Keros Therapeutics' Quiet Near-Term Outlook Overshadows Pipeline Potential: Analyst

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2 days ago

Bank of America Securities analyst Jason Zemansky downgraded Keros Therapeutics, Inc. (NASDAQ:KROS) from Buy to Neutral, lowering the price forecast from $32 to $18.
Zemansky noted that Keros has wrapped up its strategic review, with the board deciding to advance KER-065 for Duchenne muscular dystrophy (DMD) and return $375 million in excess capital to shareholders.
The analyst highlights that the stock has been downgraded not due to concerns about the platform or pipeline, which remains compelling, but because of limited near-term upside.Despite favorable valuation and a solid cash buffer, Zemansky writes that the stock may stay range-bound given that meaningful updates on KER-065 are unlikely soon, with FDA discussions not expected until the third quarter. As a result, other investment opportunities may offer better near-term potential.
The analyst slashed the price forecast to reflect adjustments to the cash balance and a higher weighted average cost of capital (WACC) of 16%, now aligned with peers at a similar stage.
On June 9, 2025, ADAR1 Capital Management, the largest shareholder of Keros Therapeutics, stated that the recent board election results signal 'widespread dissatisfaction' among investors. ADAR1 highlighted that two directors received support from only about a third of outstanding shares, reflecting a loss of confidence in the board's management and capital allocation.
While acknowledging Keros's recent decision to halt a drug program and cut staff, ADAR1 called the actions 'wholly insufficient.' The firm heavily criticized the board's plan to return only a portion of its cash to shareholders, arguing the amount retained is excessive for Keros's limited clinical pipeline.
To address this, ADAR1 issued specific demands for the board to take immediate action. The firm called for Keros to increase its capital return by an additional $100 million for a total of $475 million, to be paid through a special dividend by the end of Q3 2025.
Furthermore, ADAR1 urged the company to create a contingent value right (CVR) to allow shareholders to directly benefit from the Takeda partnership. ADAR1 warned that if the board does not adopt a more aggressive, investor-focused strategy, it will not hesitate to nominate new directors for the 2026 annual meeting to ensure the will of shareholders is respected.
Zemansky acknowledged that the board had limited strategic options aside from fully dissolving the company. However, he writes that bearish investors may have expected a more aggressive outcome than just the potential $375 million capital return, especially since the exact structure and terms of the buyback remain undecided.
Zemansky pointed out that beyond the longer development timelines, overall sentiment toward Keros likely remains cautious, which could continue to pressure the stock.
While the company's three board nominees were elected despite activist opposition, a notable portion of votes were withheld for the two targeted candidates, indicating lingering investor discontent.
He stresses the point that frustration may persist, particularly given the recent setback with TROPOS and skepticism that last month's cost-cutting measures were sufficient.
Although some bulls might argue that the stock has been unfairly punished, especially given the added hurdles of developing drugs that target the TGF-β pathway, Zemansky writes most investors will likely wait for more meaningful progress and risk reduction before 'returning to the story.'
Price Action: KROS shares are trading lower by 2.34% to $13.76 at last check Tuesday.
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Date
Firm
Action
From
To
Dec 2020
SVB Leerink
Maintains
Outperform
Dec 2020
HC Wainwright & Co.
Maintains
Buy
May 2020
Piper Sandler
Maintains
Overweight
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