establishing a foundation for future efficacy studies.

KER-012 , a recombinant fusion protein, is designed to inhibit the activity of several TGF-? superfamily ligands associated with pulmonary arterial hypertension (PAH), a severe disease that results in high blood pressure in the lungs and potential right heart failure. Still in preclinical development, KER-012 has shown promise in animal models by reducing pulmonary hypertension and vascular remodeling, essential steps in managing PAH.

Keros' pipeline shows promise, but the inherent uncertainties in drug development should be considered For instance, the company's ability to replicate the success of early-phase results in later-stage trials can be a significant challenge. Additionally, the applicability of results from animal models to humans is not always straightforward, as evidenced by the preclinical status of KER-012.

Keros Unveils Promising KER-050 Trial Results

The latest announcement from Keros in June has shed some light on a range of critical updates regarding their clinical trials, specifically their Phase 2 testing of KER-050. This drug candidate, intended for individuals plagued by blood disorders like MDS, unveiled promising results at the 28th Annual Meeting of the European Hematology Association ((EHA)).

The Phase 2 trial has shown significant progress, with improved hematological responses and extended treatment outcomes in a diverse group of lower-risk MDS patients. The trial's augmentation to incorporate two cohorts of MDS patients with iron overload underscores KER-050's potential to alleviate iron overload and enhance iron usage.

The accumulated data suggest the overall efficacy of KER-050, with over half (51.4%) of the examined patients exhibiting an overall erythroid response during the first six months of therapy. Furthermore, the data displayed the potential of KER-050 in re-establishing erythropoiesis in a preclinical animal model of myelofibrosis, which hints toward its wider therapeutic scope.

Another noteworthy disclosure from the announcement is the preclinical data probing the joint treatment with KER-050 and ALK2 inhibition as a prospective treatment path for anemia of inflammation. Despite being in the preclinical phase, the synergy of these two could potentially pave the way for a novel therapeutic strategy for this condition.

In addition, even though some instances of adverse effects were reported, the treatment was generally well-accepted by patients, with no progression to acute myeloid leukemia observed. This signifies a critical achievement for the company, underscoring the safety and viability of KER-050 as a therapeutic alternative.

Keros's anticipation of having sufficient trial data by year's end for proposing a Phase 3 trial design to regulatory bodies indicates a bright future for KER-050. It also suggests the company's faith in its potential, paving the way for further clinical development and significant growth in the biopharmaceutical sector.

Keros Faces Clinical Development Risks

The majority of Keros's portfolio is in clinical stages, which inherently poses a considerable risk. Clinical stage development is fraught with unforeseen challenges and potential setbacks, from unanticipated side effects to efficacy issues and patient enrollment hurdles. While the preliminary data has shown promise, there is no guarantee that subsequent trials will yield positive results.

KER-050 stimulates red blood cell and platelet production, beneficial for treating MDS. However, it carries the risk of undesired hematological responses. Excessive red blood cell production could lead to polycythemia, a condition associated with increased risk of clot and stroke. In the context of platelets, overproduction could result in thrombocytosis, a condition that could lead to blood clot formation. Although rare, these risks must be monitored in upcoming trials.

We cannot discount the risk of adverse reactions or side effects. In the case of KER-050, there have already been treatment-emergent adverse events reported, including cardiac failure and myocardial infarction, even though these were determined to be unrelated to treatment. Additionally, one case of a treatment-related adverse event, an injection site reaction, was noted. Ensuring a favorable safety profile is paramount for the success of the drug, and any substantial shift in the risk-benefit equation could hinder its progress.

Keros's exploration of ALK2 inhibition, and its combination with RKER-050, in treating anemia of inflammation adds another layer of complexity and risk. While the potential synergy between these treatments could be beneficial, it could also amplify the likelihood of adverse events or lead to unforeseen biological responses. Combination therapies often require rigorous optimization to ensure efficacy without amplifying toxicity, a process that can add time and cost to development.

Competitors

Merck (MRK) has a candidate called luspatercept for MDS treatment, similar to KER-050. While luspatercept promotes late-stage erythropoiesis to address anemia caused by lower-risk MDS, KER-050's mechanism of action is more direct. It inhibits activin A, leading to a direct increase in red blood cell and platelet production. This more direct action could potentially make KER-050 more effective in treating MDS.

Another company, Blueprint Medicines ( BPMC ), is developing avapritinib for the treatment of systemic mastocytosis, which falls under Keros's wider focus on hematological disorders. However, avapritinib targets the KIT D816V mutation , a specific genetic abnormality found in certain patients with systemic mastocytosis. The specificity of avapritinib narrows down its patient population, as not all systemic mastocytosis patients harbor the KIT D816V mutation. Keros's therapeutic approach, on the other hand, is more general and could potentially benefit a wider range of patients.

When comparing musculoskeletal disorder treatments, Regeneron Pharmaceuticals (REGN) has romosozumab, a monoclonal antibody that stimulates bone formation by blocking sclerostin which inhibits bone formation. On the other hand, Keros's ALK2 inhibitor has an advantage. It directly promotes bone growth by modulating the BMP signaling pathway, a crucial process in bone development. This direct action could potentially offer a more robust response in patients, providing Keros with a competitive edge.

Finally, the complexity and novelty of the mechanisms of action being pursued by Keros bring an inherent competitive advantage. Keros's deep understanding of the TGF-? family's role in cellular processes equips the company to tackle a wide range of diseases, providing it with a breadth of potential applications that could prove difficult for competitors to match.

Current Valuation

Keros Therapeutics' market capitalization currently stands at $1.24 billion, which implies a price-to-sales ratio of 50.81 based on TTM revenue. When we compare this to the sector's average P/S ratio of 4.12, it appears that Keros is substantially overvalued. However, this seemingly inflated P/S ratio is a reflection of the market's anticipation of Keros's future growth, considering the current state of its pipeline as discussed earlier.

Looking closely at the potential of Keros's product pipeline, particularly KER-050 and KER-047, the growth narrative becomes more compelling. If either of these candidates successfully advances through clinical trials, Keros will possess a valuable asset within the hematology space. The demonstrated efficacy and safety of KER-050 in early trials for MDS patients, for instance, provides encouraging signs.

Keros's robust cash position also allows the company to sustain its high R&D spending, driving progress in its product pipeline. Considering its current burn rate and available cash reserves, the company is financially equipped to continue its operations until late 2025 without additional funding. It's this financial runway, coupled with the potential success of KER-050 or KER-047, that forms the crux of my growth-based argument justifying the company's high P/S ratio.

Conclusion

As we take a step back and survey the landscape, Keros Therapeutics has positioned itself as an innovative player in the biotech field, focusing on novel therapeutics to address hematological and musculoskeletal disorders. With a promising pipeline of therapies, such as KER-050 and their proprietary ALK2 inhibitor, Keros demonstrates the potential to significantly impact the lives of patients.

A close examination of Keros's financial health reveals the company's robust cash position that supports its ongoing clinical trials and R&D activities. It is, however, important to remember that the path of drug development is long and can be unpredictable. That said, Keros's significant cash reserves and calculated burn rate provide a degree of financial stability needed in this uncertain journey.

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