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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number: 001-39264
________________________________________
KEROS THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
________________________________________
Delaware81-1173868
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
99 Hayden Avenue, Suite 120, Building E
Lexington, Massachusetts
02421
(Address of principal executive offices)(Zip Code)
Tel: (617) 314-6297
(Registrant's telephone number, including area code)
________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.0001 par value per shareKROSThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes    No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  No
As of November 3, 2020, there were 20,188,351 outstanding shares of the registrant's common stock, par value $0.0001 per share.



TABLE OF CONTENTS
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.
Item 4.
Item 5.
Item 6.

1




SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements, including statements about:

the timing of announcement of data for our Phase 2 clinical trial for our lead protein therapeutic product candidate, KER-050, in patients with myelodysplastic syndromes;
the timing of initiation of our Phase 2 clinical trial for KER-050 in patients with myelofibrosis-associated cytopenias;
the timing of announcement of data from our expanded Phase 1 clinical trial for our lead small molecule product candidate, KER-047, and the timing of initiation for future clinical trials for KER-047, including the timing of initiation of our three Phase 2 clinical trials;
the timing of initiation of our Phase 1 clinical trial for our third product candidate, KER-012;
risks associated with the COVID-19 pandemic, which may adversely impact our business, preclinical studies and clinical trials;
our ability to receive the required regulatory approvals and clearances to successfully market and sell our products in the United States and certain other countries;
our ability to successfully advance our pipeline of additional product candidates;
our ability to develop sales and marketing capabilities;
the rate and degree of market acceptance of any products we are able to commercialize;
the effects of increased competition as well as innovations by new and existing competitors in our market;
our ability to obtain funding for our operations;
our ability to establish and maintain collaborations;
our ability to effectively manage our anticipated growth;
our ability to maintain, protect and enhance our intellectual property rights and proprietary technologies;
our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;
costs associated with defending intellectual property infringement, product liability and other claims;
regulatory developments in the United States, Australia, New Zealand and other foreign countries;
our ability to attract and retain qualified employees;
our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012;
statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance; and
the future trading prices of our common stock and the impact of securities analysts’ reports on these prices.

In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
2



You should read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

SPECIAL NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “Keros,” the “Company,” “we,” “us” and “our” refer to Keros Therapeutics, Inc. and its subsidiary.


SPECIAL NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
3


PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (unaudited)
4



KEROS THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
SEPTEMBER 30,
2020
DECEMBER 31,
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$133,810 $7,020 
Prepaid expenses and other current assets
2,606 381 
Deferred IPO costs
 604 
Research and development incentive receivable
 922 
Total current assets
136,416 8,927 
Operating lease right-of-use assets
976 1,205 
Property and equipment, net
739 708 
Restricted cash
115 115 
TOTAL ASSETS
$138,246 $10,955 
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable
$1,716 $2,088 
Current portion of operating lease liabilities
412 376 
Accrued expenses and other current liabilities
4,697 2,022 
Total current liabilities
6,825 4,486 
Operating lease liabilities, net of current portion
586 899 
Preferred stock tranche liability
 4,956 
Other liabilities
77 119 
Total liabilities
7,488 10,460 
Series A convertible preferred stock, par value of $0.0001 per share; 0 and 10,000,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 4,607,652 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; liquidation and redemption value of $0 as of September 30, 2020
 9,891 
Series A-1 convertible preferred stock, par value of $0.0001 per share; 0 and 800,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 368,612 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; liquidation and redemption value of $0 as of September 30, 2020
 944 
Series B-1 convertible preferred stock, par value of $0.0001 per share; 0 and 3,427,004 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 0 and 1,579,043 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively; liquidation and redemption value of $0 as of September 30, 2020
 9,106 
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, par value of $0.0001 per share; 200,000,000 and 27,000,000 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 20,185,730 and 2,429,705 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively
2 1 
Additional paid-in capital
185,091 203 
Accumulated deficit
(54,335)(19,650)
Total stockholders' equity (deficit)
130,758 (19,446)
TOTAL LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
$138,246 $10,955 
See notes to condensed consolidated financial statements.
5


KEROS THERAPEUTICS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,NINE MONTHS ENDED SEPTEMBER 30,
2020201920202019
REVENUE:
Research collaboration revenue$ $2,500 $ $7,500 
Total revenue 2,500  7,500 
OPERATING EXPENSES:
Research and development(8,395)(3,854)(24,186)(13,218)
General and administrative(3,553)(972)(9,180)(2,117)
Total operating expenses(11,948)(4,826)(33,366)(15,335)
LOSS FROM OPERATIONS
(11,948)(2,326)(33,366)(7,835)
OTHER INCOME (EXPENSE), NET
Interest expense, net(2)(3)(5)(7)
Research and development incentive income   558 
Change in fair value of preferred stock tranche obligation (1,235)(1,490)(2,486)
Other income (expense), net(86)15 4 185 
Total other income (expense), net(88)(1,223)(1,491)(1,750)
Loss before income taxes(12,036)(3,549)(34,857)(9,585)
Income tax benefit  172  
Net loss$(12,036)$(3,549)$(34,685)$(9,585)
Net loss attributable to common stockholders—basic and diluted (Note 10)$(12,036)$(3,999)$(35,697)$(10,935)
Net loss per share attributable to common stockholders—basic and diluted$(0.60)$(1.71)$(2.65)$(4.76)
Weighted-average common stock outstanding—basic and diluted20,175,883 2,342,782 13,452,606 2,296,701 


See notes to condensed consolidated financial statements.
6


KEROS THERAPEUTICS, INC.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit
(In thousands, except share and per share data)
(Unaudited)
CONVERTIBLE PREFERRED STOCK
COMMON STOCK
$0.0001 PAR VALUE
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED
DEFICIT
TOTAL
STOCKHOLDERS'
DEFICIT
$0.0001 PAR VALUE SERIES A
$0.0001 PAR VALUE SERIES A-1
$0.0001 PAR VALUE SERIES B-1
$0.0001 PAR VALUE SERIES C
SHARES
AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
As of December 31, 20194,607,652 $9,891 368,612 $944 1,579,043 $9,106  $ 2,429,705 $1 $203 $(19,650)$(19,446)
Exercise of common stock options— — — — — — — 44,686 — 13 — 13 
Issuance of Series C convertible preferred stock,
net of issuance costs of $219
— — — — — 4,169,822 55,781 — — — —  
Vesting of restricted stock— — — — — — — 17,279 — — —  
Stock-based compensation— — — — — — — — — 12 — 12 
Settlement of preferred stock tranche liability— — — — — — — — — 6,446 — 6,446 
Net loss— — — — — — — — — — (11,892)(11,892)
March 31, 20204,607,652 $9,891 368,612 $944 1,579,043 $9,106 4,169,822 $55,781 2,491,670 $1 $6,674 $(31,542)$(24,867)
Offering expenses associated with direct offering— — — — — — — — — (8)— (8)
Conversion of convertible preferred stock upon initial public offering(4,607,652)(9,891)(368,612)(944)(1,579,043)(9,106)(4,169,822)(55,781)10,725,129 1 75,721 — 75,722 
Initial public offering, net of underwriting discounts, commissions and offering costs— — — — — — — 6,900,000 — 100,123 — 100,123 
Exercise of common stock options— — — — — — — 24,003 — 9 — 9 
Vesting of restricted stock— — — — — — — 17,278 — — —  
Stock-based compensation— — — — — — — — — 1,139 — 1,139 
Net loss— — — — — — — — — — (10,757)(10,757)
As of June 30, 2020        20,158,080 $2 $183,658 $(42,299)$141,361 
Exercise of common stock options— — — — — — — — 27,650 — 9 — 9 
Vesting of restricted stock— — — — — — — — — — — —  
Stock-based compensation— — — — — — — — — — 1,424 — 1,424 
Net loss— — — — — — — — — — — (12,036)(12,036)
As of September 30, 2020        20,185,730 $2 $185,091 $(54,335)$130,758 
CONVERTIBLE PREFERRED STOCK
COMMON STOCK
$0.0001 PAR VALUE
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED
DEFICIT
TOTAL
STOCKHOLDERS'
DEFICIT
$0.0001 PAR VALUE SERIES A
$0.0001 PAR VALUE SERIES A-1
$0.0001 PAR VALUE SERIES B-1
$0.0001 PAR VALUE SERIES C
SHARES
AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
SHARES
AMOUNT
As of December 31, 20184,607,652 $9,891 368,612 $944 1,579,043 $9,106  $ 2,243,648 $1 $130 $(7,314)$(7,183)
Vesting of restricted stock— — — — — — — — 25,918 — — —  
Stock-based compensation— — — — — — — — — — 11 — 11 
Net loss— — — — — — — — — — — (3,183)(3,183)
As of March 31, 20194,607,652 $9,891 368,612 $944 1,579,043 $9,106  $ 2,269,566 $1 $141 $(10,497)$(10,355)
Exercise of common stock options— — — — — — — — 22,029 — 3 — 3 
Vesting of restricted stock— — — — — — — — 25,918 — — —  
Stock-based compensation— — — — — — — — — — 13 — 13 
Net loss— — — — — — — — — — — (2,853)(2,853)
As of June 30, 20194,607,652$9,891 368,612$944 1,579,043$9,106 $ 2,317,513$1 $157 $(13,350)$(13,192)
Exercise of common stock options— — — — — — — — 46,912 — 7 — 7 
Vesting of restricted stock— — — — — — — — 25,918 — — —  
Stock-based compensation— — — — — — — — — — 17 — 17 
Net loss— — — — — — — — — — — (3,549)(3,549)
As of September 30, 20194,607,652 9,891 368,612 944 1,579,043 9,106   2,390,343 $1 $181 $(16,899)$(16,717)
See notes to condensed consolidated financial statements.
7


KEROS THERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$(34,685)$(9,585)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense
203 149 
Stock-based compensation expense
2,575 41 
Non-cash lease expense
229 (558)
Changes in fair value of preferred stock tranche obligation
1,490 2,486 
Changes in operating assets and liabilities:
Research and development incentive receivable
922 (518)
Prepaid expenses and other current assets
(2,225)1,860 
Deferred IPO costs
604 (18)
Accounts payable
(372)1,442 
Operating lease liabilities
(277)574 
Deferred revenue
 (7,500)
Accrued expenses and other current liabilities
2,675 1,165 
Other liabilities
(42)(38)
Net cash used in operating activities
(28,903)(10,500)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
(234)(253)
Net cash used in investing activities
(234)(253)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series C preferred stock
56,000  
Payment of Series C preferred stock issuance costs(227) 
Proceeds from issuance of common stock from the initial public offering, net of underwriting discounts of $7,728
102,672  
Payment of initial public offering costs(2,549) 
Proceeds from exercise of stock options
31 10 
Net cash provided by financing activities
155,927 10 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH126,790 (10,743)
Cash, cash equivalents and restricted cash at beginning of period7,135 23,390 
Cash, cash equivalents and restricted cash at end of period$133,925 $12,647 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Settlement of preferred stock tranche obligation
$6,446 $ 
Conversion of preferred stock into common stock upon closing of initial public offering$75,714 $ 
The following table provides a reconciliation of the ending cash, cash equivalents and restricted cash as of each of the periods shown above:
NINE MONTHS ENDED SEPTEMBER 30,
20202019
Cash and cash equivalents$133,810 $12,532 
Restricted cash115 115 
Total cash, cash equivalents and restricted cash$133,925 $12,647 
See notes to condensed consolidated financial statements.
8


KEROS THERAPEUTICS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Keros Therapeutics, Inc. (“Keros” or the “Company”) was incorporated in 2015 as a Delaware corporation. Its principal offices are in Lexington, Massachusetts. The Company is 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.
The accompanying unaudited interim condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of the Company and its wholly owned Australian subsidiary, Keros Therapeutics Australia Pty Ltd (“Keros Australia”). All significant intercompany transactions and accounts have been eliminated in consolidation.
Since its inception in 2015, the Company has devoted the majority of its resources on business planning, research and development of its product candidates, including by conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, the Company has not generated any revenue from product sales as none of its product candidates have been approved for commercialization.
On April 13, 2020, the Company completed an initial public offering (“IPO”) in which the Company issued and sold 6,900,000 shares of its 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, for aggregate gross proceeds of $110.4 million. The Company received approximately $100.1 million in net proceeds after deducting underwriting discounts and commissions and offering costs.
In connection with the IPO, the Company's board of directors (the "Board") and stockholders approved an amended and restated certificate of incorporation to, among other things, effect a one-for-2.1703 reverse stock split of its issued and outstanding shares of common stock and convertible preferred stock, as well as to effect a proportional adjustment to the existing conversion ratios for the Company’s convertible preferred stock. The reverse stock split was effected on March 31, 2020. Accordingly, all share and per share amounts of common stock for all periods presented in the accompanying unaudited interim condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect this reverse stock split and adjustment of preferred stock conversion ratios.
Upon the closing of the IPO, all of the then-outstanding shares of convertible preferred stock automatically converted into 10,725,129 shares of common stock at the applicable conversion ratio then in effect. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock outstanding.

The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Management believes that the Company’s existing cash and cash equivalents, will allow the Company to continue its operations for at least the next 12 months. In the absence of a significant source of recurring revenue, the continued viability of the Company beyond that point is dependent on its ability to continue to raise additional capital to finance its operations. If the Company is unable to obtain additional funding, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.
The accompanying unaudited interim condensed consolidated financial statements as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2019
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included in the Company’s final prospectus that forms part of the Company’s Registration Statement on Form S-1 (Reg. No. 333-237212), filed with the SEC pursuant to Rule 424(b)(4) on April 8, 2020 (the “Prospectus”).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments which are necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 and condensed consolidated cash flows for the nine months ended September 30, 2020 and 2019. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2020.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
The significant accounting policies and estimates used in preparation of the unaudited interim condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Prospectus. Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2020.
Risks and Uncertainties

With the global COVID-19 pandemic continuing throughout 2020, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and its business operations, including its preclinical studies and clinical trials, supply chains and third-party providers. Additionally, in response to the spread of COVID-19, the Company closed its principal executive office in March 2020, with its administrative employees continuing their work outside of the office, and limited the number of staff in any given research laboratory. The Company anticipates that the COVID-19 pandemic will have an impact on the development timelines for several of its preclinical and clinical programs. The extent to which the COVID-19 pandemic impacts the Company’s business, its clinical development and regulatory efforts, its corporate development objectives and the value of and market for its common stock will depend on future developments which are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Australia, New Zealand and other countries and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biopharmaceutical industry with research and development operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing its intellectual property rights; the challenges of complying with applicable regulatory requirements; and identifying, acquiring or in-licensing additional products or product candidates. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.
10


Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of proceeds generated as a result of the offering. Should a planned equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the condensed consolidated statement of operations. Upon closing the IPO in April 2020, deferred offering costs were reclassified to additional paid-in capital, representing a reduction in IPO proceeds. As of September 30, 2020 and December 31, 2019, the Company had deferred offering costs of $0 and $0.6 million, respectively.
Recently Issued Accounting Pronouncements
The new accounting pronouncements recently adopted by the Company and issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company are described in the Company’s audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Prospectus filed with the SEC on April 8, 2020. There have been no new accounting pronouncements issued in the nine months ended September 30, 2020 that are applicable to the Company.

3. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):
DESCRIPTIONSEPTEMBER 30, 2020QUOTED PRICES ACTIVE MARKETS FOR IDENTICAL ASSETS
(LEVEL 1)
SIGNIFICANT OTHER OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT OTHER OBSERVABLE INPUTS
(LEVEL 3)
Asset
Money market funds$128,668 $128,668 $ $ 
Total financial assets$128,668 $128,668 $ $ 

DESCRIPTION
DECEMBER 31, 2019
QUOTED PRICES ACTIVE MARKETS FOR IDENTICAL ASSETS
(LEVEL 1)
SIGNIFICANT OTHER OBSERVABLE INPUTS
(LEVEL 2)
SIGNIFICANT OTHER OBSERVABLE INPUTS
(LEVEL 3)
Asset
Money market funds
$4,972 $4,972 $ $ 
Total financial assets
$4,972 $4,972 $ $ 
Liability
Preferred stock tranche obligation
$(4,956)$ $ $(4,956)
Total financial liabilities
$(4,956)$ $ $(4,956)
There have been no transfers between fair value levels during the nine months ended September 30, 2020. Prior to settlement, the Company’s Preferred Stock Tranche Obligation (defined below) was carried at fair value determined according to Level 3 inputs in the fair value hierarchy as described below. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.
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Preferred Stock Tranche Obligation
The Company determined that its obligation to issue, and the Company’s investors’ obligation to purchase additional shares of convertible preferred stock at a fixed price (i.e. the issuance price) in subsequent tranches following the initial closings of the series A, series A-1, and series B-1 convertible preferred stock (respectively, the “Series A Preferred Stock,” “Series A-1 Preferred Stock,” and “Series B-1 Preferred Stock”, which are referred to collectively with the series B-2 convertible preferred stock (the “Series B-2 Preferred Stock”) and the series C convertible preferred stock (the “Series C Preferred Stock”) as the “Preferred Stock”) financings represented a freestanding financial instrument (the “Preferred Stock Tranche Obligation”). The freestanding financial instrument was classified as a liability on the Company’s condensed consolidated balance sheets and initially recorded at fair value, with changes in fair value for each reporting period recognized in other expense, net in the condensed consolidated statement of operations.
The Board determined it was probable that the milestone would be met, and then the stockholders and the Board subsequently waived the Series B-2 Preferred Stock milestone and the issuance of the Series B-2 Preferred Stock on March 2, 2020. Instead of issuing the Series B-2 Preferred Stock upon this waiver, the Company instead closed its convertible Series C Preferred Stock financing (“Series C financing”). The associated Preferred Stock Tranche Obligation was remeasured prior to settlement, with the associated $1.5 million increase in fair value recorded in the Company’s condensed consolidated statement of operations as other expense, net. As the Series C financing was executed with related parties, the Company recognized the settlement of the Preferred Stock Tranche Obligation of $6.4 million as a capital contribution in additional paid-in capital in the Company’s condensed consolidated balance sheets.
The following reflects the significant quantitative inputs used in the valuation of the Preferred Stock Tranche Obligation:
MARCH 2, 2020DECEMBER 31, 2019
Stand-alone Series B-1 Preferred Stock price (spot price)
$7.28$7.28
Estimated future value of Series B-2 Preferred Stock
$8.14$8.14
Discount rate
15.50 %15.50 %
Time to liquidity (years)
0.000.16
Probability of tranche closing
100 %80 %
The purchase price of the Preferred Stock at initial issuance, and all subsequent issuances was higher than the fair value of the Company’s common stock.
The following table sets forth a summary of changes in the fair value and settlement of the Company’s Preferred Stock Tranche Obligation for which fair value was determined by Level 3 inputs (in thousands):
PREFERRED STOCK TRANCHE OBLIGATION
Balance as of January 1, 2019
$2,392 
Change in fair value
2,564 
Balance as of December 31, 20194,956 
Change in fair value
1,490 
Settlement of Preferred Stock Tranche Obligation(6,446)
Balance as of September 30, 2020$ 
Fluctuations in the fair value of the Company’s Preferred Stock is the primary cause for the significant changes in fair value of the Preferred Stock Tranche Obligation. In 2020 and 2019, the enterprise value of the Company was determined using the Market Approach, specifically the Subject Company Transaction Method, which considers all share class rights and preferences, as of the date of the most recent financing. As part of the Company’s strategy, during 2019, the Company began considering the pursuit of longer-term liquidity options including a potential initial public offering, which caused an increase in the value of the Series B-1 Preferred Stock while reducing the value of the Preferred Stock Tranche Obligation.
12


Subsequently, in March 2020, the Company determined it was probable that the milestone criteria necessary to close the subsequent tranche would be met; as such, the value of the Preferred Stock Tranche Obligation increased. The Board then waived the milestone in favor of issuing the Series C Preferred Stock in March 2020 (see Note 6), and in doing so the Preferred Stock Tranche Obligation was fully settled and reduced to $0 on the Company's condensed consolidated balance sheet.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following (in thousands):
SEPTEMBER 30,
2020
DECEMBER 31,
2019
Prepaid service contracts
$481 $21 
Income tax credit receivable172  
Prepaid sales tax280 65 
Prepaid rent
 64 
Prepaid Insurance 1,543 16 
Other
130 215 
Total prepaid expenses and other current assets
$2,606 $381 


5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consisted of the following (in thousands):
SEPTEMBER 30,
2020
DECEMBER 31,
2019
Accrued external R&D costs$138 $645 
Accrued external manufacturing costs2,704 282 
Accrued compensation and benefits1,209 749 
Accrued tax 43 
Accrued professional fees206 34 
Other440 269 
Total accrued expenses and other current liabilities$4,697 $2,022 

Accrued compensation and benefits consisted primarily of accrued payroll and accrued vacation.

6. CONVERTIBLE PREFERRED STOCK
On March 2, 2020, the Company authorized the sale and issuance of up to 9,049,783 shares of Series C Preferred Stock, par value $0.0001 per share, of which 4,169,822 shares were sold at a purchase price of $13.43 per share for gross proceeds of $56.0 million. Issuance costs were approximately $0.2 million. As part of the Company's Series C Preferred Stock issuance, 3,078,968 of the shares were issued to affiliates of members of the Board including entities affiliated with OrbiMed, entities affiliated with Pontifax, Arkin Bio Ventures Limited Partnership, entities affiliated with Partners Innovation Fund and Jasbir Seehra, Ph.D. All issued shares reflect the reverse stock split effected March 31, 2020 while the Board authorized shares reflect the original number of shares authorized pre-split.
On April 13, 2020, upon the closing of the Company's IPO, all outstanding shares of Preferred Stock converted into 10,725,129 shares of the Company's common stock. Additionally, effective April 13, 2020, the Company's
13


amended and restated certificate of incorporation authorized the issuance of 10,000,000 shares of preferred stock. There were no outstanding shares of Preferred Stock as of September 30, 2020.
As of December 31, 2019, Preferred Stock consisted of the following (in thousands, except share data):
PREFERRED
STOCK
AUTHORIZED
PREFERRED STOCK ISSUED AND OUTSTANDINGCARRYING
VALUE
LIQUIDATION
VALUE
COMMON STOCK ISSUABLE UPON CONVERSION
Series A Preferred Stock10,000,000 4,607,652 $9,891 $12,271 4,607,652 
Series A-1 Preferred Stock800,000 368,612 944 1,171 368,612 
Series B-1 Preferred Stock3,427,004 1,579,043 9,106 12,596 1,579,043 
Series B-2 Preferred Stock3,062,891     
17,289,895 6,555,307 $19,941 $26,038 6,555,307 
The rights and privileges of the Preferred Stockholders were as follows:
Conversion: Shares of Preferred Stock were convertible, at the option of the holder, at any time, into shares of common stock. The number of shares was determined by dividing the original issuance price by the conversion price. As such, the shares of Preferred Stock effectively converted on a one-for-one basis. The Preferred Stock would automatically convert to common stock at the closing of an IPO. No fractional shares would be issued.
Liquidation Preference: Prior to the closing of the IPO, although the Preferred Stock was not redeemable, the shares were redeemable for cash in certain change of control events that are beyond the control of the Company. In the event of any liquidation or Deemed Liquidation Event (as defined in the Company’s articles of incorporation), the Preferred Stockholders would have been entitled to the greater of (i) the original issue price of the Preferred Stock plus any accrued dividends not yet paid plus any other dividends declared and unpaid or ii) the amount payable had all classes of shares been converted to common stock. In the event of a Deemed Liquidation Event, if the assets of the Company available for distribution were insufficient to pay the Preferred Stockholders in the full amount to which they were entitled, the Preferred Stockholders would have shared ratably in any distribution of the assets available for distribution in proportion to the number of shares of Preferred Stock that they held. Note that in relation to the above, the holders of Series C Preferred Stock were entitled to be paid out prior to the holders of common stock, Series A Preferred Stock, Series A-1 Preferred Stock and Series B-1 Preferred Stock.
Dividends: Dividends accrued at a rate of $0.17, $0.22, $0.58263 and $1.07439 per share, per year on the anniversary of the issuance date for Series A Preferred Stock, Series A-1 Preferred Stock, Series B-1 Preferred Stock and Series C Preferred Stock, respectively. Dividends were cumulative; however, accrued dividends would be payable only if and when declared by the Board. Dividends on other classes of the Company’s stock were not to be declared or paid unless the Preferred Stockholders were first paid (i) all dividends accrued and not yet paid plus (ii) the product of (a) dividends declared on an as converted basis and (b) Preferred Stock on an as converted basis. That is, if the Company declared dividends on outstanding common stock, Preferred Stockholders would have received both the dividends owed for the Preferred Stock plus that which would be owed if the Preferred Stock were converted to common stock. No dividends were declared or paid through September 30, 2020.
Voting Rights: Each holder of outstanding shares of Preferred Stock were entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Preferred Stock held by such holder were convertible as of the record date for determining stockholders entitled to vote on such matter. Preferred Stockholders and common stockholders voted together as a single class.

7. COMMON STOCK
As of September 30, 2020, the Company’s amended and restated certificate of incorporation authorized the Company to issue 200,000,000 shares of common stock at a par value of $0.0001 per share.
In conjunction with the Company's April 2020 IPO closing, the Company issued and sold 6,900,000 shares of its common stock, including 900,000 shares pursuant to the full exercise of the underwriters'    option to purchase additional shares, at a public offering price of $16.00 per share, for aggregate net proceeds of $100.1 million after
14


deducting underwriting discounts and commissions and offering costs. In connection with the IPO, all outstanding shares of Preferred Stock converted into 10,725,129 shares of common stock.
The following is a summary of the rights and privileges of the holders of common stock as of September 30, 2020:
Liquidation Preference: In the event of liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then-outstanding shares of preferred stock.
Dividends: Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Board out of legally available funds. As of September 30, 2020, no cash dividends have been declared or paid.
Voting Rights: Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Under the Company's amended and restated certificate of incorporation and amended and restated bylaws, stockholders will not have cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.
Rights and Preferences: Holders of common stock have no preemptive, conversion or subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Company may designate in the future.
As of September 30, 2020 and December 31, 2019, the Company has reserved the following shares of common stock for potential conversion of outstanding Preferred Stock, the vesting of restricted stock and exercise of stock options:
SEPTEMBER 30,
2020
DECEMBER 31,
2019
Preferred Stock
 6,555,307 
Unvested restricted stock
 34,557 
Options to purchase common stock
2,484,152 1,164,017 
Total
2,484,152 7,753,881 

8. STOCK-BASED COMPENSATION
2017 Stock Incentive Plan
The Board adopted the 2017 Stock Incentive Plan (the "2017 Plan") in February 2017, and the stockholders approved the 2017 Plan in March 2017. The 2017 Plan was most recently amended in March 2020.
As of September 30, 2020, there were an aggregate of 1,064,648 shares of common stock issuable upon the exercise of outstanding options under the 2017 Plan. Any options or awards outstanding under the 2017 Plan remain outstanding and effective.
2020 Equity Incentive Plan
In April 2020, the 2020 Equity Incentive Plan (the "2020 Plan") became effective, and, as a result, no further awards will be made under the 2017 Plan. The 2020 Plan provides for the grant of stock options qualifying as incentive stock options ("ISOs"), to employees and for the grant of nonstatutory stock options ("NSOs"), restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to employees, consultants and directors. The 2020 Plan also provides for the grant of performance cash awards to employees, consultants and directors. Any previously granted awards under the 2017 Plan will remain outstanding in accordance with their respective terms.
In March 2020, the Board approved an aggregate of 1,991,530 options under the 2020 Plan. No shares of common stock have been issued under the 2020 Plan. As of September 30, 2020, the number of shares of common stock reserved for issuance under the 2020 Plan was 1,991,530. The number of shares of common
15


stock initially reserved for issuance under the 2020 Plan is the sum of (i) 1,002,874 new shares of common stock, plus (ii) an additional number of shares not to exceed 2,104,937 shares, consisting of (A) the number of shares remaining available for issuance under the 2017 Plan when the 2020 Plan became effective and (B) the number of shares of common stock subject to outstanding awards under the 2017 Plan when the 2020 Plan became effective that thereafter expire or are forfeited, canceled, withheld to satisfy tax withholding or to purchase or exercise an award, reacquired by the Company or are otherwise terminated. The number of shares of common stock reserved for issuance under the 2020 Plan will automatically increase on January 1 of each year, for a period of ten years, from January 1, 2021 continuing through January 1, 2030, by 4.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board.
As of September 30, 2020, there were an aggregate of 1,419,504 shares of common stock issuable upon the exercise of outstanding options under the 2020 Plan. Additionally, there were an aggregate of 572,026 shares reserved for future issuance under the 2020 Plan.
Stock Options
A summary of option activity during the nine months ended September 30, 2020 is as follows (in thousands except share and per share data):
NUMBER OF OPTIONS
WEIGHTED-AVERAGE EXERCISE PRICE
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL TERM (IN YEARS)
AGGREGATE INTRINSIC VALUE
Outstanding as of December 31, 20191,164,017 $0.35 8.64$144 
Granted1,419,504 18.90 
Exercised(96,339)0.33 $2,173 
Expired(3,030)0.16 
Outstanding as of September 30, 20202,484,152 $10.95 8.85$68,959 
Options exercisable as of December 31, 2019608,156 $0.29 8.17$112 
Options exercisable as of September 30, 2020694,023 $0.49 7.61$26,436 
As of September 30, 2020 and 2019, respectively, there was $18.5 million and $0.2 million of unrecognized stock-based compensation expense related to unvested stock options, which is being recognized over a period of 3.23 years as of September 30, 2020.
Shares of Restricted Common Stock
The Company has granted shares of restricted common stock with time-based vesting conditions. A summary of restricted stock activity during the nine months ended September 30, 2020 is as follows:
NINE MONTHS ENDED SEPTEMBER 30,
2020
Unvested at the beginning of the period
34,557 
Vested or released
(34,557)
Unvested at the end of the period
 
During the nine months ended September 30, 2020 and 2019, respectively, there was $0 and less than $1,000 of unrecognized stock-based compensation expense related to unvested restricted stock. There is no unvested restricted stock as of September 30, 2020.
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Stock-Based Compensation Expense
Total stock-based compensation expense recorded for employees, directors and non-employees during the nine months ended September 30, 2020 and 2019 was as follows (in thousands):
THREE MONTHS ENDED SEPTEMBER 30,NINE MONTHS ENDED SEPTEMBER 30,
2020201920202019
Research and development
$465 $8 $786 $21 
General and administrative
959 9 1,789 20 
Total stock-based compensation expense
$1,424 $17 $2,575 $41 

9. INCOME TAXES
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company evaluated the provisions of the CARES Act and as a result recorded an income tax receivable of approximately $0.2 million related to the potential carryback of our 2019 net operating loss to claim a refund for prior federal tax liabilities.

10. LOSS PER SHARE
Basic and diluted loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding (in thousands, except share and per share data):

THREE MONTHS ENDED SEPTEMBER 30,NINE MONTHS ENDED SEPTEMBER 30,
2020201920202019
Numerator:
Net loss$(12,036)$(3,549)$(34,685)$(9,585)
Less: Accruals of dividends of preferred stock0 (450)(1,012)(1,350)
Net loss attributable to common stockholders - basic and diluted$(12,036)$(3,999)$(35,697)$(10,935)
Denominator:
Weighted-average common stock outstanding - basic and diluted20,175,883 2,342,782 13,452,606 2,296,701 
Net loss per share attributable to common stockholders - basic and diluted$(0.60)$(1.71)$(2.65)$(4.76)

The Company’s potentially dilutive securities, which include Preferred Stock, restricted stock, and stock options, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following from the computation of diluted net loss per share attributable to common stockholders at September 30, 2020 and 2019 because including them would have had an anti-dilutive effect:

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SEPTEMBER 30,
2020
SEPTEMBER 30,
2019
Preferred Stock 6,555,307 
Unvested restricted stock 60,474 
Options to purchase common stock2,484,152 1,209,272 
2,484,152 7,825,053 

11. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company adopted FASB Accounting Standards Codification Subtopic 606, Revenue from Contracts with Customers ("ASC 606") on January 1, 2018 applying the full retrospective method to all contracts that were not completed as of January 1, 2018. While the timing of future revenue under ASC 606 may differ from the Company’s historical accounting practices under FASB Accounting Standards Codification Subtopic 605, Revenue Recognition ("ASC 605"), the cumulative effect recognized in the condensed consolidated statement of stockholder’s deficit was $0 because there was no change in timing or measurement of revenue for open contracts at January 1, 2018.
Novo Nordisk
Agreement Background
On December 14, 2017, the Company entered into a research collaboration and exclusive license agreement with Novo Nordisk A/S (“Novo,” agreement referred to as the “Novo Agreement”). The Novo Agreement stipulates that the two parties will work together on the discovery and development of new ligand traps for two years. Under the Novo Agreement, Keros granted Novo an exclusive license to develop and commercialize the licensed products listed as part of Keros’ intellectual property and Novo granted Keros a non-exclusive license to Novo’s intellectual property so that Keros could perform the activities for which it is responsible under the Novo Agreement. The Company does not share in the rights to the results of the Novo Agreement.
On October 26, 2020, Novo provided the Company with written notice of termination of the Novo Agreement, effective April 26, 2021. Upon the termination of the Novo Agreement, the license granted by the Company to Novo will be automatically terminated. Accordingly, the Company's singular performance obligation will be fully satisfied upon termination. Novo Nordisk is obligated to continue to reimburse the Company for certain research and development costs through April 26, 2021. Upon effectiveness of the termination, such reimbursements will cease.
Accounting Treatment
As consideration, the Company received an initial license payment in 2018 from Novo in the amount of $16.0 million. Novo has also paid the Company research collaboration budget funding payments of $2.0 million per each collaboration year, for $4.0 million total. Both of these research collaboration budget funding payments were received in 2018. Additionally, there are performance-based and sales-based milestone payments and sales-based royalties that have been determined to be variable consideration and constrained due to uncertainty of achievement. The sales-based royalties will be included in the transaction price and recognized as revenue once a sale occurs, and performance-based and sales-based milestone payments will be included in the transaction price and recognized as revenue if and when the cumulative revenue associated with the consideration is no longer probable of significant reversal.
The Company assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, Novo, is a customer. The Company identified the following material promises at the outset of the Novo Agreement: (1) an exclusive license to use the Company’s intellectual property to conduct research activities; (2) research and development (“R&D”) services for activities under the research plan; (3) an option to extend the Novo Agreement; (4) participation on the joint steering committee (“JSC”); and (5) technology transfer associated with the research and development outputs. The Company determined that these promises were not capable of being distinct from one another and were not distinct in the context of the contract, as the license has no true value without the performance of the R&D activities and the technology transfer and JSC participation depend on these activities. Novo would not be able to use the license without the performance of R&D activities
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by the Company, as the research is novel in nature and could not be performed by another company. Additionally, the technology transfer is inherently dependent on the outcome of the Company’s R&D activities, and as such is not capable of being distinct. As indicated in number (3) above, Novo may elect to extend the term of the Novo Agreement to a third year on similar terms and conditions, subject to mutual written agreement of Novo and the Company. The Company assessed this option as a potential material right and determined that the additional work would be performed based on negotiated rates at the standalone selling price, and as such these services would not be provided at a significant or incremental discount and the option does not provide Novo with a material right.
In accordance with the Company’s ASC 606 assessment, the Novo Agreement was determined to contain a single combined performance obligation made up of the promises above, which does not require further allocation as the entire transaction price is allocated to this performance obligation. The Company determined the contract term of the Novo Agreement to be two years. The Company identified an appropriate measure of progress for the recognition of revenue and determined it would recognize the revenue over the term of the Novo Agreement using an input method based on full-time employee costs incurred, as this appropriately depicts the Company’s performance in satisfaction of the performance obligation. As such, the Company is recognizing the transaction price for its single performance obligation as Novo uses the license and research and development services performed by the Company and as the Company participates on the JSC.
The Company recognized $0 and $2.5 million of revenue in its condensed consolidated statements of operations for the three months ended September 30, 2020 and 2019, respectively, and $0 and $7.5 million for the nine months ended September 30, 2020 and 2019, respectively, related to the Novo Agreement. As of December 31, 2019, there was no remaining revenue or deferred revenue to be recognized under the Novo Agreement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with (1) our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2019 included in our final prospectus for our initial public offering dated April 7, 2020, and filed with the Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, on April 8, 2020, which we refer to as the Prospectus.

Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
Overview
We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel treatments for patients suffering from hematological and musculoskeletal disorders with high unmet medical need. We are a leader in understanding the role of the transforming growth factor-beta, or TGF-ß, family of proteins, which are master regulators of red blood cell and platelet production as well as of the growth, repair and maintenance of muscle and bone. We have leveraged this understanding and developed a discovery approach to generate large and small molecules to address diseases of these tissues. Targeting TGF-ß signaling pathways has been clinically proven to elicit robust changes in blood cells, muscle and bone, which we believe provides a precedent and strong rationale for our strategy.
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Our lead protein therapeutic product candidate, KER-050, is an engineered ligand trap comprised of a modified ligand-binding domain of the TGF-ß superfamily receptor known as activin receptor type IIA that is fused to the portion of the human antibody known as the Fc domain. 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. In October 2020, we announced the dosing of our first two participants in our Phase 2 clinical trial evaluating KER-050 for the treatment of anemia and thrombocytopenia in very low-, low-, or intermediate-risk MDS. We expect to report initial data from Part 1 of this trial in mid-2021. Additionally, we plan to commence a Phase 2 clinical trial evaluating KER-050 for the treatment of patients with myelofibrosis-associated cytopenias in 2021.

Our lead small molecule product candidate, KER-047, is designed to selectively and potently inhibit activin receptor-like kinase-2, or ALK2, a TGF-ß superfamily receptor. KER-047 is being developed for the treatment of anemia resulting from iron imbalance as a direct consequence of elevated ALK2 signaling, including our initial target, iron-refractory iron deficiency anemia, or IRIDA. We are also developing KER-047 for the treatment of fibrodysplasia ossificans progressiva, or FOP, a rare musculoskeletal disorder. In August 2020, we announced the completion of our planned single and multiple ascending dose cohorts in a Phase 1 clinical trial of KER-047 in healthy volunteers, as well as the expansion of this trial to evaluate additional cohorts of healthy volunteers. One additional cohort of healthy volunteers was evaluated in the trial expansion. Data from this cohort support the effect of KER-047 observed in the planned cohorts. We terminated the trial after determining that the data from this cohort, in addition to the data from the planned cohorts, were sufficient to inform the design of the expected Phase 2 clinical trials of KER-047, and expect to report topline data at a scientific conference by the end of 2020. We expect to commence two Phase 2 clinical trials, one in patients with iron deficiency anemia, or IDA, and one in patients with IRIDA, in 2021. Following the completion of our expected Phase 2 clinical trial of KER-047 in patients with IDA, we plan to commence a Phase 2 clinical trial in patients with FOP.
Our third product candidate, KER-012, is designed to bind to and inhibit the signaling of TGF-ß ligands, including activin A and activin B, to potentially increase bone mass. KER-012 is being developed for the treatment of disorders associated with bone loss, such as osteoporosis and osteogenesis imperfecta, and for the treatment of pulmonary arterial hypertension. We plan to progress KER-012 into a Phase 1 clinical trial in the second half of 2021.
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.
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.
On March 31, 2020, we effected a one-for-2.1703 reverse stock split of our issued and outstanding shares of common stock and convertible preferred stock, as well as a proportional adjustment to the existing conversion ratios for our convertible preferred stock. All issued and outstanding common stock and convertible preferred stock and related share and per share amounts contained in this Quarterly Report have been retroactively adjusted to reflect the reverse stock split for all periods presented.
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 $12.0 million and $34.7 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2020, we had an accumulated deficit of $54.3 million. We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future in connection with our ongoing activities. As of September 30, 2020, we had cash and cash equivalents of $133.8 million.
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Clinical Update

KER-050 Update

On October 20, 2020, we announced that we have dosed the first two participants in our two-part, open-label, multiple ascending dose Phase 2 clinical trial evaluating KER-050 for the treatment of anemia in patients with very low-, low-, or intermediate-risk MDS who either have previously received treatment with an erythropoiesis-stimulating agent or have not received such treatment.

The Phase 2 clinical trial will be conducted in two parts. In Part 1, approximately six participants will be enrolled in each of up to four cohorts of ascending doses of KER-050 to be administered by subcutaneous injection every four weeks for up to four cycles. In Part 2, the dose selected from Part 1 will be evaluated in up to 30 participants. The primary objective of the trial is to confirm the safety and tolerability of KER-050 in MDS participants with ring sideroblasts, as well as in participants without ring sideroblasts.

We expect to report initial data from Part 1 of this trial in mid-2021.

KER-047 Update

In August 2020, we announced the completion of our planned single and multiple ascending dose cohorts in a Phase 1 clinical trial of KER-047 in healthy volunteers, as well as the expansion of this trial to evaluate additional cohorts of healthy volunteers. We reported topline data from the planned cohorts of this trial in August 2020. In these cohorts, we observed dose-dependent increases in serum iron. We also observed increases in reticulocyte hemoglobin, which is a measure of hemoglobin content from newly-produced immature red blood cells, in the volunteers who received KER-047. One additional cohort of healthy volunteers was evaluated in the trial expansion. Data from this cohort support the effect of KER-047 observed in the planned cohorts. We terminated the trial after determining that the data from this cohort, in addition to the data from the planned cohorts of the trial, were sufficient to inform the design of the expected Phase 2 clinical trials of KER-047, and expect to report topline data from this trial at a scientific conference by the end of 2020.

Observed tolerability data

There were no serious adverse events reported in this expanded Phase 1 clinical trial. The most common adverse events observed in healthy volunteers in this trial were abdominal discomfort, chills, decreased appetite, diarrhea, dizziness, fatigue, gastroenteritis, headache, lymphopenia, myalgia, nausea, neutropenia, pyrexia, rhinorrhea, tonsilitis,upper abdominal pain and vomiting.

Rapid mobilization of iron stores resulted in increased reticulocyte hemoglobin conten