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Item 7. Management’s Discussion and Analysis

2024-02-28 compared with 2023-03-03 · 105 added, 128 removed, 233 unchanged (50% 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, 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.

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.

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.

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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 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, 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.

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.

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, 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 $104.7 million and $58.7 million for the years ended December 31, 2022 and 2021, respectively.

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.

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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, 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.

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

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.

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 us to obtain traditional financing on acceptable terms, if at all, in the future.

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.

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

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.

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

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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.

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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.

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.

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

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▪ 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;

▪ 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;

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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 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.

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 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.

Research and development incentive income includes payments received under the Research and Development Tax Incentive, or the R&D Incentive, from the Australian government.

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 gains on foreign currency and dividend income earned on money market fund accounts.

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

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.

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.

Results of Operations

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YEAR ENDED DECEMBER 31,

Research collaboration revenue $ — $ 20,100

2023 2022 2021

Service and other revenue $ 151 $ — $ —

License revenue $ — $ — $ 20,100

Total revenue 151 — 20,100

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Research and development incentive income 2,400 7,081 —

Dividend income 14,755 3,644 27

Other income (expense), net (206) (613) (383)

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Net loss $ (152,992) $ (104,679) $ (58,744)

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 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.

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):

YEAR ENDED DECEMBER 31, INCREASE/

YEAR ENDED DECEMBER 31, $ CHANGE

2023 2022 2021 2023 vs 2022

KER-050 $ 41,249 $ 24,492 $ 16,515 $ 16,757 $ 7,977

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KER-012 20,931 12,433 13,072 8,498 (639)

KER-065 5,962 6,010 2,241 (48) 3,769

Preclinical and development fees 9,716 6,120 3,119 3,596 3,001

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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 $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;

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

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 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.

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.

(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.

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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 $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;

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;

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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;

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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.

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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.

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.

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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.

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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.

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.

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As of December 31, 2023, we had cash and cash equivalents of $331.1 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 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.

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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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▪ 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.

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.

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

2023 2022 2021

Net cash used in operating activities $ (124,508) $ (70,062) $ (62,148)

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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 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.

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.

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.

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

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;

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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.

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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, 2023 and the effects such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

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Total $ 21,361 $ 2,431 $ 7,739 $ 5,554 $ 5,637

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.

Critical Accounting Policies and Estimates

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.

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Revenue Recognition

To date, our revenues have consisted solely of payments received related to research collaborations or licensing of intellectual property.

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.

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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.

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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.

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 service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period.

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 research and development expenses.

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 and grants of common stock, including common stock subject to vesting.

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 and the expected term of the award.

These estimates involve inherent uncertainties and the

application of management’s judgment.

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.

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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;

▪ 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.

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What changed 10-K

Item 7. Management’s Discussion and Analysis