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Item 7. Management’s Discussion and Analysis

2023-03-03 compared with 2022-03-09 · 108 added, 129 removed, 253 unchanged (48% of the section changed)

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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.

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

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.

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 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 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.

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 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.

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.

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.

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.

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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.

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.

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, 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.

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.”

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;

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;

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.

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

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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.

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.

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.

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.

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.

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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

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.

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

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

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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.

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.

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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.

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.

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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.

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

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

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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.

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.

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;

▪ 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.

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 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.

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.

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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

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Research and development incentive income 7,081 —

Change in fair value of preferred stock tranche obligation — (1,490)

Other income (expense), net 3,031 (356)

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Loss before income taxes (104,679) (56,733)

Income tax (provision) benefit (2,011) 172

Income tax provision — (2,011)

Net loss $ (104,679) $ (58,744)

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.

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

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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 $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

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.

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

$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.

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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 $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.

(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 $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.

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

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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.

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 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

assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.

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.

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▪ 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;

▪ 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.

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.

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Net cash provided by financing activities 120,309 28,550

Net (decrease) increase in cash and cash equivalents, and restricted cash $ (34,622) $ 258,856

Operating Activities

Net increase (decrease) in cash and cash equivalents, and restricted cash $ 49,006 $ (34,622)

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, 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

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 $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.

Financing Activities

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.

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):

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):

PAYMENTS DUE BY PERIOD

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Operating lease commitments $ 20,179 $ 1,741 $ 6,808 $ 4,886 $ 6,744

Loan for leasehold improvements 65 65 — — —

Total $ 20,179 $ 1,741 $ 6,808 $ 4,886 $ 6,744

In March 2017, we entered into a lease agreement for our current headquarters located in Lexington, Massachusetts.

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.

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.

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.

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

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.

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.

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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.

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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis