Activist Investor Pressures Keros Therapeutics for Further Cost Cuts Amid Strategic Shift

Keros Therapeutics, a Massachusetts-based biotech company, finds itself at the center of investor scrutiny as it navigates a significant strategic pivot and faces demands for more aggressive cost-cutting measures. The company's recent decisions to return capital to shareholders and streamline operations have failed to fully appease activist investor ADAR1 Capital Management, setting the stage for potential further corporate restructuring.

Keros Announces $375 Million Capital Return Amid Investor Pressure

Keros Therapeutics has confirmed plans to return $375 million of excess capital to stockholders, a move that comes in response to mounting pressure from activist investors. Lead Independent Director Jean-Jacques Bienaimé stated that this decision "reflects a thorough review of our capital requirements, feedback from our stockholders, and our confidence in the potential for Keros to provide meaningful and potentially disease-modifying benefits to patients."

However, this substantial capital return has not satisfied ADAR1 Capital Management, which owns 13.3% of Keros' stock. The activist investor is pushing for even more aggressive cost reductions and an increase in the capital return to $475 million. ADAR1's demands come just weeks after Keros implemented significant layoffs, cutting 45% of its workforce following the termination of a phase 2 candidate for pulmonary arterial hypertension.

Strategic Pivot and Pipeline Realignment

Keros' recent strategic decisions mark a significant shift in the company's focus. The biotech has ended development of its phase 2 candidate for high blood pressure in the lungs after observing pericardial effusion adverse events. This move prompted the substantial workforce reduction and has led to a realignment of the company's pipeline.

The company is now positioning itself around KER-065, a phase 1 neuromuscular disease program with an initial focus on Duchenne muscular dystrophy. Additionally, Keros maintains a partnership with Takeda, which paid $200 million upfront in December for the activin inhibitor elritercept, being developed to treat anemia in blood cancers.

Corporate Governance and Investor Relations Challenges

The recent stakeholder meeting on June 4 highlighted growing tensions between Keros' management and its investors. ADAR1 led a rebellion against the re-appointment of two board members, with only about a third of shareholders voting in favor of these directors. This low approval rate has been interpreted by ADAR1 as evidence of "widespread dissatisfaction" with the company's direction.

In response to increasing investor pressure, Keros has taken defensive measures. In April, the company adjusted its stockholder rights plan to penalize anyone accumulating more than 10% of outstanding shares without board approval. This move was made in reaction to "significant and rapid accumulations" of stock by investors seeking to influence company control.

As the situation unfolds, ADAR1 has warned that it "will not hesitate to hold [the board] accountable, including by nominating new directors for election at the 2026 Annual Meeting" if Keros fails to implement more aggressive cost-cutting measures and increase shareholder returns.