Keros Therapeutics (KROS) (~$420MM market cap) is a what I'm labeling a pre-strategic alternatives broken biotech, the company in two separate press releases (here and here) announced the halting of all dosages in their Phase 2 clinical trial of Cibotercept (KER-012) due to observations of pericardial effusions, which is a condition where excess fluid accumulates in a membrane that surrounds the heart. What I find interesting in this situation is:
- KROS has a significant cash position, my estimates put it around $650MM for a reverse merger, much higher than beaten up biotechnology companies I usually highlight
- KER-012 is described as KROS's second program, their most advanced asset, Elritercept (KER-050) was out licensed to Takeda for $200MM plus milestone payments, so this failure might be obscuring the larger story here
- KROS doesn't screen like a classic broken biotech because of the Takeda payment and their liberal use of their at-the-market equity offering program
Below is my basic back of envelope math on a potential liquidation value (again, not predicting a liquidation, more as a base case valuation for a potential merger/reverse merger):
The company has not declared a review of strategic alternatives, hasn't recently announced a reduction in force related to the failed KER-012 trials, etc., so this a riskier situation than others, but I think the absolute cash amount and sale of their primary asset makes this an interesting broken biotech to watch.
Other thoughts:
- My ATM estimate is using their 10/31 sharecount, based on their previous cadence, they likely issued more shares well above the current price into their December data disappointment, so the above NAV might be conservative
- The Takeda deal for KER-050 includes $370MM in development milestones and $720MM in sales milestones (plus a tiered royalty structure), how much is that worth today? I'm not including any value in my liquidation NAV
More moving pieces than most setups of this kind, but a NAV discount this potentially wide must be dawning on some within the company. A fund called Pontifax appears to have two board seats still.
ReplyDeleteHearing there's a VIC thread too if any kind birdies among you want to set alerts and pass any unique crumbs.
Could a SPAC be interested?
ReplyDeleteWhat are you envisioning?
DeleteI was more thinking a reverse merger with the Takeda milestone payments in a CVR.
What do you mean by reverse merger in this context? Is that not when a private company wants to go public through a public entity? (excuse the novice question)
ReplyDeleteYep, that's right. Private biotech comes public through the broken biotech, that's the usual outcome.
DeleteSo how would shareholders benefit from a reverse merger in this context?
DeleteIt puts a valuation on KROS in comparison to the private company, sometimes there's a special dividend paid out, here I think we could get a CVR, maybe the public markets get excited about the private company and bid up the shares, etc. More often than not, these work out fairly well (in the short term, not speaking to the science of the private company), but I find it difficult to determine which will and which won't, so I take a basket approach to them.
DeleteThanks for the insight, I appreciate it
DeleteSimilar ticker, similar story: have you looked into KRON?
ReplyDeleteBusted biotech, lead candidate discontinues with large RIF, hasn’t officially waved the white flag but large cash discount to market value.
I do like that one, mentioned its on my watchlist in my year end post, just too many of them, can't own them all, but might in the future here as some of them roll off once deals close (ALVR, AVTE and IKNA).
Delete