Keros Therapeutics, Inc. (KROS)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on developing and commercializing novel therapeutics to treat a wide range of patients with disorders that are linked to dysfunctional signaling of the transforming growth factor-beta, or TGF-ß, family of proteins. We are a leader in understanding the role of the TGF-ß family of proteins, which are master regulators of the growth, repair and maintenance of a number of tissues, including blood, bone, skeletal muscle, adipose and heart tissue. By leveraging this understanding, we have discovered and are developing protein therapeutics that have the potential to provide meaningful and potentially disease-modifying benefit to patients. One of our product candidates, cibotercept (KER-012), is being developed for the treatment of pulmonary arterial hypertension, or PAH, and for the treatment of cardiovascular disorders. Our second product candidate, KER-065, is being developed for the treatment of neuromuscular diseases. Our most advanced product candidate, elritercept (KER-050), is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis.

Since our inception in 2015, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including by conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, we have not generated any revenue from product sales

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as none of our product candidates have been approved for commercialization. We have historically financed our operations primarily through the sale of convertible preferred stock and common stock and cash received from licensing agreements.

ATM Sales Agreement

In December 2022, we filed a prospectus supplement to our registration statement on Form S-3ASR with the Securities and Exchange Commission, or the SEC, for the issuance and sale, if any, of up to$250.0 million of shares of our common stock pursuant to a sales agreement with Leerink Partners LLC, or Leerink, as sales agent, which we refer to as the ATM Sales Agreement, under which we may offer and sell, from time to time, shares of our common stock, or the ATM Shares, through Leerink, which we refer to as the ATM Offering. In May 2024, we filed a new registration statement on Form S-3ASR, which we refer to as the New Shelf Registration Statement, to replace the prior shelf registration statement that was set to expire, including a base prospectus, which became effective immediately upon filing, under which we could issue an unspecified amount of shares of our common stock, preferred stock, debt securities and warrants. In June 2024, we filed a prospectus supplement to the New Shelf Registration Statement for the issuance and sale, if any, of up to an additional $350.0 million of shares of our common stock under the ATM Sales Agreement.

Under the ATM Sales Agreement, Leerink may sell the ATM Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Exchange Act of 1934, as amended. We may sell the ATM Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the ATM Sales Agreement, but we have no obligation to sell any of the ATM Shares in the ATM Offering. As of December 31, 2024, we have sold a total of 4,290,096 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of approximately $228.6 million after deducting sales agent commissions and estimated offering expenses. As of December 31, 2024, we may offer and sell ATM shares at an aggregate offering price of up to the remaining $117.7 million available under the ATM Offering.

January 2024 Public Offering of Common Stock

On January 8, 2024, we closed an underwritten public offering in which we issued and sold 4,025,000 shares of common stock, which included 525,000 shares of common stock issued and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $40.00 per share. The aggregate net proceeds to us from the public offering were approximately $151.1 million, after deducting underwriting discounts and commissions and estimated offering expenses.

We have incurred recurring operating losses since inception in 2015. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was $187.4 million, $153.0 million, and $104.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, we had an accumulated deficit of $568.8 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future in connection with our ongoing activities.

We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.

As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, and license and development agreements in connection with any future collaborations. Adequate funding may not be available to us on acceptable terms, or at all.

If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

As of December 31, 2024, we had cash and cash equivalents of $559.9 million. Based on our current operating assumptions, we expect that our existing cash and cash equivalents as of December 31, 2024, together with the $200 million upfront payment pursuant to the license agreement with Takeda Pharmaceuticals U.S.A., Inc., or Takeda, which we received in February 2025, will enable us to fund our operating expenses and capital expenditure requirements into 2029. See “—Liquidity and Capital Resources.”

Known Trends, Events and Uncertainties

While recent trends towards rising inflation have eased, prices continue to rise, which may also materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and

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supplies relating to our preclinical studies, clinical trials, interest rates and overhead costs may adversely affect our operating results. Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation or higher interest rates have had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates rise more quickly) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with public health crises and global geopolitical tensions, such as the ongoing war between Russia and Ukraine and the war in Israel, worsening global macroeconomic conditions, including as a result of bank failures, and employee availability and wage increases, which may result in additional stress on our working capital resources.

Licensing Agreements

2016 Exclusive Patent License Agreement with The General Hospital Corporation

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, which was subsequently amended in May 2017 and February 2018. Under the license agreement with MGH, or the MGH Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technical information of MGH, to make, have made, use, have used, sell, have sold, lease, have leased, import, have imported or otherwise transfer licensed products and processes for use in the treatment, diagnosis, palliation and prevention of diseases and disorders in humans and animals. We are required to use commercially reasonable efforts to develop and commercialize licensed products and processes, and must achieve certain required diligence milestones.

Under the terms of the MGH Agreement, we made an initial license payment of $0.1 million in 2016 and reimbursed MGH approximately $0.3 million of prior patent prosecution expenses related to the licensed patents in 2017. We also issued MGH an aggregate of 358,674 shares of our common stock. Additionally, we are required to pay a nominal annual maintenance fee prior to the first commercial sale of our first product or process, a mid-five digit annual maintenance fee after the first commercial sale of our first product or process that is creditable against royalties, certain clinical and regulatory milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $8.6 million in the aggregate, and certain commercial milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $18.0 million in the aggregate. We made payments of $50,000 and $300,000 in 2020 and 2021, respectively, for the achievement of the clinical and regulatory milestones of (i) filing of an IND in the first country and (ii) the completion of a Phase 1 clinical trial, respectively. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits to mid-single digits. The royalty rates are subject to up to a maximum 50% reduction for lack of a valid claim, in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed products, and generic competition. The obligation to pay royalties under the MGH Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of expiry of the last valid claim of the licensed patents that cover such licensed product in such country and ten years from the first commercial sale of such product in such country. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging in the sub-teen double digits and a change of control fee equal to a low-single digit percentage of the payments received as part of any completed transaction up to a low-seven digit amount.

2021 License Agreement with Hansoh (Shanghai) Healthtech Co., Ltd.

On December 12, 2021, we entered into a license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh. Under the terms of the license agreement with Hansoh, or the Hansoh Agreement, we granted to Hansoh the exclusive right to develop, manufacture and commercialize elritercept and licensed products containing elritercept within the territories of mainland China, Hong Kong and Macau, which we refer to collectively as the Hansoh Territory.

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of elritercept from us, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Hansoh Territory. In addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Hansoh Territory.

Pursuant to the terms of the Hansoh Agreement, we received a net $18.0 million upfront payment in January 2022. In addition to the upfront payment and development milestones achieved to date, we are entitled to receive up to an aggregate of (i) $23.5 million upon the achievement of specified development milestones and (ii)$144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Hansoh Territory. If a licensed product is approved for marketing in the Hansoh Territory, we will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Hansoh Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions. We recognized $3.0 million as revenue and $0.3 million in withholding tax upon the achievement of a development milestone related to the Hansoh Agreement on our consolidated statement of operations for the year ended December 31, 2024, and a receivable, net of withholding tax, on our consolidated balance sheet as of December 31, 2024.

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Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Hansoh Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) ten years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly or indirectly commercialize a competing product in the Hansoh Territory.

Effective in June 2023, in connection with the Hansoh Agreement, we entered into a manufacturing technology transfer agreement, or the Tech Transfer Agreement, with Hansoh. The Tech Transfer Agreement governs the transfer to Hansoh of all documents and information required to complete the manufacturing technology transfer. Under the Tech Transfer Agreement, Hansoh is obligated to make certain payments to us, at the rates set forth in the Tech Transfer Agreement, as manufacturing technology transfer services are provided over the term of the Tech Transfer Agreement. We recognized $96.1 thousand and $150.8 thousand of service and other revenue for the years ended December 31, 2024 and 2023, respectively.

Effective in February 2024, in connection with the Hansoh Agreement, we entered into a clinical product supply agreement with Hansoh, or the Supply Agreement. We recognized $421.1 thousand of other revenue for the year ended December 31, 2024.

2024 License Agreement with Takeda Pharmaceuticals U.S.A., Inc.

In December 2024, we entered into a license agreement with Takeda, which became effective on January 16, 2025. Under the terms of the license agreement with Takeda, or the Takeda Agreement, we granted to Takeda the exclusive right to develop, manufacture and commercialize elritercept and certain derivative compounds globally, excluding the territories of mainland China, Hong Kong and Macau, which we refer to collectively as the Takeda Territory.

Pursuant to the terms of the Takeda Agreement, we received a $200.0 million upfront payment in February 2025. In addition to the upfront payment, we are entitled to receive up to an aggregate of (i) $370.0 million upon the achievement of specified development and commercial milestones and (ii) $740.0 million upon the achievement of specified sales milestones. If a licensed product is approved for marketing in the Takeda Territory, we will be entitled to receive royalty payments based on tiered increments of annual net sales in the Takeda Territory, with such percentage ranging from the low double-digits to high teens, subject to specified potential royalty reductions.

Takeda’s obligation to pay royalties for a given licensed product in a given country in the Takeda Territory will begin on the date of the first commercial sale for such licensed product in such country and continue until the latest of (i) 10 years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents, and (iii) expiration of regulatory exclusivity in such region.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue, and do not expect to generate any revenue in the foreseeable future, from product sales. We have generated revenue solely from research collaborations or licensing of intellectual property. We may in the future generate revenue from other strategic collaborations.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the preclinical and clinical development of our current and potential future product candidates, and include:

▪salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

▪expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical and clinical activities on our behalf, as well as contract manufacturing organizations, or CMOs, that manufacture drug product for use in our preclinical studies and clinical trials;

▪license fees incurred in connection with license agreements;

▪research and development supplies and services expenses;

▪facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs;

▪cost of outside consultants, including their fees and related travel expenses, engaged in research and development functions;

▪expenses related to regulatory affairs; and

▪fees related to our scientific advisory board.

We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and

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are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue ongoing and initiate new clinical trials for our product candidates and continue to discover and develop additional product candidates. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities. If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, and travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense), Net

Research and Development Incentive Income

Research and development incentive income includes payments received under the Research and Development Tax Incentive, or the R&D Incentive, from the Australian government. The R&D Incentive is one of the key elements of the Australian government’s support for Australia’s innovation system and was developed to assist businesses recover some of the costs of undertaking research and development in Australia. Since July 1, 2021, the R&D Incentive has provided eligible companies that engage in research and development activities with either a refundable or non-refundable tax offset depending on a company’s aggregated revenue as follows:

•Refundable tax offset of up to 18.5% above a company’s underlying tax rate where aggregated revenue is less than AUD$20.0 million per annum, or

•Non-refundable tax offset of up to 16.5% above a company’s underlying tax rate where aggregated revenue is equal to or greater than AUD$20.0 million per annum.

We have assessed our R&D activities and expenditures to determine which activities and expenditures in Australia are likely to be eligible under the R&D Incentive. We estimate the refundable or non-refundable tax offset available to us based on available information at the time.

Dividend Income

Dividend income consists of income earned on our money market funds that are recorded as cash equivalents on our consolidated balance sheets.

Other Income (Expense), Net

Other income (expense), net primarily consists of unrealized and realized gains and losses on foreign currency.

Income Tax Provision

The tax provision recorded for the year ended December 31, 2024 resulted from withholding tax related to taxable income generated from the Hansoh Agreement. We have not recorded any income tax benefits for the losses incurred as it is more likely than not that these benefits will not be realized based on our history of losses and expected future losses.

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Results of Operations

Comparison for the years ended December 31, 2024, 2023, and 2022

The following table summarizes our results of operations for the years ended December 31, 2024, 2023, and 2022 (in thousands):

Revenue

Our revenue for the year ended December 31, 2024 consisted of service and other revenue substantially related to the Tech Transfer Agreement and Supply Agreement and license revenue related to the Hansoh Agreement. Our revenue for the year ended December 31, 2023 consisted of service and other revenue related to the Tech Transfer Agreement. We did not recognize any revenue for the year ended December 31, 2022.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2024, 2023, and 2022 (in thousands):

Research and development expenses were $173.6 million for the year ended December 31, 2024, compared to $135.3 million for the year ended December 31, 2023. The increase of $38.4 million was primarily due to an increase in program-related costs, including (i) an $8.8 million increase of cibotercept-related expenses, which was driven by a $7.1 million increase in clinical spend associated with our Phase 2 clinical trial and a $1.7 million increase in manufacturing costs; (ii) a $10.1 million increase in KER-065-related expenses, primarily driven by a net increase of $5.8 million in manufacturing and preclinical activities and an increase of $4.3 million in clinical spend associated with our ongoing Phase 1 clinical trial; (iii) a net increase of $3.1 million of elritercept-related expenses, primarily driven by a $9.7 million increase in clinical spend associated with our ongoing Phase 2 clinical trials, one in

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patients with MDS and one in patients with myelofibrosis, and the advancement of a Phase 3 clinical trial in patients with MDS, partially offset by a decrease of $6.6 million in manufacturing and preclinical activities; (iv) a $12.5 million increase in personnel costs, including an increase of $4.2 million of additional stock-based compensation costs, driven by the increase in headcount to support the advancement of our pipeline; (v) a $1.8 million increase in professional fees; and (v) a $2.4 million increase in facilities and supplies and other expenses due to the continued growth of our organization. These increases were partially offset by a $0.4 million decrease in preclinical pipeline and development activities.

Research and development expenses were $135.3 million for the year ended December 31, 2023, compared to $87.3 million for the year ended December 31, 2022. The increase of $48.0 million was primarily due to an increase in program-related costs, including (i) an $8.5 million increase of cibotercept-related expenses, which was driven by a $6.8 million increase in activities to support the clinical advancement of the program and a $1.7 million increase in manufacturing costs and preclinical activities; (ii) a net increase of $16.8 million of elritercept-related expenses, primarily driven by (a) a $5.5 million increase in clinical and preclinical program activities due to the progression of our two Phase 2 clinical trials of elritercept, one in patients with MDS and one in patients with myelofibrosis, and the initial expenses associated with our planned advancement of elritercept into a Phase 3 clinical trial in patients with MDS and (b) an increase of $11.3 million in manufacturing activities; (iii) a $3.2 million increase in preclinical pipeline and development activities; (iv) a $15.7 million increase in personnel costs, including an increase of $5.9 million of additional stock-based compensation costs, driven by the increase in headcount to support the advancement of our pipeline; and (v) a $4.4 million increase in facilities and supplies and other expenses due to the continued growth of our organization. These increases were partially offset by a $0.5 million decrease in professional fees.

We are no longer separately disclosing KER-047-related expenses in 2024 due to our decision to deprioritize the KER-047 program in 2023, and have updated prior period research and development expense tables to include KER-047-related expenses in preclinical expenses in order to provide a meaningful comparison of the year-over-year expenses. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities.

General and Administrative Expenses

General and administrative expenses were $40.8 million for the year ended December 31, 2024, compared to $34.8 million for the year ended December 31, 2023. The increase of $5.9 million was primarily due to (i) a $3.6 million increase in personnel expenses, which includes an increase of $1.9 million of additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals; (ii) a net $0.6 million increase in facilities, supplies and other expenses due to growth of our organization; and (iii) a $2.3 million increase in professional fees. These increases were partially offset by a $0.6 million decrease in director and officer insurance premiums.

General and administrative expenses were $34.8 million for the year ended December 31, 2023, compared to $27.5 million for the year ended December 31, 2022. The increase of $7.3 million was primarily due to (i) a $6.0 million increase in personnel expenses, which includes an increase of $4.2 million of additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals; (ii) a $1.5 million increase in facilities, supplies and other office expenses due to growth of our organization; and (iii) a $0.7 million increase in professional fees. These increases were partially offset by a $0.9 million decrease in director and officer insurance premiums.

Total Other Income (Expense), Net

Total other income (expense), net was $23.8 million for the year ended December 31, 2024, compared to $16.9 million for the year ended December 31, 2023. The increase of $6.8 million is primarily related to an increase of $8.7 million of dividend income, partially offset by (i) a decrease of $1.2 million in R&D Incentive income in Australia; and (ii) an increase of $0.7 million in other expense, net.

Total other income (expense), net was $16.9 million for the year ended December 31, 2023, compared to $10.1 million for the year ended December 31, 2022. The increase of $6.8 million is primarily related to an increase of $11.1 million of dividend income, partially offset by a decrease of $4.7 million in R&D Incentive income in Australia.

Income Tax Provision

Income tax provision was $0.3 million for the year ended December 31, 2024, compared to zero for the years ended December 31, 2023, and 2022, respectively. The increase of $0.3 million in income tax provision is attributed to withholding taxes related to the taxable income generated in 2024 from the Hansoh Agreement.

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Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. Our net losses were $187.4 million, $153.0 million, and $104.7 million for the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024 and December 31, 2023, we had an accumulated deficit of $568.8 million and $381.4 million, respectively. To date, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, director and officer insurance premiums and other expenses. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to establishing sales, marketing, distribution and other commercial infrastructure to commercialize such products.

We currently do not have any products approved for sale. We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. Since our inception, we have funded our operations primarily through equity financings and through research collaborations or licensing of intellectual property.

In December 2022, we filed a prospectus supplement to a registration statement on Form S-3ASR, including a base prospectus and sales agreement prospectus, or the Prior Shelf Registration Statement, for the issuance and sale of up to $250.0 million of shares of our common stock. On May 3, 2024, we filed a new registration statement on Form S-3ASR, or the New Shelf Registration Statement, to replace the Prior Shelf Registration Statement that was set to expire, which became automatically effective upon filing, and which permits us to offer, from time to time, an unspecified amount of common stock, preferred stock, debt securities and warrants, including through an “at the market” program with Leerink, as sales agent, or the ATM Program. As of and during the year ended December 31, 2024, we have sold a total of 4,290,096 shares of our common stock pursuant to the ATM Program for aggregate net proceeds of approximately $228.6 million after deducting sales agent commissions and estimated offering expenses. As of December 31, 2024, we were eligible to offer and sell, from time to time, shares of our common stock for an aggregate offering amount of up to the remaining $117.7 million available under the ATM Program. We anticipate that the filing of this Annual Report on Form 10-K will render us unable to use our currently effective New Shelf Registration Statement as we expect that, on the date of filing of this report, we will no longer meet the criteria of a well-known seasoned issuer. Accordingly, we will need to file a post-effective amendment to the New Shelf Registration Statement to convert it to a non-automatic shelf registration statement that we are eligible to use, or to file a new shelf registration statement on Form S-3. Such post-effective amendment or shelf registration statement on Form S-3 is subject to review by the SEC and must be declared effective by the SEC, which could delay our ability to raise debt or equity capital under the registration statement and may adversely affect our ability to access financing and the capital markets in a timely fashion.

As of December 31, 2024, we had cash and cash equivalents of $559.9 million. Based on our current operating assumptions, we believe that our existing cash and cash equivalents, together with the $200.0 million upfront payment pursuant to the license agreement with Takeda, or the Takeda Agreement, which we received in February 2025, will be sufficient to fund our projected liquidity requirements into 2029. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:

▪the progress, timing and completion of preclinical studies and clinical trials for our current or any future product candidates, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to public health crises or other causes;

▪the timing and amount of milestone and royalty payments we are required to make or are eligible to receive under our license agreements with each of The General Hospital Corporation and Hansoh;

▪the number of potential new product candidates we identify and decide to develop;

▪the need for additional or expanded preclinical studies and clinical trials beyond those that we plan to conduct with respect to our current and future product candidates;

▪the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or any future product candidates;

▪the costs involved in filing patent applications, maintaining and enforcing patents or defending against infringement or other claims raised by third parties;

▪the maintenance of our existing license and collaboration agreements and the entry into new license and collaboration agreements;

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▪the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of our product candidates;

▪the effect of competing technological and market developments;

▪the costs of operating as a public company;

▪the cost of manufacturing cibotercept, KER-065, elritercept and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization;

▪the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products, if approved, on our own;

▪the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our product candidates, if approved; and

▪market acceptance of any approved product candidates.

In addition, public health crises, bank failures, geopolitical tensions and resulting global slowdown of economic activity continue to rapidly evolve and have already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs and clinical development efforts, which would adversely affect our business prospects, or we may be unable to continue operations. We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

Cash Flows

The following table summarizes our cash flows for each of the periods presented (in thousands):

Cash Used in Operating Activities

Net cash used in operating activities was $160.9 million for the year ended December 31, 2024, which was driven by a net loss of $187.4 million and $11.4 million net cash used by operating assets and liabilities, partially offset by non-cash charges including $34.9 million of stock-based compensation expense, $1.8 million in lease expenses and $1.2 million in depreciation. The $11.4 million of cash used by operating assets and liabilities was primarily comprised of (i) a $10.2 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs; (ii) a $2.6 million increase in accounts receivable; and (iii) a $1.3 million change in operating lease liabilities. which was partially offset by a $2.7 million increase in accounts payable and accrued expenses to support the advancement of our programs.

Net cash used in operating activities was $124.5 million for the year ended December 31, 2023, which was driven by a net loss of $153.0 million and $2.7 million net cash used by operating assets and liabilities and non-cash charges, partially offset by non-cash charges including $28.8 million of stock-based compensation expense, $1.6 million in lease expenses and $0.8 million in depreciation. The $2.7 million of cash used in operating assets and liabilities was primarily comprised of (i) a $9.8 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs and (ii) a $0.1 million increase in accounts receivable, which was partially offset by (a) a $6.9 million increase in accounts payable and accrued expenses to support the advancement of our programs and (b) a $0.4 million change in operating lease liabilities.

Net cash used in operating activities was $70.1 million for the year ended December 31, 2022, which was driven by a net loss of $104.7 million, partially offset by a $14.3 million increase in net cash provided by operating assets and liabilities and non-cash charges, $18.7 million of stock-based compensation expense, $0.9 million in lease expenses and $0.7 million in depreciation. The $14.3 million of cash used in operating assets and liabilities was primarily comprised of (i) an $18.0 million decrease in accounts receivable and (ii) a $4.9 million increase in accounts payable and accrued expenses to support the advancement of our programs, which was partially offset by (a) a $4.9 million increase in prepaid expenses and other assets

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due to timing of expense recognition for our research and development costs and (b) a $3.7 million change in our operating lease liabilities.

Cash Used in Investing Activities

Net cash used in investing activities was $1.9 million, $2.5 million, and $1.2 million for the years ended December 31, 2024, 2023, and 2022, respectively. The cash used in investing activities in each period was due to purchases of property and equipment.

Cash Provided by Financing Activities

Net cash provided by financing activities was $391.8 million for the year ended December 31, 2024, which was primarily related to (i) net proceeds of $151.1 million received from our public offering of common stock in January 2024, after deducting underwriting discounts, commissions and offering expenses; (ii) net proceeds of $228.6 million received from sales of our common stock under the ATM Program, after deducting sales agent commissions and offering expenses; and (iii) proceeds of $12.1 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $179.0 million for the year ended December 31, 2023, which was primarily related to (i) net proceeds of $175.7 million received from sales of our common stock under the ATM Program, after deducting sales agent commissions and offering expenses; and (ii) proceeds of $3.2 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $120.3 million for the year ended December 31, 2022, which was primarily related to (i) net proceeds of $119.5 million received from sales of our common stock under the ATM Sales Agreement, after deducting sales agent commissions and before deducting offering expenses; and (ii) proceeds of $0.8 million related to exercises of options to purchase common stock.

Contractual Obligations and Commitments

We may incur contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we are required to make under the MGH Agreement pursuant to which we have in-licensed certain intellectual property. Due to the uncertainty of the achievement and timing of the events requiring payment under these agreements, the amounts to be paid by us are not fixed or determinable at this time and are excluded from the table below.

Under the terms of the MGH Agreement, we are obligated to pay MGH designated amounts when any licensed product achieves certain developmental milestones. Following the commencement of commercial sales of the licensed products, we will pay designated amounts when certain milestone events occur. The development milestones and commercial milestones range from $50,000 to $10.0 million depending upon the significance of the particular milestone. We are also required to pay MGH royalties on all sales of licensed products, with such royalties ranging from the low-single digits to mid-single digits of sales, as well as royalties ranging in the low-double digits of sublicense income depending on the stage of development of the relevant product or process when the sublicense is granted.

The following table summarizes our contractual obligations as of December 31, 2024 and the effects such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

On September 7, 2021, we entered into an indenture of lease, or the 1050 Waltham Lease, with Revolution Labs Owner, LLC, or the Landlord, pursuant to which we are leasing approximately 35,662 square feet of office, laboratory and vivarium space located at 1050 Waltham Street, Lexington, Massachusetts, or the Premises, for our new principal executive office. In December 2022, we received access to 31,991 square feet of office and laboratory space, or the Phase A Premises, which is considered a distinct lease component. In January 2023, we entered into a first amendment to the 1050 Waltham Lease, or the Lease Amendment. Under the terms of the Lease Amendment, we agreed to the phased delivery of the Premises to us by the Landlord, with the Phase A Premises delivered first, and the additional approximately 3,671 rentable square feet of vivarium space, or the Phase B Premises, delivered at a later date, and established the rent commencement dates for the Phase A Premises and the Phase B Premises accordingly. In March 2023, we received access to the Phase B Premises. Rent commenced in November 2023 for the Premises. The 1050 Waltham Lease is expected to expire on November 30, 2031. In July 2024, we entered into a sublease, or the Sublease Agreement, with Accent Therapeutics, Inc., pursuant to

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which we sublet approximately 20,000 square feet of office and laboratory space located at 1050 Waltham Street, Lexington, Massachusetts, expanding our existing headquarters. The Sublease Agreement expires on September 30, 2029.

Purchase Commitments

We enter into agreements in the normal course of business with contract manufacturing organizations for process development, raw material purchases and manufacturing services. These contracts typically do not contain minimum purchase commitments and are generally cancellable by us upon written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including noncancellable obligations of our service providers, up to the date of cancellation and, in the case of certain arrangements with contract manufacturing organizations, may include noncancellable fees. Under such agreements, the exact amounts owed by us in the event of termination will be based on the timing of the termination and the exact terms of the agreement. As of December 31, 2024, we have committed up to approximately $27.2 million under these agreements which are expected to be paid through 2029.

Critical Accounting Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

To date, our revenues have consisted solely of payments received related to research collaborations and licensing of intellectual property. We apply the revenue recognition guidance in accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC, Subtopic 606, Revenue from Contracts with Customers, or ASC 606. Under ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect consideration we are entitled to in exchange for the goods or services we transfer to our customer. All variable consideration, including milestones and royalties, is constrained until the cumulative revenue related to the consideration is no longer probable of reversal.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

We receive payments from our customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we satisfy our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our external research and development expenses. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing research and development expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to

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be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued and prepaid research and development expenses.

Stock-Based Compensation

We account for all stock-based compensation awards granted to employees and non-employees as stock-based compensation expense at fair value. Our stock-based awards include stock options and performance-based stock options. The measurement date for awards is the date of grant. For stock options that vest based on service conditions, stock-based compensation costs are recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. For stock options with performance conditions, stock-based compensation costs are recognized as expense using the accelerated attribution method when it is probable that the performance condition will be achieved. Our Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected volatility of the price of our common stock. We lack company-specific historical and implied volatility information. Therefore, we estimate our expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and these assumptions either increase or decrease, our stock-based compensation expense could materially differ in the future. Stock-based compensation expense is classified in the accompanying statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

(1)

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on developing and commercializing novel therapeutics to treat a wide range of patients with disorders that are linked to dysfunctional signaling of the transforming growth factor-beta, or TGF-ß, family of proteins. We are a leader in understanding the role of the TGF-ß family of proteins, which are master regulators of the growth, repair and maintenance of a number of tissues, including blood, bone, skeletal muscle, adipose and heart tissue. By leveraging this understanding, we have discovered and are developing protein therapeutics that have the potential to provide meaningful and potentially disease-modifying benefit to patients. Our lead product candidate, KER-050 (elritercept), is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis. Our second product candidate, KER-012, is being developed for the treatment of pulmonary arterial hypertension, or PAH, and for the treatment of cardiovascular disorders. Our third product candidate, KER-065, is being developed for the treatment of obesity and for the treatment of neuromuscular diseases.

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Since our inception in 2015, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including by conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, we have not generated any revenue from product sales as none of our product candidates have been approved for commercialization. We have historically financed our operations primarily through the sale of convertible preferred stock and common stock and cash received from licensing agreements.

2021 ATM Sales Agreement

In May 2021, we entered into a Sales Agreement with Leerink Partners LLC, or Leerink, as sales agent, which we refer to as the ATM Sales Agreement, under which we may offer and sell, from time to time, shares of our common stock, or the ATM Shares, through Leerink, which we refer to as the ATM Offering. In May 2021, we filed a registration statement on Form S-3, which we refer to as the Shelf Registration Statement, including a base prospectus and sales agreement prospectus, with the Securities and Exchange Commission, or the SEC, which became effective immediately upon filing, for the issuance and sale of up to $150.0 million of shares of our common stock under the ATM Sales Agreement. In December 2022, we filed a prospectus supplement to the Shelf Registration Statement for the issuance and sale, if any, of up to an additional $250.0 million of shares of our common stock under the ATM Sales Agreement. Under the ATM Sales Agreement, Leerink may sell the ATM Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Exchange Act of 1934, as amended. We may sell the ATM Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the ATM Sales Agreement, but we have no obligation to sell any of the ATM Shares in the ATM Offering. As of December 31, 2023, we have sold a total of 7,991,990 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of approximately $323.3 million after deducting sales agent commissions and estimated offering expenses. As of December 31, 2023, we may offer and sell ATM shares at an aggregate offering price of up to the remaining $71.5 million available under the ATM Offering.

January 2024 Public Offering of Common Stock

On January 8, 2024, we closed an underwritten public offering in which we issued and sold 4,025,000 shares of common stock, which included 525,000 shares of common stock issued and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $40.00 per share. The aggregate net proceeds to us from the public offering were approximately $151.0 million, after deducting underwriting discounts and commissions and estimated offering expenses.

We have incurred recurring operating losses since inception in 2015. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was $153.0 million, $104.7 million, and $58.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, we had an accumulated deficit of $381.4 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future in connection with our ongoing activities.

We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.

As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, and license and development agreements in connection with any future collaborations. Adequate funding may not be available to us on acceptable terms, or at all.

If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

As of December 31, 2023, we had cash and cash equivalents of $331.1 million. We expect that our existing cash and cash equivalents as of December 31, 2023, together with the net proceeds of approximately $151.0 million from our public offering of common stock in January 2024, will enable us to fund our operating expenses and capital expenditure requirements into 2027. See “—Liquidity and Capital Resources.”

Known Trends, Events and Uncertainties

While recent trends towards rising inflation have eased, prices continue to rise, which may also materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and supplies relating to our preclinical studies, clinical trials, interest rates and overhead costs may adversely affect our operating results. Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for

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us to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation or higher interest rates have had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates rise more quickly) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with public health crises and global geopolitical tensions, such as the ongoing war between Russia and Ukraine and the war in Israel, worsening global macroeconomic conditions, including as a result of bank failures, and employee availability and wage increases, which may result in additional stress on our working capital resources.

Licensing Agreements

2016 Exclusive Patent License Agreement with The General Hospital Corporation

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, which was subsequently amended in May 2017 and February 2018. Under the license agreement with MGH, or the MGH Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technical information of MGH, to make, have made, use, have used, sell, have sold, lease, have leased, import, have imported or otherwise transfer licensed products and processes for use in the treatment, diagnosis, palliation and prevention of diseases and disorders in humans and animals. We are required to use commercially reasonable efforts to develop and commercialize licensed products and processes, and must achieve certain required diligence milestones.

Under the terms of the MGH Agreement, we made an initial license payment of $0.1 million in 2016 and reimbursed MGH approximately $0.3 million of prior patent prosecution expenses related to the licensed patents in 2017. We also issued MGH an aggregate of 358,674 shares of our common stock. Additionally, we are required to pay a nominal annual maintenance fee prior to the first commercial sale of our first product or process, a mid-five digit annual maintenance fee after the first commercial sale of our first product or process that is creditable against royalties, certain clinical and regulatory milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $8.6 million in the aggregate, and certain commercial milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $18.0 million in the aggregate. We made payments of $50,000 and $300,000 in 2020 and 2021, respectively, for the achievement of the clinical and regulatory milestones of (i) filing of an IND in the first country and (ii) the completion of a Phase 1 clinical trial, respectively. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits to mid-single digits. The royalty rates are subject to up to a maximum 50% reduction for lack of a valid claim, in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed products, and generic competition. The obligation to pay royalties under the MGH Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of expiry of the last valid claim of the licensed patents that cover such licensed product in such country and ten years from the first commercial sale of such product in such country. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging in the sub-teen double digits and a change of control fee equal to a low-single digit percentage of the payments received as part of any completed transaction up to a low-seven digit amount.

2021 License Agreement with Hansoh (Shanghai) Healthtech Co., Ltd.

On December 12, 2021, we entered into a license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh. Under the terms of the license agreement with Hansoh, or the Hansoh Agreement, we granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the territories of mainland China, Hong Kong and Macau, which we refer to collectively as the Territory.

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of KER-050 from us, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Territory. In addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Territory.

Pursuant to the terms of the Hansoh Agreement, we received a net $18.0 million upfront payment in January 2022. In addition to the upfront payment, we are entitled to receive up to an aggregate of (i) $26.5 million upon the achievement of specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Territory. If a licensed product is approved for marketing in the Territory, we will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) ten years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly or indirectly commercialize a competing product in the Territory.

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Effective in June 2023, in connection with the Hansoh Agreement, we entered into a manufacturing technology transfer agreement, or the Tech Transfer Agreement, with Hansoh. The Tech Transfer Agreement governs the transfer to Hansoh of all documents and information required to complete the manufacturing technology transfer. Under the Tech Transfer Agreement, Hansoh is obligated to make certain payments to us, at the rates set forth in the Tech Transfer Agreement, as manufacturing technology transfer services are provided over the term of the Tech Transfer Agreement. The Tech Transfer Agreement is set to expire on December 30, 2024, unless extended pursuant to its terms. We recognized $0.2 million of service and other revenue in connection with the Tech Transfer Agreement for the year ended December 31, 2023.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue, and do not expect to generate any revenue in the foreseeable future, from product sales. We have generated revenue solely from research collaborations or licensing of intellectual property. We may in the future generate revenue from other strategic collaborations.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the preclinical and clinical development of our current and potential future product candidates, and include:

▪salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

▪expenses incurred under agreements with third parties, including contract research organizations, or CROs, that conduct research, preclinical and clinical activities on our behalf, as well as contract manufacturing organizations, or CMOs, that manufacture drug product for use in our preclinical studies and clinical trials;

▪license fees incurred in connection with license agreements;

▪research and development supplies and services expenses;

▪facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs;

▪cost of outside consultants, including their fees and related travel expenses, engaged in research and development functions;

▪expenses related to regulatory affairs; and

▪fees related to our scientific advisory board.

We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue ongoing and initiate new clinical trials for our product candidates and continue to discover and develop additional product candidates. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities. If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, and travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.

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Other Income (Expense), Net

Interest Expense, Net

Interest expense, net primarily consists of interest earned on money market accounts and interest expense related to leasehold improvement debt amortization. Our interest expense, net has not been significant to date.

Research and Development Incentive Income

Research and development incentive income includes payments received under the Research and Development Tax Incentive, or the R&D Incentive, from the Australian government. The R&D Incentive is one of the key elements of the Australian government’s support for Australia’s innovation system and was developed to assist businesses recover some of the costs of undertaking research and development in Australia. Since July 1, 2021, the R&D Incentive has provided eligible companies that engage in research and development activities with either a refundable or non-refundable tax offset depending on a company’s aggregated revenue as follows:

•Refundable tax offset of up to 18.5% above a company’s underlying tax rate where aggregated revenue is less than AUD$20.0 million per annum, or

•Non-refundable tax offset of up to 16.5% above a company’s underlying tax rate where aggregated revenue is equal to or greater than AUD$20.0 million per annum.

We have assessed our R&D activities and expenditures to determine which activities and expenditures in Australia are likely to be eligible under the R&D Incentive. We estimate the refundable or non-refundable tax offset available to us based on available information at the time. This estimate is also reviewed by our external tax advisors on an annual basis.

Dividend Income

Dividend income consists of income earned on our money market funds that are recorded as cash equivalents on our consolidated balance sheets.

Other Income (Expense), Net

Other income (expense), net primarily consists of unrealized and realized gains and losses on foreign currency.

Income Tax (Provision) Benefit

We have not recorded any income tax benefits for the losses incurred as it is not more likely than not that these benefits will be realized based on our history of losses and expected future losses. The tax provision recorded for the year ended December 31, 2021 resulted from taxable income generated from the Hansoh Agreement.

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Results of Operations

Comparison for the years ended December 31, 2023, 2022, and 2021

The following table summarizes our results of operations for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Revenue

Our revenue for the year ended December 31, 2023 consisted of service and other revenue related to the Tech Transfer Agreement. We did not recognize any revenue for the year ended December 31, 2022. Our revenue for the year ended December 31, 2021 consisted primarily of an upfront fee of $20.0 million under the Hansoh Agreement, whereby we granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the Territory.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Research and development expenses were $135.3 million for the year ended December 31, 2023, compared to $87.3 million for the year ended December 31, 2022. The increase of $48.0 million was primarily due to an increase in program-related costs, including (i) a net increase of $16.8 million of KER-050-related expenses, primarily driven by (a) a $5.5 million increase in clinical and preclinical program activities due to the progression of our two Phase 2 clinical trials of KER-050, one in patients with MDS and one in patients with myelofibrosis, and the initial expenses associated with our planned advancement of KER-050 into a Phase 3 clinical trial and (b) an increase of $11.3 million in manufacturing activities; (ii) a $8.5 million increase of KER-012-related expenses, which was driven by

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a $6.8 million increase in activities to support the clinical advancement of the program and a $1.7 million increase in manufacturing costs and preclinical activities; (iii) a $3.6 million increase in preclinical pipeline and development activities; (iv) a $15.7 million increase in personnel costs, including an increase of $5.9 million of additional stock-based compensation costs, driven by the increase in headcount to support the advancement of our pipeline; and (v) a $4.4 million increase in facilities and supplies and other expenses due to the continued growth of our organization. These increases were partially offset by a net decrease of (i) a $0.4 million decrease of KER-047-related expenses, primarily driven by $0.5 million decrease in clinical trial activities corresponding to our decision to deprioritize the KER-047 program, partially offset by a $0.1 million increase manufacturing and preclinical costs; and (ii) a $0.5 million decrease in professional fees.

Research and development expenses were $87.3 million for the year ended December 31, 2022, compared to $55.1 million for the year ended December 31, 2021. The increase of $32.1 million was primarily due to an increase in program-related costs, including (i) a net increase of $8.0 million of KER-050-related expenses, primarily driven by (a) a $5.0 million increase in clinical and preclinical program activities due to the progression of our two Phase 2 clinical trials of KER-050, one in patients with MDS and one in patients with myelofibrosis and (b) an increase of $3.0 million in manufacturing activities; (ii) a $3.8 million increase in KER-065-related expenses, primarily driven by (a) $3.6 million increase in manufacturing costs and preclinical activities and (b) a $0.2 million increase in clinical trial activities; (iii) a $3.0 million increase in preclinical pipeline and development activities; (iv) a $14.4 million increase in personnel costs, including an increase of $3.9 million of additional stock-based compensation costs, driven by the increase in headcount to support the advancement of our pipeline; (v) a $1.2 million increase in professional fees to support our organizational growth and the continued advancements in our pipeline; and (vi) a $2.5 million increase in facilities and supplies and other expenses due to the continued growth of our organization. These increases were partially offset by a net decrease of $0.6 million of KER-012-related expenses, which was driven by a $2.3 million decrease in manufacturing costs and preclinical activities, partially offset by a $1.6 million increase in activities to support the clinical advancement of the program.

We began separately disclosing KER-065-related expenses in 2023 due to the planned advancement of KER-065 into the clinic and have updated the 2022 and 2021 research and development expense tables to separately disclose KER-065-related expenses in order to provide a meaningful comparison of the year-over-year expenses. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities.

General and Administrative Expenses

General and administrative expenses were $34.8 million for the year ended December 31, 2023, compared to $27.5 million for the year ended December 31, 2022. The increase of $7.3 million was primarily due to (i) a $6.0 million increase in personnel expenses, which includes an increase of $4.2 million of additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals; (ii) a $1.5 million increase in facilities, supplies and other expenses due to growth of our organization; and (iii) a $0.7 million increase in professional fees. These increases were partially offset by a $0.9 million decrease in director and officer insurance premiums.

General and administrative expenses were $27.5 million for the year ended December 31, 2022, compared to $21.3 million for the year ended December 31, 2021. The increase of $6.2 million was primarily due to (i) a $5.2 million increase in personnel expenses, which includes an increase of $3.0 million of additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals; (ii) a $0.7 million increase in facilities, supplies and other office expenses due to growth of our organization; and (iii) a $0.3 million increase in professional fees and director and officer insurance premiums.

Total Other Income (Expense), Net

Total other income (expense), net was $16.9 million for the year ended December 31, 2023, compared to $10.1 million for the year ended December 31, 2022. The increase of $6.8 million is primarily related to an increase of $11.1 million of dividend income partially offset by a decrease of $4.7 million in R&D Incentive income in Australia.

Total other income (expense), net was $10.1 million for the year ended December 31, 2022, compared to $(0.4) million for the year ended December 31, 2021. The increase of $10.5 million is related to (i) an increase of $7.1 million in R&D Incentive income in Australia; and (ii) an increase of $3.6 million in dividend income, partially offset by $0.3 million primarily related to unrealized foreign exchange loss.

Income Tax (Provision) Benefit

Income tax provision was zero for the years ended December 31, 2023 and December 31, 2022.

Income tax provision was zero for the year ended December 31, 2022, compared to $2.0 million tax provision for the year ended December 31, 2021. The decrease of $2.0 million in income tax provision is attributed to withholding taxes related to the taxable income generated in 2021 from the Hansoh Agreement.

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Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. Our net losses were $153.0 million, $104.7 million, and $58.7 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023 and December 31, 2022, we had an accumulated deficit of $381.4 million and $228.4 million, respectively. To date, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, director and officer insurance premiums and other expenses.

We do not have any products approved for sale. We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. Since our inception, we have funded our operations primarily through equity financings and through research collaborations or licensing of intellectual property.

On May 3, 2021, we filed the Shelf Registration Statement, which permits us to offer, from time to time, an unspecified amount of common stock, preferred stock, debt securities and warrants. We simultaneously entered into the ATM Sales Agreement with Leerink, as agent, to provide for the issuance and sale by us of the ATM Shares from time to time in “at the market” offerings under the Shelf Registration Statement, which we refer to as the ATM Program. As of December 31, 2023, we have sold a total of 7,991,990 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of approximately $323.3 million after deducting sales agent commissions and estimated offering expenses. During the year ended December 31, 2023, we sold a total of 4,061,606 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of $175.8 million after deducting sales agent commissions and estimated offering expenses. As of December 31, 2023, we were eligible to offer and sell, from time to time, shares of our common stock for an aggregate offering amount of up to the remaining $71.5 million available under the ATM Program.

As of December 31, 2023, we had cash and cash equivalents of $331.1 million. We believe that our existing cash and cash equivalents, which include the net proceeds of approximately $151.0 million from our public offering of common stock in January 2024, will be sufficient to fund our projected liquidity requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:

▪the progress, timing and completion of preclinical studies and clinical trials for our current or any future product candidates, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to public health crises or other causes;

▪the timing and amount of milestone and royalty payments we are required to make or are eligible to receive under our license agreements with each of The General Hospital Corporation and Hansoh;

▪the number of potential new product candidates we identify and decide to develop;

▪the need for additional or expanded preclinical studies and clinical trials beyond those that we plan to conduct with respect to our current and future product candidates;

▪the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or any future product candidates;

▪the costs involved in filing patent applications, maintaining and enforcing patents or defending against infringement or other claims raised by third parties;

▪the maintenance of our existing license and collaboration agreements and the entry into new license and collaboration agreements;

▪the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of our product candidates;

▪the effect of competing technological and market developments;

▪the costs of operating as a public company;

▪the cost of manufacturing KER-050, KER-012, KER-065 and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization;

▪the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products, if approved, on our own;

▪the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our product candidates, if approved; and

▪market acceptance of any approved product candidates.

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In addition, public health crises, bank failures, geopolitical tensions and resulting global slowdown of economic activity continue to rapidly evolve and have already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs and clinical development efforts, which would adversely affect our business prospects, or we may be unable to continue operations. We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies..

Cash Flows

The following table summarizes our cash flows for each of the periods presented (in thousands):

Cash Used in Operating Activities

Net cash used in operating activities was $124.5 million for the year ended December 31, 2023, which was driven by a net loss of $153.0 million and $2.7 million net cash used by operating assets and liabilities, partially offset by non-cash charges including $28.8 million of stock-based compensation expense, $1.6 million in lease expenses and $0.8 million in depreciation. The $2.7 million of cash used by operating assets and liabilities was primarily comprised of (i) a $9.8 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs and (ii) a $0.1 million increase in accounts receivable, which was partially offset by (a) a $6.9 million increase in accounts payable and accrued expenses to support the advancement of our programs and (b) $0.4 million provided by our operating lease liabilities.

Net cash used in operating activities was $70.1 million for the year ended December 31, 2022, which was driven by a net loss of $104.7 million, partially offset by a $14.3 million increase in net cash provided by operating assets and liabilities and non-cash charges, $18.7 million of stock-based compensation expense, $0.9 million in lease expenses and $0.7 million in depreciation. The $14.3 million of cash used in operating assets and liabilities was primarily comprised of (i) an $18.0 million decrease in accounts receivable and (ii) a $4.9 million increase in accounts payable and accrued expenses to support the advancement of our programs, which was partially offset by (a) a $4.9 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs and (b) a $3.7 million change in our operating lease liabilities.

Net cash used in operating activities was $62.1 million for the year ended December 31, 2021, which was driven by a net loss of $58.7 million and $16.1 million in cash used in operating assets and liabilities, partially offset by non-cash charges, including $11.7 million of stock-based compensation expense and $0.4 million in depreciation. The $16.1 million of cash used in operating assets and liabilities was primarily comprised of (i) an $18.0 million increase in accounts receivable from the $20.0 million upfront payment pursuant to the Hansoh Agreement, net of $2.0 million in withholding tax; and (ii) a $1.5 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs, which was partially offset by a $4.1 million increase in accounts payable and accrued expenses to support the advancement of our programs.

Cash Used in Investing Activities

Net cash used in investing activities was $2.5 million, $1.2 million, and $1.0 million for the years ended December 31, 2023, 2022, and 2021, respectively. The cash used in investing activities in each period was due to purchases of property and equipment.

Cash Provided by Financing Activities

Net cash provided by financing activities was $179.0 million for the year ended December 31, 2023, which was primarily related to (i) net proceeds of $175.7 million received from sales of our common stock under the ATM Program, after

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deducting sales agent commissions and offering expenses; and (ii) proceeds of $3.2 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $120.3 million for the year ended December 31, 2022, which was primarily related to (i) net proceeds of $119.5 million received from sales of our common stock under the ATM Program, after deducting sales agent commissions and offering expenses; and (ii) proceeds of $0.8 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $28.6 million for the year ended December 31, 2021, which was primarily related to (i) net proceeds of $28.2 million received from sales of our common stock under the ATM Sales Agreement, after deducting sales agent commissions and before deducting offering expenses; and (ii) proceeds of $0.4 million related to exercises of options to purchase common stock.

Contractual Obligations and Commitments

We may incur contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we are required to make under the MGH Agreement pursuant to which we have in-licensed certain intellectual property. Due to the uncertainty of the achievement and timing of the events requiring payment under these agreements, the amounts to be paid by us are not fixed or determinable at this time and are excluded from the table below.

Under the terms of the MGH Agreement, we are obligated to pay MGH designated amounts when any licensed product achieves certain developmental milestones. Following the commencement of commercial sales of the licensed products, we will pay designated amounts when certain milestone events occur. The development milestones and commercial milestones range from $50,000 to $10.0 million depending upon the significance of the particular milestone. We are also required to pay MGH royalties on all sales of licensed products, with such royalties ranging from the low-single digits to mid-single digits of sales, as well as royalties ranging in the low-double digits of sublicense income depending on the stage of development of the relevant product or process when the sublicense is granted.

The following table summarizes our contractual obligations as of December 31, 2023 and the effects such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

On September 7, 2021, we entered into an indenture of lease, or the 1050 Waltham Lease, with Revolution Labs Owner, LLC, or the Landlord, pursuant to which we are leasing approximately 35,662 square feet of office, laboratory and vivarium space located at 1050 Waltham Street, Lexington, Massachusetts, or the Premises, for our new principal executive office. In December 2022, we received access to 31,991 square feet of office and laboratory space, or the Phase A Premises, which is considered a distinct lease component. In January 2023, we entered into a first amendment to the 1050 Waltham Lease, or the Lease Amendment. Under the terms of the Lease Amendment, we agreed to the phased delivery of the Premises to us by the Landlord, with the Phase A Premises delivered first, and the additional approximately 3,671 rentable square feet of vivarium space, or the Phase B Premises, delivered at a later date, and established the rent commencement dates for the Phase A Premises and the Phase B Premises accordingly. In March 2023, we received access to the Phase B Premises. Rent commenced in November 2023 for the Premises. The 1050 Waltham Lease is expected to expire on November 30, 2031.

Critical Accounting Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue Recognition

To date, our revenues have consisted solely of payments received related to research collaborations and licensing of intellectual property. We apply the revenue recognition guidance in accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC, Subtopic 606, Revenue from Contracts with Customers, or ASC 606, which was adopted January 1, 2018 using the full retrospective method. Under ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect consideration we are entitled to in exchange for the goods or services we transfer to our customer. All variable consideration, including milestones and royalties, is constrained until the cumulative revenue related to the consideration is no longer probable of reversal.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

We receive payments from our customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we satisfy our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our external research and development expenses. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing research and development expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued and prepaid research and development expenses.

Stock-Based Compensation

We account for all stock-based compensation awards granted to employees and non-employees as stock-based compensation expense at fair value. Our stock-based payments include stock options. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Our Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected volatility of the price of our common stock. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and these assumptions either increase or decrease, our stock-based compensation expense could materially differ in the future. Stock-based compensation expense is classified in the accompanying statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

(1)

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

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Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel treatments for patients suffering from hematological, pulmonary and cardiovascular disorders with high unmet medical need. We are a leader in understanding the role of the transforming growth factor-beta, or TGF-ß, family of proteins, which are master regulators of red blood cell and platelet production as well as of the growth, repair and maintenance of a number of tissues, including blood vessels, skeletal muscle and heart tissue. We are leveraging this understanding to develop large and small molecules that have the potential to provide meaningful and potentially disease-modifying benefit to patients. Targeting TGF-ß signaling pathways has been clinically proven to elicit robust changes in blood cells, blood vessels, skeletal muscle and heart tissue, which we believe provides a precedent and strong rationale for our strategy. Our lead protein therapeutic product candidate, KER-050, is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis. Our lead small molecule product candidate, KER-047, is being developed for the treatment of functional iron deficiency. Our third product candidate, KER-012, is being developed for the treatment of pulmonary arterial hypertension, or PAH, and for the treatment of cardiovascular disorders.

Since our inception in 2015, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including by conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, we have not generated any revenue from product sales as none of our product candidates have been approved for commercialization. We have historically financed our operations primarily through the sale of convertible preferred stock and common stock and cash received from licensing agreements.

2021 ATM Sales Agreement

In May 2021, we entered into a Sales Agreement with SVB Securities LLC (formerly SVB Leerink LLC), or SVB Securities, as sales agent, which we refer to as the ATM Sales Agreement, under which we may offer and sell, from time to time, shares of our common stock, or the ATM Shares, through SVB Securities, which we refer to as the ATM Offering. In May 2021, we filed a registration statement on Form S-3, which we refer to as the Shelf Registration Statement, including a base prospectus and sales agreement prospectus, with the Securities and Exchange Commission, or the SEC, which became effective immediately upon filing, for the issuance and sale of up to $150.0 million of shares of our common stock under the ATM Sales Agreement. In December 2022, we filed a prospectus supplement to the Shelf Registration Statement for the issuance and sale, if any, of up to an additional $250.0 million of shares of our common stock under the ATM Sales Agreement. Under the ATM Sales Agreement, SVB Securities may sell the ATM Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Exchange Act of 1934, as amended. We may sell the ATM Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the ATM Sales Agreement, but we have no obligation to sell any of the ATM Shares in the ATM Offering. In December 2021, we raised gross proceeds of $28.6 million pursuant to the ATM Offering through the sale of 520,000 shares of common stock at a weighted average price of $55.00 per share. The net proceeds from the ATM Offering were approximately $28.1 million after deducting sales agent commissions of $0.4 million and offering expenses of $0.1 million, for the year ended December 31, 2021. During the year ended December 31, 2022, we raised additional gross proceeds of $121.4 million pursuant to the ATM Offering through the sale of 3,410,384 shares of common stock at a weighted average price of $35.60 per share. The net proceeds from the ATM Offering for the year ended December 31, 2022 were approximately $119.4 million after deducting sales agent commissions of $1.8 million and offering expenses of $0.2 million. As of December 31, 2022, we may offer and sell ATM shares at an aggregate offering price of up to the remaining $250.0 million available under the ATM Offering.

We have incurred recurring operating losses since inception in 2015. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was $104.7 million and $58.7 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $228.4 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future in connection with our ongoing activities.

We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.

As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings, debt financings, and license and development agreements in connection with any future collaborations. Adequate funding may not be available to us on acceptable terms, or at all.

If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business

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prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

As of December 31, 2022, we had cash and cash equivalents of $279.0 million. We expect that our existing cash and cash equivalents as of December 31, 2022, together with the net proceeds from the ATM Offering through February 28, 2023, will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2025. See “—Liquidity and Capital Resources.”

Known Trends, Events and Uncertainties

We have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic and other public health crises on our employees and our business operations, including our preclinical studies and clinical trials, supply chains and third-party providers. The COVID-19 situation and government measures taken in response have also had a significant impact, both direct and indirect, on third-party businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; and facilities and production have been delayed or suspended. While we are experiencing limited financial impacts on us at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, particularly in light of variant strains of the COVID-19 virus, our business, financial condition, results of operations and growth prospects could be materially adversely affected. Recently, President Biden announced that the administration intends to end the COVID-19 national and public health emergencies on May 11, 2023. The full impact of the termination of the public health emergencies on FDA and other regulatory policies and operations are unclear.

Additionally, the recent trends towards rising inflation may also materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and supplies relating to our clinical trials, interest rates and overhead costs may adversely affect our operating results. Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates continue to rise) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, consequences associated with public health crises, such as the COVID-19 pandemic, and global geopolitical tension as a result of the ongoing war between Russia and Ukraine, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.

Preclinical and Clinical Developments

With respect to preclinical and clinical development, we have taken measures to implement remote and virtual approaches, including remote participant monitoring where possible, to maintain participant safety and trial continuity and to preserve study integrity. For several of our clinical development programs, we are experiencing, and expect to continue to experience, a disruption or delay in our ability to initiate trial sites and enroll and assess participants. As the COVID-19 pandemic continues, we have experienced and expect to continue to experience an impact on our ability to enroll participants in our clinical trials. Additionally, we have experienced and expect to continue to experience an impact on the ability to supply study drug, report trial results or interact with clinicians, investigators, regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations, or CROs, or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. We could experience significant disruptions to our preclinical and clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Supply Chain

As for our third-party manufacturers, distributors and other partners, we are working closely with them to manage our supply chain activities and mitigate potential disruptions to our clinical supply as a result of the COVID-19 pandemic. We expect to have adequate supply for the development of our product candidates. However, if the COVID-19 pandemic continues to persist and impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates, which would adversely impact our ability to carry out our clinical trials. In addition, we may experience supply chain constraints in the future due to rising inflation rates as labor costs, material costs and overall research and development costs continue to increase. We do not believe that inflation has had a material impact on our financial position or results of operations to date.

Financial Impact

Public health crises, such as the COVID-19 pandemic, geopolitical tensions and resulting global slowdown of economic activity continue to rapidly evolve and have already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future

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negatively affect our operations. While we expect these factors to adversely affect our business operations, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, as a result of uncertainty regarding ultimate duration of the pandemic, particularly in light of variant strains of the COVID-19 virus, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Australia, New Zealand, Europe, the United Kingdom and South Korea and the effectiveness of actions taken globally to contain and treat the disease.

Licensing Agreements

2016 Exclusive Patent License Agreement with The General Hospital Corporation

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, which was subsequently amended in May 2017 and February 2018. Under the license agreement with MGH, or the MGH Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technical information of MGH, to make, have made, use, have used, sell, have sold, lease, have leased, import, have imported or otherwise transfer licensed products and processes for use in the treatment, diagnosis, palliation and prevention of diseases and disorders in humans and animals. We are required to use commercially reasonable efforts to develop and commercialize licensed products and processes, and must achieve certain required diligence milestones.

Under the terms of the MGH Agreement, we made an initial license payment of $0.1 million in 2016 and reimbursed MGH approximately $0.3 million of prior patent prosecution expenses related to the licensed patents in 2017. We also issued MGH an aggregate of 358,674 shares of our common stock. Additionally, we are required to pay a nominal annual maintenance fee prior to the first commercial sale of our first product or process, a mid-five digit annual maintenance fee after the first commercial sale of our first product or process that is creditable against royalties, certain clinical and regulatory milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $8.6 million in the aggregate, and certain commercial milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $18.0 million in the aggregate. We made payments of $50,000 and $300,000 in 2020 and 2021, respectively, for the achievement of the clinical and regulatory milestones of (i) filing of an IND in the first country and (ii) the completion of a Phase 1 clinical trial, respectively. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits to mid-single digits. The royalty rates are subject to up to a maximum 50% reduction for lack of a valid claim, in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed products, and generic competition. The obligation to pay royalties under the MGH Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of expiry of the last valid claim of the licensed patents that cover such licensed product in such country and ten years from the first commercial sale of such product in such country. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging in the sub-teen double digits and a change of control fee equal to a low-single digit percentage of the payments received as part of any completed transaction up to a low-seven digit amount.

Neurona Therapeutics Inc., License Agreement

On June 22, 2021, we entered into a license agreement, or the Neurona Agreement, with Neurona Therapeutics, Inc., or Neurona. Under the Neurona Agreement, we granted Neurona a non-exclusive license to use LDN-193189, an early-stage research compound, which we license from a third party, solely as a reagent in connection with the manufacturing of diagnostic and/or therapeutic products to make, have made, use, import, offer for sale and sell products and services arising therefrom, and to make, have made, acquire, transfer, import and export the compound for such use. The license excludes Neurona from any rights to use, sell or distribute the compound for any therapeutic or diagnostic purpose. Unless terminated by either party for breach of contract or insolvency, the Neurona Agreement will continue in perpetuity until the last patent expires. Under the Neurona Agreement, we received a one-time, upfront license fee of $0.1 million from Neurona in July 2021.

2021 License Agreement with Hansoh (Shanghai) Healthtech Co., Ltd.

On December 12, 2021, we entered into a license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh. Under the terms of the license agreement with Hansoh, or the Hansoh Agreement, we granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the territories of mainland China, Hong Kong and Macau, which we refer to collectively as the Territory.

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of KER-050 from us, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Territory. In addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Territory.

Pursuant to the terms of the Hansoh Agreement, we received a net $18.0 million upfront payment in January 2022. In addition to the upfront payment, we are entitled to receive up to an aggregate of (i) $26.5 million upon the achievement of specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Territory. If a licensed product is approved for marketing in the Territory, we will be entitled to receive

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royalty payments based on a tiered percentage of annual net sales in each region within the Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) ten years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly or indirectly commercialize a competing product in the Territory.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue, and do not expect to generate any revenue in the foreseeable future, from product sales. We have generated revenue solely from research collaborations or licensing of intellectual property. We may in the future generate revenue from other strategic collaborations.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the preclinical and clinical development of our current and potential future product candidates, and include:

▪salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

▪expenses incurred under agreements with third parties, including CROs that conduct research, preclinical and clinical activities on our behalf, as well as contract manufacturing organizations, or CMOs, that manufacture drug product for use in our preclinical studies and clinical trials;

▪license fees incurred in connection with license agreements;

▪research and development supplies and services expenses;

▪facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs;

▪cost of outside consultants, including their fees and related travel expenses, engaged in research and development functions;

▪expenses related to regulatory affairs; and

▪fees related to our scientific advisory board.

We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue ongoing and initiate new clinical trials for our product candidates and continue to discover and develop additional product candidates. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities. If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, and travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. As a result of our initial public offering, or IPO, we have incurred and expect to continue to incur increased expenses associated with being a public

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company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense), Net

Interest Expense, Net

Interest expense, net primarily consists of interest earned on money market accounts and interest expense related to leasehold improvement debt amortization. Our interest expense, net has not been significant to date.

Research and Development Incentive Income

Research and development incentive income includes payments under the Research and Development Tax Incentive, or the R&D Incentive, from the Australian government. The R&D Incentive is one of the key elements of the Australian government’s support for Australia’s innovation system and was developed to assist businesses recover some of the costs of undertaking research and development. Since July 1, 2021, the R&D Incentive has provided a non-refundable tax offset up to 16.5% above our underlying income tax rate, as we qualified as an eligible company with an aggregated turnover of more than $20.0 million per annum that engages in research and development activities.

We have assessed our research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the R&D Incentive. We estimate the non-refundable tax offset available to us based on available information at the time. This estimate is also reviewed by our external tax advisors on an annual basis.

Other Income (Expense), Net

Other income (expense), net primarily consists of unrealized gains on foreign currency and dividend income earned on money market fund accounts.

Income Tax (Provision) Benefit

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards, using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized. We determine whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. We account for interest and penalties related to uncertain tax positions as part of its provision for income taxes.

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Results of Operations

Comparison for the years ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands):

Revenue

We did not recognize any revenue for the year ended December 31, 2022. Our revenue for the year ended December 31, 2021 consisted of (i) a one-time license fee of $0.1 million under the Neurona Agreement and (ii) an upfront fee of $20.0 million under the Hansoh Agreement, whereby we granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the Territory.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021 (in thousands):

Research and development expenses were $87.3 million for the year ended December 31, 2022, compared to $55.1 million for the year ended December 31, 2021. The increase of $32.1 million was primarily due to an increase in program-related costs, including (i) a net increase of $8.0 million of KER-050-related expenses, primarily driven by (a) a $5.0 million increase in clinical and preclinical program activities due to the progression of our two Phase 2 clinical trials of KER-050, one in patients with MDS and one in patients with myelofibrosis and (b) an increase of $3.0 million in manufacturing activities; (ii) a $6.8 million increase in preclinical pipeline and development activities; (iii) a $14.4 million increase in personnel costs, including additional stock-based compensation costs driven by the increase in headcount to support the advancement of our pipeline; (iv) a $1.2 million increase in professional fees to support our organizational growth and the continued advancements in our pipeline; and (v) a $2.5 million increase in facilities and supplies and other expenses due to the continued growth of our organization. These increases were offset by a net decrease of $0.6 million of KER-012-related expenses, which was driven by a $2.3 million decrease in manufacturing costs and preclinical activities, partially offset by a

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$1.6 million increase in activities to support the clinical advancement of the program. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities.

General and Administrative Expenses

General and administrative expenses were $27.5 million for the year ended December 31, 2022, compared to $21.3 million for the year ended December 31, 2021. The increase of $6.2 million was primarily due to (i) a $5.2 million increase in personnel expenses, which includes additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals; (ii) a $0.7 million increase in facilities, supplies and other office expenses due to growth of our organization; and (iii) a $0.3 million increase in professional fees and director and officer insurance premiums.

Total Other Income (Expense), Net

Total other income (expense), net was $10.1 million for the year ended December 31, 2022, compared to $(0.4) million for the year ended December 31, 2021. The increase of $10.5 million is related to (i) an increase of $7.1 million in R&D Incentive income in Australia; and (ii) an increase of $3.6 million in dividend income, partially offset by $0.3 million primarily related to unrealized foreign exchange loss.

Income Tax (Provision) Benefit

Income tax provision was zero for the year ended December 31, 2022, compared to $2.0 million tax provision for the year ended December 31, 2021. The decrease of $2.0 million in income tax provision is attributed to withholding taxes related to the taxable income generated in 2021 from the Hansoh Agreement.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. Our net losses were $104.7 million and $58.7 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and December 31, 2021, we had an accumulated deficit of $228.4 million and $123.8 million, respectively. To date, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, director and officer insurance premiums and other expenses that we did not incur as a private company.

We do not have any products approved for sale. We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. Since our inception, we have funded our operations primarily through equity financings and through research collaborations or licensing of intellectual property.

On May 3, 2021, we filed the Shelf Registration Statement, which permits us to offer, from time to time, an unspecified amount of common stock, preferred stock, debt securities and warrants. We simultaneously entered into the ATM Sales Agreement with SVB Securities, as agent, to provide for the issuance and sale by us of the ATM Shares from time to time in “at the market” offerings under the Shelf Registration Statement, which we refer to as the ATM Program. As of December 31, 2022, we have sold a total of 3,930,384 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of approximately $147.5 million after deducting sales agent commissions and estimated offering expenses. During the year ended December 31, 2022, we sold a total of 3,410,384 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of $119.4 million after deducting sales agent commissions and estimated offering expenses. As of December 31, 2022, we were eligible to offer and sell, from time to time, shares of our common stock for an aggregate offering amount of up to the remaining $250.0 million available under the ATM Program.

As of December 31, 2022, we had cash and cash equivalents of $279.0 million. We believe that our existing cash and cash equivalents will be sufficient to fund our projected liquidity requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:

▪the progress, timing and completion of preclinical studies and clinical trials for our current or any future product candidates, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other causes;

▪the timing and amount of milestone and royalty payments we are required to make or are eligible to receive under our license agreements with each of The General Hospital Corporation and Hansoh;

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▪the number of potential new product candidates we identify and decide to develop;

▪the need for additional or expanded preclinical studies and clinical trials beyond those that we plan to conduct with respect to our current and future product candidates;

▪the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or any future product candidates;

▪the costs involved in filing patent applications, maintaining and enforcing patents or defending against infringement or other claims raised by third parties;

▪the maintenance of our existing license and collaboration agreements and the entry into new license and collaboration agreements;

▪the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of our product candidates;

▪the effect of competing technological and market developments;

▪the costs of operating as a public company;

▪the cost of manufacturing KER-050, KER-047, KER-012 and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization;

▪the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products, if approved, on our own;

▪the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our product candidates, if approved; and

▪market acceptance of any approved product candidates.

In addition, public health crises, such as the COVID-19 pandemic, geopolitical tensions and resulting global slowdown of economic activity continue to rapidly evolve and have already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs and clinical development efforts, which would adversely affect our business prospects, or we may be unable to continue operations. We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

Cash Flows

The following table summarizes our cash flows for each of the periods presented (in thousands):

Cash Used in Operating Activities

Net cash used in operating activities was $70.1 million for the year ended December 31, 2022, which was driven by a net loss of $104.7 million, partially offset by a $14.3 million increase in net cash provided by operating assets and liabilities and non-cash charges, $18.7 million of stock-based compensation expense, $0.9 million in lease expenses and $0.7 million in depreciation. The $14.3 million of cash provided by operating assets and liabilities was primarily comprised of (i) an $18.0 million decrease in accounts receivable and (ii) a $4.9 million increase in accounts payable and accrued expenses to support the advancement of our programs, which was partially offset by (a) a $4.9 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs and (b) $3.7 million change in our operating lease liabilities.

Net cash used in operating activities was $62.1 million for the year ended December 31, 2021, which was driven by a net loss of $58.7 million and $16.1 million in cash used in operating assets and liabilities, partially offset by non-cash charges, including $11.7 million of stock-based compensation expense and $0.4 million in depreciation. The $16.1 million of cash used in operating assets and liabilities was primarily comprised of (i) an 18.0 million increase in accounts receivable from the $20.0 million upfront payment pursuant to the Hansoh Agreement, net of $2.0 million in withholding tax; and (ii) a $1.5 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs,

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which was partially offset by a $4.1 million increase in accounts payable and accrued expenses to support the advancement of our programs.

Cash Used in Investing Activities

Net cash used in investing activities was $1.2 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively. The cash used in investing activities in both periods was due to purchases of property and equipment.

Cash Provided by Financing Activities

Net cash provided by financing activities was $120.3 million for the year ended December 31, 2022, which was primarily related to (i) net proceeds of $119.5 million received from sales of our common stock under the ATM Program, after deducting sales agent commissions and offering expenses; and (ii) proceeds of $0.8 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $28.6 million for the year ended December 31, 2021, which was primarily related to (i) net proceeds of $28.2 million received from sales of our common stock under the ATM Sales Agreement, after deducting sales agent commissions and before deducting offering expenses; and (ii) proceeds of $0.4 million related to exercises of options to purchase common stock.

Contractual Obligations and Commitments

We may incur contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we are required to make under the MGH Agreement pursuant to which we have in-licensed certain intellectual property. Due to the uncertainty of the achievement and timing of the events requiring payment under these agreements, the amounts to be paid by us are not fixed or determinable at this time and are excluded from the table above.

Under the terms of the MGH Agreement, we are obligated to pay MGH designated amounts when any licensed product achieves certain developmental milestones. Following the commencement of commercial sales of the licensed products, we will pay designated amounts when certain milestone events occur. The development milestones and commercial milestones range from $50,000 to $10.0 million depending upon the significance of the particular milestone. We are also required to pay MGH royalties on all sales of licensed products, with such royalties ranging from the low-single digits to mid-single digits of sales, as well as royalties ranging in the low-double digits of sublicense income depending on the stage of development of the relevant product or process when the sublicense is granted. In conjunction with the execution of the MGH Agreement, we issued MGH 5% of our outstanding fully diluted capital on April 15, 2016, or 358,674 shares of common stock, for proceeds of less than $0.1 million.

The following table summarizes our contractual obligations as of December 31, 2022 and the effects such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

In March 2017, we entered into a lease agreement with 99 Hayden LLC for our previous headquarters located in Lexington, Massachusetts. In July and August 2019, we executed the first and second amendments to our lease, respectively, to expand the rental space to 10,417 square feet. In August 2021, we entered into a third amendment to our lease to extend the lease term through March 31, 2023 and to expand the rental space to 15,622 square feet.

On September 7, 2021, we entered into an indenture of lease, or the 1050 Waltham Lease, with Revolution Labs Owner, LLC, or the Landlord, pursuant to which we are leasing approximately 35,662 square feet of office, laboratory and vivarium space located at 1050 Waltham Street, Lexington, Massachusetts, or the Premises, for our new principal executive office. In December 2022, we received access to a portion of the Premises pertaining to the office and laboratory space, or the Initial Premises, which is considered a distinct lease component. The portion of the Premises pertaining to the vivarium space, or the Vivarium Premises, was not made available for use by the Landlord as improvement work was still in progress. The 1050 Waltham Lease is expected to expire on July 31, 2031.

The table above includes future minimum lease payments under the non-cancelable lease arrangement with 99 Hayden LLC and for the general office and laboratory component of the 1050 Waltham Lease. The Vivarium Premises had not yet been made available to us as of December 31, 2022, therefore the commitment of $2.2 million, undiscounted, associated with this component is not included in the table above. The Vivarium Premises component of the 1050 Waltham Lease is currently expected to commence in the first half of 2023.

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Critical Accounting Policies and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

To date, our revenues have consisted solely of payments received related to research collaborations or licensing of intellectual property. We apply the revenue recognition guidance in accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC, Subtopic 606, Revenue from Contracts with Customers, or ASC 606, which was adopted January 1, 2018 using the full retrospective method. Under ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect consideration we are entitled to in exchange for the goods or services we transfer to our customer. All variable consideration, including milestones and royalties, is constrained until the cumulative revenue related to the consideration is no longer probable of reversal.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. We currently measure progress according to the expenditure of research and development efforts, based on costs incurred, as this is the best indicator of performance.

We receive payments from our customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we satisfy our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Stock-Based Compensation

We account for all stock-based compensation awards granted to employees and non-employees as stock-based compensation expense at fair value. Our stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Our Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected volatility of the price of our common stock and the expected term of the award. These estimates involve inherent uncertainties and the

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application of management’s judgment. If factors change and these assumptions either increase or decrease, our stock-based compensation expense could materially differ in the future. Stock-based compensation expense is classified in the accompanying statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

(1)

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Emerging Growth Company Status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

▪reduced disclosure about the compensation paid to our executive officers;

▪not being required to submit to our stockholders’ advisory votes on executive compensation or golden parachute arrangements;

▪an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and

▪an exemption from new or revised financial accounting standards until they would apply to private companies and from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation.

We may take advantage of these exemptions until December 31, 2025 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (2) December 31, 2025; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission. We may choose to take advantage of some but not all of these exemptions.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel treatments for patients suffering from hematological and musculoskeletal disorders with high unmet medical need. We are a leader in understanding the role of the transforming growth factor-beta, or TGF-ß, family of proteins, which are master regulators of red blood cell and platelet production as well as of the growth, repair and maintenance of muscle and bone. We have leveraged this understanding and developed a discovery approach to generate large and small molecules to address diseases of these tissues. Targeting TGF-ß signaling pathways has been clinically proven to elicit robust changes in blood cells, muscle and bone, which we believe provides a precedent and strong rationale for our strategy. Our lead protein

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therapeutic product candidate, KER-050, is being developed for the treatment of low blood cell counts, or cytopenias, including anemia and thrombocytopenia, in patients with myelodysplastic syndromes, or MDS, and in patients with myelofibrosis. We have initiated a Phase 2 clinical trial in patients with MDS and reported preliminary data from Part 1 of this trial most recently in December 2021. We expect to report additional data from this ongoing trial in mid-2022. We have also commenced a Phase 2 clinical trial in patients with myelofibrosis and expect to report initial data from this trial by the end of 2022. Our lead small molecule product candidate, KER-047, is being developed for the treatment of anemia resulting from iron imbalance. We have completed our Phase 1 clinical trial of KER-047 and expect to commence two open-label Phase 2 clinical trials in the first half of 2022, one in patients with iron deficiency anemia and one in patients with iron-refractory iron deficiency anemia. Our third product candidate, KER-012, is being developed for the treatment of pulmonary arterial hypertension and for the treatment of disorders associated with bone loss, such as osteoporosis and osteogenesis imperfecta. We have commenced a Phase 1 clinical trial of KER-012 in healthy volunteers and expect to report initial data from Part 1 of this trial in the second quarter of 2022. We believe KER-047 and KER-012 offer substantial opportunities for us to continue to apply our understanding of TGF-ß signaling pathways and expand our development programs in related hematological and musculoskeletal disorders with high unmet medical need.

Since our inception in 2015, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including by conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, we have not generated any revenue from product sales as none of our product candidates have been approved for commercialization. We have historically financed our operations primarily through the sale of convertible preferred stock and cash received from licensing agreements.

Initial Public Offering

On April 13, 2020, we completed an initial public offering, or IPO, of our common stock, in which we issued and sold 6,900,000 shares of common stock, which includes 900,000 shares issued and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $16.00 per share. The aggregate net proceeds to us from the IPO were approximately $100.1 million after deducting underwriting discounts and commissions and offering expenses. The shares began trading on the Nasdaq Global Market on April 8, 2020. Upon completion of the IPO, all of our outstanding shares of convertible preferred stock converted into 10,725,129 shares of our common stock.

November 2020 Public Offering of Common Stock

On November 17, 2020, we closed a public offering in which we issued and sold 2,990,000 shares of common stock at a public offering price of $50.00 per share, which included 390,000 shares of common stock issued pursuant to the exercise in full of the underwriters’ option to purchase additional shares. The aggregate net proceeds to us from the public offering were approximately $140.1 million, after deducting underwriting discounts and commissions and offering expenses.

2021 ATM Sales Agreement

In May 2021, we entered into a Sales Agreement with SVB Leerink LLC, or SVB Leerink, as sales agent, which we refer to as the ATM Sale Agreement, under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $150.0 million, or the ATM Shares, through SVB Leerink, which we refer to as the ATM Offering. Under the ATM Sales Agreement, SVB Leerink may sell the ATM Shares by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Exchange Act of 1934, as amended. We may sell the ATM Shares in amounts and at times to be determined by us from time to time subject to the terms and conditions of the ATM Sales Agreement, but we have no obligation to sell any of the ATM Shares in the ATM Offering.

For the year ended December 31, 2021, we raised gross proceeds of $28.6 million pursuant to the ATM Offering through the sale of 520,000 shares of common stock at a weighted average price of $55.00 per share. The net proceeds from the ATM Offering were approximately $28.1 million after deducting sales agent commissions of $0.4 million and offering expenses of $0.1 million. As of December 31, 2021, we may offer and sell ATM shares at an aggregate offering price of up to the remaining $121.4 million available under the ATM Offering.

We have incurred recurring operating losses since inception in 2015. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and commercialization of one or more of our product candidates. Our net loss was $58.7 million and $45.4 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $123.8 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future in connection with our ongoing activities.

We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.

As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to commercialization. Until such time as we can generate significant revenue from product sales, if ever,

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we expect to finance our operating activities through a combination of equity offerings, debt financings, and license and development agreements in connection with any future collaborations. Adequate funding may not be available to us on acceptable terms, or at all.

If we are unable to obtain funding, we will be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

As of December 31, 2021, we had cash and cash equivalents of $230.0 million. We expect that our existing cash and cash equivalents as of December 31, 2021, along with the net $18.0 million upfront payment pursuant to our license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., which we received in January 2022, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024. See “—Liquidity and Capital Resources.”

COVID-19 Business Update

As a result of the continuing global COVID-19 pandemic, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees, and our business operations, including our preclinical studies and clinical trials, supply chains and third-party providers. We are closely monitoring the COVID-19 situation as we evolve our business, continuity plans and response strategy. On March 23, 2020, the governor of Massachusetts ordered the closure of all non-essential businesses effective March 24, 2020, through April 7, 2020, which was subsequently extended through May 18, 2020. On May 18, 2020, the governor of Massachusetts issued a new order implementing a phased re-opening of workplaces, effective May 18, 2020. On May 29, 2021, the Commonwealth of Massachusetts permitted all industries to fully re-open and on June 15, 2021, the governor of Massachusetts signed an executive order that terminated the Commonwealth's State of Emergency. Because of the nature of our operations, we were considered to be an essential business so our operations were only partially affected by these orders. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on third-party businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the spread of COVID-19, we closed our principal executive office in March 2020, with our administrative employees continuing their work outside of our office, and limited the number of staff in any given research laboratory. In July 2021, we implemented a plan to reopen our office to allow employees to return to the office, which is based on a phased approach that is principles-based and local in design, with a focus on continuity of preclinical studies and clinical trial activities, employee safety and optimal work environment. While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, particularly in light of variant strains of the COVID-19 virus, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

Preclinical and Clinical Developments

With respect to preclinical and clinical development, we have taken measures to implement remote and virtual approaches, including remote participant monitoring where possible, to maintain participant safety and trial continuity and to preserve study integrity. For several of our clinical development programs, we are experiencing, and expect to continue to experience, a disruption or delay in our ability to initiate trial sites and enroll and assess participants. As the COVID-19 pandemic continues, we have experienced and expect to continue to experience an impact on our ability to enroll participants in our clinical trials. We have experienced and expect to continue to experience an impact on the ability to supply study drug, report trial results or interact with clinicians, investigators, regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations, or CROs, or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience significant disruptions to our preclinical and clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Supply Chain

As for our third-party manufacturers, distributors, and other partners, we are working closely with them to manage our supply chain activities and mitigate potential disruptions to our clinical supply as a result of the COVID-19 pandemic. We expect to have adequate supply for the development of our product candidates. However, if the COVID-19 pandemic continues to persist and impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our product candidates, which would adversely impact our ability to carry out our clinical trials.

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Financial Impact

The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. While we expect the COVID-19 pandemic to adversely affect our business operations, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, as a result of uncertainty regarding ultimate duration of the pandemic, particularly in light of variant strains of the COVID-19 virus, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Australia and New Zealand and the effectiveness of actions taken globally to contain and treat the disease.

Licensing Agreements

2016 Exclusive Patent License Agreement with The General Hospital Corporation

In April 2016, we entered into an exclusive patent license agreement with The General Hospital Corporation, or MGH, which was subsequently amended in May 2017 and February 2018. Under the license agreement with MGH, or the MGH Agreement, we obtained an exclusive, worldwide license, with the right to sublicense, under certain patents and technical information of MGH, to make, have made, use, have used, sell, have sold, lease, have leased, import, have imported or otherwise transfer licensed products and processes for use in the treatment, diagnosis, palliation and prevention of diseases and disorders in humans and animals. We are required to use commercially reasonable efforts to develop and commercialize licensed products and processes, and must achieve certain required diligence milestones.

Under the terms of the MGH Agreement, we made an initial license payment of $0.1 million in 2016 and reimbursed MGH approximately $0.3 million of prior patent prosecution expenses related to the licensed patents in 2017. We also issued MGH an aggregate of 358,674 shares of our common stock. Additionally, we are required to pay a nominal annual maintenance fee prior to the first commercial sale of our first product or process, a mid-five digit annual maintenance fee after the first commercial sale of our first product or process that is creditable against royalties, certain clinical and regulatory milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $8.6 million in the aggregate, and certain commercial milestone payments for the first three products or indications to achieve such milestones, which milestone payments are $18.0 million in the aggregate. We made payments of $50,000 and $300,000 in 2020 and 2021, respectively, for the achievement of the clinical and regulatory milestones of (i) filing of an IND in the first country and (ii) the completion of a Phase 1 clinical trial, respectively. We are also obligated to pay tiered royalties on net sales of licensed products ranging in the low-single digits to mid-single digits. The royalty rates are subject to up to a maximum 50% reduction for lack of a valid claim, in the event that it is necessary for us to obtain a license to any third-party intellectual property related to the licensed products, and generic competition. The obligation to pay royalties under the MGH Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of expiry of the last valid claim of the licensed patents that cover such licensed product in such country and ten years from the first commercial sale of such product in such country. We are also obligated to pay a percentage of non-royalty-related payments received by us from sublicensees ranging in the sub-teen double digits and a change of control fee equal to a low-single digit percentage of the payments received as part of any completed transaction up to a low-seven digit amount.

Neurona Therapeutics Inc., License Agreement

On June 22, 2021, we entered into a license agreement, or the Neurona Agreement, with Neurona Therapeutics, Inc., or Neurona. Under the Neurona Agreement, we granted Neurona a non-exclusive license to use LDN-193189, an early-stage research compound, which we license from a third party, solely as a reagent in connection with the manufacturing of diagnostic and/or therapeutic products to make, have made, use, import, offer for sale and sell products and services arising therefrom, and to make, have made, acquire, transfer, import and export the compound for such use. The license excludes Neurona from any rights to use, sell or distribute the compound for any therapeutic or diagnostic purpose. Unless terminated by either party for breach of contract or insolvency, the Neurona Agreement will continue in perpetuity until the last patent expires. Under the Neurona Agreement, we received a one-time, upfront license fee of $0.1 million from Neurona in July 2021.

2021 License Agreement with Hansoh (Shanghai) Healthtech Co., Ltd.

In December 2021, we entered into a license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh. Under the terms of the license agreement with Hansoh, or the Hansoh Agreement, we granted to Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the territories of mainland China, Hong Kong and Macau, which we refer to collectively as the Territory.

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of KER-050 from us, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Territory. In addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Territory.

Pursuant to the terms of the Hansoh Agreement, we received a net $18.0 million upfront payment in January 2022. In addition to the upfront payment, we are entitled to receive up to an aggregate of (i) $26.5 million upon the achievement of

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specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Territory. If a licensed product is approved for marketing in the Territory, we will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i) ten years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly or indirectly commercialize a competing product in the Territory.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue, and do not expect to generate any revenue in the foreseeable future, from product sales. We have generated revenue solely from research collaborations or licensing of intellectual property. We may in the future generate revenue from other strategic collaborations.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the preclinical and clinical development of our current and potential future product candidates, and include:

▪salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;

▪expenses incurred under agreements with third parties, including CROs that conduct research, preclinical and clinical activities on our behalf, as well as contract manufacturing organizations, or CMOs, that manufacture drug product for use in our preclinical studies and clinical trials;

▪license fees incurred in connection with license agreements;

▪research and development supplies and services expenses;

▪facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs;

▪cost of outside consultants, including their fees and related travel expenses, engaged in research and development functions;

▪expenses related to regulatory affairs; and

▪fees related to our scientific advisory board.

We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue ongoing and initiate new clinical trials for our product candidates and continue to discover and develop additional product candidates. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities. If any of our product candidates enter into later stages of clinical development, they will generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. There are numerous factors associated with the successful commercialization of any product candidates we may develop in the future, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development program and plans.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, information technology, auditing, tax and consulting services, and travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

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We expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. As a result of our IPO, we have incurred and expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.

Other Income (Expense), Net

Interest Expense, Net

Interest expense, net primarily consists of interest earned on money market accounts and interest expense related to leasehold improvement debt amortization. Our interest expense, net has not been significant to date.

Research and Development Incentive Income

Research and development incentive income includes payments under the Research and Development Incentive Program, or the R&D Incentive, from the Australian government. The R&D Incentive is one of the key elements of the Australian government’s support for Australia’s innovation system and was developed to assist businesses recover some of the costs of undertaking research and development. The R&D Incentive provides tax offsets to eligible companies that engage in research and development activities and has two core components:

▪43.5% refundable tax offset for certain eligible research and development entities with an aggregated turnover of less than $20.0 million per annum; and

▪38.5% non-refundable tax offset for all other eligible research and development entities. Unused offset amounts may be able to be carried forward for use in future income years.

We have assessed our research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the R&D Incentive. We recognize the amount we expect to be reimbursed for qualified expenses as income at each period end. We estimate the refundable tax offset available to us based on available information at the time. This estimate is also reviewed by our external tax advisors on an annual basis.

Other Income (Expense), Net

Other income (expense), net primarily consists of unrealized gains on foreign currency and dividend income earned on money market fund accounts.

Change in Fair Value of Preferred Stock Tranche Obligation

The change in fair value of our preferred stock tranche obligation fluctuated based on remeasurement at each reporting period. Our preferred stock tranche obligation stemmed from our obligation to issue additional shares to investors upon the closing of additional tranches of preferred stock. Upon the waiver of the Series B-2 preferred stock milestone by our board of directors in March 2020, this liability was fully settled. Until settlement, fluctuations in the fair value of our preferred stock tranche obligation were based on the remeasurement at each reporting period.

Other Income (Expense), Net

Income Tax (Provision) Benefit

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements and tax returns. Deferred tax assets and liabilities are determined based upon the differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and for loss and credit carryforwards, using enacted tax rates expected to be in effect in the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that these assets may not be realized. We determine whether it is more likely than not that a tax position will be sustained upon examination. If it is not more likely than not that a position will be sustained, none of the benefit attributable to the position is recognized. The tax benefit to be recognized for any tax position that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. We account for interest and penalties related to uncertain tax positions as part of its provision for income taxes.

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Results of Operations

Comparison for the years ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (in thousands):

Revenue

Our revenue for the year ended December 31, 2021 consisted of (i) a one-time license fee of $0.1 million under the Neurona Agreement and (ii) upfront fee of $20.0 million under the Hansoh Agreement, whereby we granted Hansoh the exclusive right to develop, manufacture and commercialize KER-050 and licensed products containing KER-050 within the Territory. We satisfied the performance obligation under the Hansoh Agreement upon delivery of the licenses and initial know-how transfers and consequently, we recognized the upfront payment of $20.0 million in revenue for the year ended December 31, 2021.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2021 and 2020 (in thousands):

Research and development expenses were $55.1 million for the year ended December 31, 2021, compared to $33.9 million for the year ended December 31, 2020. The increase of $21.3 million was primarily due to an increase in program-related costs including (i) a net increase of $3.1 million of KER-050-related expenses, primarily driven by a $4.8 million increase in clinical and preclinical program activities due to the progression of our Phase 2 clinical trial of KER-050 in MDS, partially offset by a decrease of $1.7 million in manufacturing activities; (ii) a net decrease of $3.6 million of KER-047-related expenses, primarily driven by a $1.5 million decrease in clinical expenses due to the completion of our Phase 1 clinical trial and a $2.0 million decrease in manufacturing and preclinical expenses; (iii) a net increase of $10.1 million of KER-012-related

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expenses, which was driven by a $6.0 million increase in manufacturing costs, a $1.8 million increase in preclinical activities and a $2.3 million increase in clinical activities due to the commencement of our Phase 1 clinical trial of KER-012; (iv) a $3.2 million increase in preclinical pipeline and development activities; (v) a $7.3 million increase in personnel costs, including additional stock-based compensation costs driven by the increase in headcount to support the advancement of our pipeline; (vi) a $0.7 million increase in professional fees to support our organizational growth and the continued advancements in our pipeline; and (vii) a $0.4 million increase in facilities and other expense due to the growth of our organization. We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing and other development activities.

General and Administrative Expenses

General and administrative expenses were $21.3 million for the year ended December 31, 2021, compared to $12.8 million for the year ended December 31, 2020. The increase of $8.5 million was primarily due to (i) a $6.3 million increase in personnel expenses, which includes additional stock-based compensation costs, to support our organizational growth and achievement of our corporate goals; (ii) a $1.0 million increase in director and officer insurance premiums; (iii) a $0.7 million increase in professional fees primarily attributable to legal expenses related to data privacy law compliance and the maintenance and expansion of our intellectual property portfolio; and (iv) a $0.5 million increase in facilities and other office expense due to growth of our organization.

Other Income (Expense), Net

Other income (expense), net was $(0.4) million for the year ended December 31, 2021, compared to $1.1 million for the year ended December 31, 2020. The decrease of $1.5 million is related to (i) a decrease of $2.5 million in R&D Incentive income in Australia in 2020, and (ii) a decrease of $0.5 million primarily related to foreign currency unrealized gains and losses and dividend income, which was partially offset by an increase of $1.5 million related to the change in fair value of the preferred stock tranche obligation upon remeasurement in March 2020, prior to settlement.

Income Tax (Provision) Benefit

Income tax provision was $2.0 million for the year ended December 31, 2021, compared to $0.2 million tax benefit for the year ended December 31, 2020. The increase in income tax provision consists primarily of withholding taxes related to the taxable income generated from the Hansoh Agreement.

Liquidity and Capital Resources

Since our inception, we have incurred significant operating losses. Our net losses were $58.7 million and $45.4 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and December 31, 2020, we had an accumulated deficit of $123.8 million and $65.0 million, respectively. To date, we have devoted the majority of our efforts into business planning, research and development of our product candidates, including conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, director and officer insurance premiums and other expenses that we did not incur as a private company.

We do not have any products approved for sale. We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. Since our inception, we have funded our operations primarily through equity financings and through research collaborations or licensing of intellectual property. In March 2020, we sold 4,169,822 shares of Series C Preferred Stock for aggregate net proceeds of approximately $55.8 million. In April 2020, we completed our IPO whereby we sold an aggregate of 6,900,000 shares of our common stock for aggregate net proceeds of approximately $100.1 million after deducting underwriting discounts and commissions and offering expenses. In November 2020, we completed a public offering of our common stock, whereby we sold an aggregate of 2,990,000 shares of our common stock for aggregate net proceeds of approximately $140.1 million after deducting underwriting discounts and commissions and offering expenses.

On May 3, 2021, we filed a shelf registration statement on Form S-3, or Shelf, with the Securities and Exchange Commission, or SEC, which was automatically effective upon filing. The Shelf permits us to offer, from time to time, an unspecified amount of common stock, preferred stock, debt securities and warrants. We simultaneously entered into a sales agreement with SVB Leerink, as agent, to provide for the issuance and sale by us of the ATM Shares from time to time in “at the market” offerings under the Shelf. As of December 31, 2021, we sold a total of 520,000 shares of our common stock pursuant to the ATM Offering for aggregate net proceeds of approximately $28.1 million after deducting sales agent commissions and estimated offering expenses.

As of December 31, 2021, we had cash and cash equivalents of $230.0 million. We expect that our existing cash and cash equivalents as of December 31, 2021, along with the net $18.0 million upfront payment pursuant to our license agreement with Hansoh (Shanghai) Healthtech Co., Ltd., or Hansoh, which we received in January 2022, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024. We have based this estimate on

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assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. Due to the numerous risks and uncertainties associated with the development of our product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements, both near and long-term, will depend on many factors, including:

▪the progress, timing and completion of preclinical studies and clinical trials for our current or any future product candidates, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other causes;

▪the timing and amount of milestone and royalty payments we are required to make or are eligible to receive under our license agreements with each of The General Hospital Corporation and Hansoh;

▪the number of potential new product candidates we identify and decide to develop;

▪the need for additional or expanded preclinical studies and clinical trials beyond those that we plan to conduct with respect to our current and future product candidates;

▪the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our current or any future product candidates;

▪the costs involved in filing patent applications, maintaining and enforcing patents or defending against infringement or other claims raised by third parties;

▪the maintenance of our existing license and collaboration agreements and the entry into new license and collaboration agreements;

▪the time and costs involved in obtaining regulatory approval for our product candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to any of our product candidates;

▪the effect of competing technological and market developments;

▪the costs of operating as a public company;

▪the cost of manufacturing KER-050, KER-047, KER-012 and future product candidates for clinical trials in preparation for marketing approval and in preparation for commercialization;

▪the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own;

▪the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our product candidates, if approved; and

▪market acceptance of any approved product candidates.

In addition, the COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital when and if needed. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs and clinical development efforts, which would adversely affect our business prospects, or we may be unable to continue operations. We do not have any committed external source of funds or other support for our development efforts and we cannot be certain that additional funding will be available on acceptable terms, or at all. Until we can generate sufficient product or royalty revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements. Adequate additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

Cash Flows

The following table summarizes our cash flows for each of the periods presented (in thousands):

Operating Activities

Net cash used in operating activities was $62.1 million for the year ended December 31, 2021, which was driven by a net loss of $58.7 million and $16.1 million in cash used in operating assets and liabilities, partially offset by non-cash charges, including $11.7 million of stock-based compensation expense and $0.4 million in depreciation. The $16.1 million of cash used in operating assets and liabilities was primarily comprised of (i) an $18.0 million increase in accounts receivable from the

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$20.0 million upfront payment pursuant to the Hansoh Agreement, net of $2.0 million in withholding tax; and (ii) a $1.5 million increase in prepaid expenses and other assets due to timing of expense recognition for our research and development costs, which was partially offset by a $4.1 million increase in accounts payable and accrued expenses to support the advancement of our programs.

During the year ended December 31, 2020, net cash used in operating activities was $36.9 million, which was driven by a net loss of $45.4 million, offset by non-cash charges, including $4.1 million of stock-based compensation expense and $1.5 million related to the change in the fair value of our preferred stock tranche liability prior to settlement. Cash used in operating activities was partially offset by $2.3 million in changes in operating assets and liabilities, including (i) an increase in accrued expenses of $2.6 million to support the advancement of our programs, (ii) a $0.9 million decrease in our R&D Incentive receivable and (iii) a $0.6 million decrease in deferred IPO costs in connection with the recognition of these IPO costs, partially offset by a $1.5 million increase in prepaid expenses and other assets due to the timing of expense recognition for our research and development costs.

Investing Activities

Net cash used in investing activities was $1.0 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively. The cash used in investing activities in both periods was due to purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $28.6 million for the year ended December 31, 2021, which was primarily related to (i) net proceeds of $28.2 million received from sales of our common stock under the ATM Sales Agreement, after deducting sales agent commissions and before deducting offering expenses; and (ii) proceeds of $0.4 million related to exercises of options to purchase common stock.

Net cash provided by financing activities was $296.0 million for the year ended December 31, 2020, which was primarily related to (i) the net proceeds of $55.8 million from our March 2020 issuance and sale of Series C Preferred Stock; (ii) the net proceeds of $100.1 million from our April 2020 IPO, net of underwriters’ discounts and commissions and offering expenses payable by us; and (iii) the net proceeds of $140.1 million from our November 2020 public offering, net of underwriters’ discounts and commissions and offering expenses payable by us.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2021 and the effects of such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

In March 2017, we entered into a lease agreement for our current headquarters located in Lexington, Massachusetts. In July and August 2019, we executed the first and second amendments to our lease, respectively, to expand the rental space to 10,417 square feet. In August 2021, we entered into a third amendment to our lease to extend the lease term through March 31, 2023 and to expand the rental space to 15,622 square feet. The table above includes future minimum lease payments under the non-cancelable lease arrangement.

A portion of the contractual obligations and commitments is related to the loan we received from the landlord of $0.2 million for leasehold improvements. This will be repaid in full by December 2022, but principal payments became due in monthly installments beginning 18 months after the commencement of the lease, which was March 2017.

We have entered into a new lease for rental space in Lexington, Massachusetts, which will serve as our new principal executive office and includes laboratory space, which has not yet commenced. We expect to pay $21.6 million over the lease term of eight years and four months, which we expect to begin in the fourth quarter of 2022.

We may incur contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we are required to make under the MGH Agreement pursuant to which we have in-licensed certain intellectual property. Due to the uncertainty of the achievement and timing of the events requiring payment under these agreements, the amounts to be paid by us are not fixed or determinable at this time and are excluded from the table above. Under the terms of the MGH Agreement, we are obligated to pay MGH designated amounts when any licensed product achieves certain developmental milestones. Following the commencement of commercial sales of the licensed products, we will pay designated amounts when certain milestone events occur. The development milestones and commercial milestones

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range from $50,000 to $10.0 million depending upon the significance of the particular milestone. We are also required to pay MGH royalties on all sales of licensed products, with such royalties ranging from the low-single digits to mid-single digits of sales, as well as royalties ranging in the low-double digits of sublicense income depending on the stage of development of the relevant product or process when the sublicense is granted. In conjunction with the execution of the MGH Agreement, we issued MGH five percent of our outstanding fully diluted capital on April 15, 2016, or 358,674 shares of common stock, for proceeds of less than $0.1 million.

Critical Accounting and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

To date, our revenues have consisted solely of payments received related to research collaborations or licensing of intellectual property. We apply the revenue recognition guidance in accordance with Financial Accounting Standards Board, Accounting Standards Codification, or ASC, Subtopic 606, Revenue from Contracts with Customers, or ASC 606, which was adopted January 1, 2018 using the full retrospective method. Under ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.

To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect consideration we are entitled to in exchange for the goods or services we transfer to our customer. All variable consideration, including milestones and royalties, is constrained until the cumulative revenue related to the consideration is no longer probable of reversal.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. We currently measure progress according to the expenditure of research and development efforts, based on costs incurred, as this is the best indicator of performance.

We receive payments from our customers based on billing schedules established in each contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we satisfy our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

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Stock-Based Compensation

We account for all stock-based compensation awards granted to employees and non-employees as stock-based compensation expense at fair value. Our stock-based payments include stock options and grants of common stock, including common stock subject to vesting. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Our Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected volatility of the price of our common stock and the expected term of the award. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and these assumptions either increase or decrease, our stock-based compensation expense could materially differ in the future. Stock-based compensation expense is classified in the accompanying statements of operations based on the function to which the related services are provided. We recognize stock-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

(1)

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Emerging Growth Company Status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:

▪reduced disclosure about the compensation paid to our executive officers;

▪not being required to submit to our stockholders’ advisory votes on executive compensation or golden parachute arrangements;

▪an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and

▪an exemption from new or revised financial accounting standards until they would apply to private companies and from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation.

We may take advantage of these exemptions until December 31, 2025 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (2) December 31, 2025; (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission. We may choose to take advantage of some but not all of these exemptions.