Keros Therapeutics Returns $375M to Investors Amid Strategic Overhaul

Keros Therapeutics, a Massachusetts-based biotech company, has announced plans to return $375 million to investors following a period of significant upheaval. This decision comes in the wake of shareholder activism and safety concerns surrounding one of its key drug candidates.

Shareholder Pressure and Strategic Review

In April, Keros initiated a strategic review to explore various options, including a potential sale, business combination, or return of capital to shareholders. This move was prompted by pressure from ADAR1 Capital Management, the company's largest shareholder. ADAR1 urged Keros to divest all assets except elritercept, a drug licensed to Takeda in December 2024 with potential peak sales of $2 billion.

The situation intensified when ADAR1 called for shareholders to vote against the re-election of certain board members and demanded a restructuring of the company. Despite these efforts, the attempt to vote down board members failed at Keros' annual general meeting on Friday.

Safety Signal and Pipeline Reassessment

Keros' decision to return capital follows a significant setback in its drug development pipeline. In late May, the company reported a safety signal in the Phase II trial of cibotercept, its former lead asset for pulmonary arterial hypertension (PAH). This revelation led to the elimination of the PAH program and a 45% reduction in staff.

Jean-Jacques Bienaimé, the board's lead independent director, stated that the company will continue development of KER-065 for neuromuscular diseases, with an initial focus on Duchenne muscular dystrophy. However, Guggenheim analysts noted that they currently do not attribute any revenue to this program in their company model.

Financial Implications and Future Outlook

The $375 million capital return represents approximately half of Keros' cash reserves, which stood at $720 million at the end of the first quarter. This decision has been viewed positively by some analysts, with Guggenheim calling it "a positive step forward."

Despite this setback, Keros retains potential future revenue from elritercept, which was licensed to Takeda for development in myelodysplastic syndromes and myelofibrosis. The licensing deal included a $200 million upfront payment and the potential for $1.1 billion in milestones and royalties.

The company's share price has declined significantly over the past year, dropping 70% from a peak of $70 to $14.37 as of Monday morning. As Keros navigates this challenging period, industry observers will be closely watching its efforts to streamline operations and maximize the value of its remaining assets.