All right, perfect. I'm Thiago Fauci, I'm a biotech analyst here at Wells Fargo. We're joined today by Keros . I have Jasbir Seehra here for a fireside chat conversation. We're going to talk about pipeline, the new corporate strategy, so on and so forth. Again, lots of changes throughout this last year. Perhaps we can start with just briefly where you are right now, overall strategy priorities, and then we'll go into a more detailed discussion.
All right, Thiago, thank you first of all for the opportunity to have this discussion. The last eight, nine months have been an eventful period. We partnered our most advanced asset at the beginning of December last year, and then shortly thereafter with our cibotercept in PAH, we learned of the pericardial effusions. We stopped the trial in January, reported the findings in Q2, and we have deprioritized that asset. No further development of that. With the Takeda partnership on the [most advanced], that transition has been taking place. We believe that transition will be complete by the end of the year. As a consequence, our clinical asset that's remaining with us is KER-065, which is a muscle bone anabolic, antifibrotic, anti-inflammatory properties. When we sort of think about it, that pathology that it can correct fits in with a lot of indications. We're moving forward with that.
Now, as you know, we did take a hit on our stock. The investors changed. We had a strategic review that we initiated in Q2. In June, we came out that we would be returning $375 million of capital. Given the focus on KER-065 as the clinical asset and then the preclinical pipeline, the board came to the conclusion that there was value to be created, but we also had a little bit of excess capital that we could return to investors. We're doing that and focusing the effort on the assets. In so doing, we also restructured the company, reduced it to roughly half what it was at the end of last year. I think now it's focused on delivering value.
There we go. That makes sense. Let's spend some time and discuss KER-065 and kind of the merits and unknowns. Can you recap the therapeutic hypothesis, I guess, for KER-065 in DMD specifically?
In DMD , boys with DMD get diagnosed when they're 18 months to three years because they are slow to start walking. They eventually all walk, they all run, but towards the end of their first decade of life, they start to decline in function. They're making muscle, but that muscle is breaking down when it's used. When you break down that muscle, you get inflammation of the tissue, and as a consequence, you have less regenerative capacity. That regenerative capacity declines with increasing inflammation. Eventually, the boys are not able to rebuild that muscle. What KER-065 does is it increases the regenerative capacity of the muscle, and it makes the muscle bigger. Therefore, it's stronger. I think that's a fundamental part of the thesis: you're going to make the muscle stronger, you're going to allow it to regenerate.
There are other properties of the molecule as a consequence of that. One is that if you're increasing muscle, you increase energy expenditure, so now you reduce body adiposity. In boys with DMD, they're on glucocorticoids. They actually have high BMI, they are metabolically stressed, they have insulin resistance, high A1C. Much of the metabolic syndrome that you associate with overweight and obese individuals is there in the boys with DMD. In addition, because they're on glucocorticoids and also have reduced mobility, they're osteoporotic. What does KER-065 do? Preclinically and clinically, we demonstrate it increases skeletal muscle, it reduces fat mass, it improves bone mineral density. Preclinically, we've also shown that it increases muscle regeneration. In so doing, you also increase the expression of an alternative to dystrophin, a homolog of that, utrophin. In combination with exon skipping strategies, you actually increase the expression of truncated dystrophin.
It's again for the reason that you increase the muscle regeneration because muscle is impervable to a lot of these things. Unlike many cells in our body, they have a nucleus. It's self-replicating. In the muscle, the nucleus is not self-replicating. The nuclear material comes from new myoblasts that fuse with it. They are the vehicles for delivery of nuclear material and anything else they pick up, including exon skippers, on their way to fusing with the muscle. I think the pathology that arises from the underlying lack of dystrophin, which is weaker muscle, breaks down, inflammation, inhibits regeneration, these are all common to many, many muscular dystrophies, but they're there in boys with DMD. KER-065 kind of deals [crosstalk].
[Crosstalk ] those features.
Right, right, right.
Okay. No, and that's fair. I guess the more simplified negative view, let's call it, is again, historically, there's some skepticism of agents that are solely increasing muscle mass in neuromuscular diseases because of the risk or the uncertainty on translating that to clinical benefits, right? Associated with that, there's some baggage with like ACE-031, the Biohaven asset, which I never know how to pronounce.
Yes, neither do I.
There are a couple of other benchmarks, slightly different mechanisms of action, and some skepticism overall about just this being feasible and leading to clinical benefit. How should we think about those? Like how fair, how unfair, what's comparable, what's not comparable?
Yeah. I think let's divide it into two categories. Those that inhibit myostatin and myostatin only. That was the Roche antibody, there was the Lilly, sorry, Roche and Pfizer antibodies. Bristol took now Biohaven's molecule also into boys with DMD, which came from Adnexus, a company that was acquired by Bristol. That molecule binds and only inhibits GDF8 and GDF11. It does not touch activin. You've got three molecules that went into boys with DMD that inhibit myostatin only. When you look at that data, there are signals of activity, but the studies never reach their primary endpoints. That's because in humans, in all primates actually, myostatin, while it's an important negative regulator, has less impact than activin A. You can see the Regeneron data where they're in obese individuals, they've got the activin antibody, myostatin antibody, and then the combination is much more powerful.
If your muscle is wasting away because of an underlying cause, you want to have the most powerful approach in order to address it. That is where KER-065 differs from those approaches. You brought up ACE-031 and the baggage there. The Acceleron ACE-031 was an activin receptor ligand trap. It demonstrated biology that translated from preclinical all the way to DMD boys, but it was put on clinical hold because of nosebleeds and gum bleeds. Those nosebleeds and gum bleeds are due to binding to a particular ligand, BMP9. I learned that from my experience at Acceleron. We dialed that out of the molecule that we have currently, KER-065. How can I convince you that it's been dialed out? I can tell you about the preclinical studies. In safety studies with ACE-031, there was evidence of bleeding events that we don't see with KER-065. We've completed chronic tox studies.
Whereas with Acceleron, we had not completed chronic tox studies when we went into boys with DMD. The bleeding events of nosebleeds, gum bleeds were observed in the phase I study. We don't see those in our phase I study. That's on the negative side. On the positive side, three months of treatment resulted in increases in lean, decreases in fat, and improvements in lumbar bone mineral density, translating the preclinical biology. In addition, that study was a very small study. There were only cohorts of 12 in each dose, two to one randomization. Nevertheless, with the two dose cohorts that were completed, if you then look at the late ambulatory boys, those that were 10 years and older, you see in the placebo boys, they lost 39 m.
In the true treatment arms, they didn't lose any ambulation in the five months that the measurements were conducted over, with three months of treatment in the middle. To me, that's a signal of functional benefit. That's there. When you go back to the myostatin antibodies or the adenectin, they all show some signals, but they were weak signals. You see that also in the healthy volunteer studies. I think the biology does translate. It translates all the way from rodents to humans. I think the question was a good question about safety. Myostatin antibodies are about as safe as water. The knockouts are perfectly fine. They're hypermuscular. That's not a surprise. You inhibit activin on top of that. It's always going to be a contraceptive. We understand that. That's not an issue in these neuromuscular indications.
Got it. No, you do see a lot of those biomarkers moving in the expected direction for phase I. I guess the literature on the translation to clinical benefit, there's some to support that. That's going to be the question. That's why you're running the study, right, ultimately. One thing just in terms of the safety profile and hemoglobin changes that you observe, how much does that actually matter in clinical practice? You know, for pulmonary arterial hypertension, for example, it doesn't really, it's not a meaningful impediment or anything like that. Just thinking about the overall safety profile and how that could impact the product profile, what are some of the puts and takes there?
Yeah, look, I think if you look at the phase I data that we generated, you saw that in the single ascending dose, we did see increases in hemoglobin. They were dose dependent, but they were small compared to what we saw in the multiple ascending dose. What's the difference between the population? The population in the SAD was lean individuals. The population in MAD was obese individuals. For about a decade or so, I've been hypothesizing that in individuals that have inflamed bone marrow, you see greater changes in red blood cells with these kinds of ligand traps. I go back to sotatercept , where in the healthy volunteer study, multiple ascending dose, at 1 mg per kg, there were individuals that only showed 1 g per dL, and others showed 6.5 g per dL. Why? It's because there is underlying biology that's different between each of those.
Inflammation is one of those. We saw that. Now, the boys with DMD, they're going to be inflamed, right, but they're on glucocorticoids. I don't know what that is going to be.
Right.
Nevertheless, we're going to do titration, right? You're going to start at a lower dose, and you're going to titrate to a hemoglobin that's maintained below 2 g per dL so that you don't get into that negative risk territory.
Got it. Okay. That seems fair. Again, thinking about the bone mineral density data and fat mass changes across the different dose levels, what are some of the findings there? Again, thinking about taking the program forward, any implications on different dose levels, dosing intervals, like you mentioned the dose titration to address some of those concerns. What are some other considerations that go into your go forward dose?
I think it's really the patient population, more so than anything else. The biology is going to replicate itself at low doses, and at higher doses, you're just going to see the effect sooner. I'll go back right to the Acceleron study, where even at the low dose of 0.5 mg per kg given monthly, there were improvements in skeletal muscle, reductions in fat, and improvements in bone mineral density. Just three months of treatment was sufficient to start showing you those signals. That was a placebo control trial. Highly likely that our trial will be an open label trial. The reason being, we need to generate data, and we need to see those signals so that we can engage with regulators on what a registration strategy could be. Doing a placebo control trial means there's a period of no news. I think it's really about the population.
What's the age of the population that you want? Ambulatory versus non-ambulatory. What's the background of therapies that they're on? Let's start with the age. As we just talked a few minutes ago, boys with DMD get diagnosed, but then they all walk. They all begin to run. They get stronger. You really don't want them when they're in that inclined phase. In an open label study, it would be really hard to demonstrate a benefit, right?
Yeah.
Okay. On the other hand, when the patients are in that stable muscle function, you can look at stability over time. If they're in decline, it's even better because now you're changing the slope.
Yeah.
Okay. That automatically puts you into the late ambulatory.
Late ambulatory, similar to what the signal you saw with Acceleron.
Right, okay, right. The non-ambulatory still have upper body function. That's the other cohort that you can have. As I said earlier, we see increased expression of utrophin and of dystrophin in combination with exon skippers for dystrophin. About 40% of the patients have mutations that make them amenable to exon skipping. Currently, that's about 25% of the population that can get treatment based upon [51, 53, and 45, or 44], or whatever it is. I think you want to explore that, right, as well. Can you actually increase the dystrophin expression in those patients? After all, our goal originally with any of these approaches was to get dystrophin expression up to about that 10% that's there in Becker's to convert the Duchenne's into a Becker's phenotype. Hasn't been the case, right?
If in combination with KER-065, you get to that point where you have enough dystrophin that you're a Becker, that's a real value driver for those patients. Stable glucocorticoids, combination with PMOs, and non-ambulatory, right? When you start thinking about the drug, where it can benefit, and where you could demonstrate the benefit in the short-term study, you sort of.
Those are different questions, but yes, you're kind of bucketing yourself from a clinical trial perspective in that.
Right, you get to a place. Yeah.
Okay. I'm assuming you're still talking to regulators to get the final sign-off on the specifics of the phase II, but you kind of already outlined the potential positioning and patients enrolled. You mentioned potentially an open-label trial just because you want to see proof of concept data earlier rather than later. What is the sufficient sample size and/or duration? Can we use other DMD trials as comps for this? Slightly different mechanisms of action, different endpoints.
Yeah, I think again, I'm going to go back to the ACE-031.
Yeah.
Okay, right, the Acceleron. Why? It's a molecule that I pushed hard to go into boys with DMD. I know that molecule. I know that, okay, what was done with that. I think that provides you with a roadmap. In that study, three months of treatment was sufficient to show you by imaging techniques changes in muscle, bone, and fat. That was a placebo control trial, and therefore, right, you have your placebo. In an open label study, you're going to need slightly more patients to convince you that you're seeing it than in a placebo control trial.
Yeah.
That study was 24 patients, right, two dose cohorts. I think it starts providing you with the size of the study as well. It ain't 60 patients. Ain't a dozen patient trial either, right?
Mm-hmm.
That's where, again, the regulators will help us understand, okay, right? We may propose 10, and they say, no, you're going to have 16, okay, right? Right. I mean, that's the level of discussion I think that's going to be there with a lot of these parameters.
I think so. Where are you right now in terms of that engagement and that discussion with FDA? What are some of the gaining steps for you to potentially start the phase II?
I think the first gain was that we shared with you and the world the interim data at the end of Q1. That was through day 85. These drugs are relatively long half-life, so you still have safety follow-up. On another axis of biology, which is bone, the cells that lay down bone and those that take away, osteoblasts and osteoclasts, they have a lifespan of 60 days. When you have a drug that influences the ratio of those and the activity of those, that effect can last for 60 days and longer. You need to wait to close down that study. We have closed down that study. In fact, this weekend, we will be presenting posters at a conference, ASBMR, which has some bone data from a later time point. You'll have to wait a couple of days to see that. That study is now closed.
That opens up the gate to prepare our documents and submit them to the regulatory bodies, which is what we're doing at this point in time. Is there anything gating? Only just the time it takes to prepare documents, file those documents, and get feedback.
Got it. Okay. Probably a little difficult to gauge right now, but when you're thinking about the actual costs that can go into running that trial, do you have any rough estimates? It seems like you have, even with the capital return, sufficient cash for a robust runway here. We do get questions on the capital allocation side of things, and we'll talk more about that later. Any rough estimates right now or kind of difficult to?
No, it's not. Okay, right. Look, when we did the strategic review, we looked at everything from, you know, liquidating the company to changing nothing and everything that stands within that. We came to the conclusion that if we gave back $375 million, we would have sufficient capital to prosecute KER-065 in DMD and a second neuromuscular indication. We just reported our Q2 earnings a few weeks ago, $690 million of cash. Take away the $375 million, you're left with $315 million and a runway that we said into first half of 2028.
Got it. You did mention potentially a second indication there. Is this something that the DMD proof of concept data could be a gating step for, or how are you thinking about optimizing and thinking about subsequent indications for KER-065?
Yeah. I think two parts to that, two-part answer to that question. First of all, as you recall, we restructured the company. We're a much smaller company. As a consequence, I think we have to look at things in terms of sequencing rather than doing things in parallel. We do not have the bandwidth at the moment to start DMD and another trial. We have to sequence the two. Team's busy on DMD. As soon as there's bandwidth to evaluate a second indication, we'll do that. I think in terms of your other part of the question, where is the biology mirroring the pathology? I think in muscle disorders, the opportunities in muscular dystrophies beyond DMD lie where the pathology is the same. The difference in the different muscular dystrophies is really the time of onset and the rate of progression of the disease.
With some of the congenital muscular dystrophies, they're observed at birth, and the kids do not even survive the first year of their life. There, it's going to be really tough to demonstrate an effect other than on survival. That's a hard endpoint. On the other hand, when you go to some of the limb girdles, they don't get diagnosed until late childhood into early adulthood, and the rate of progression is so slow that your endpoints are two, three, four years away. I think DMD is just right in the spot to be able to demonstrate. Maybe you want to label expand into those indications. Then there's those where it's the motor neuron, failure to excite the muscle. SMA is one of those. I think until [Scholar Rock's] data, everybody was a little bit dubious that they would see benefit.
I think I kept saying to investors, analysts, and I think I even said it to you at one point, that there'll be signals of activity.
We did, actually.
Right. I think to me, it provides proof of concept that you can deal with the muscle and provide benefit as long as there is some preservation of the motor neuron and neuromuscular junction. That opens up opportunities in other neuromuscular indications. There are bone effects of this molecule, so there are bone disorders like OI, right?
Yeah.
We had previously guided to obesity, right? That's off the table for us, right? It's not off the table with a different molecule in a partnership, right? I've just gone through and shared with you, there's a lot of different indications, and it's a matter of us sequencing them as resources become available.
Got it. I think that's fair. You did mention a little bit about your preclinical pipeline. It seems like you're heavily focused on the KER-065. Is the internal pipeline mostly potentially for out-licensing strategies? Is there something that could come into clinic anytime soon? How are you thinking about that part of the business?
Yeah. I think we've been very prolific preclinically. We have generally taken the approach of not sharing what is in the preclinical pipeline until it's almost ready to go into patients. I'm not going to go into details of anything, but I think the way I tend to think about it is there's the rare diseases where we can have a business on our own. Then there's the larger indications where we'll never be able to exploit those. I think those are all partnership, right? As we continue to do our discovery, another muscle anabolic could be appropriate for obesity sarcopenia. Are we going to invest the capital to do phase I, phase II, and so on? Maybe, maybe not. It depends upon what is out there in terms of partnership opportunities. I don't want to grow the size of the company.
I call it, okay, when you do that, you're basically building your company and then you're renting it out. I don't like renting out my people.
Fair enough. Just to recap, I have another source. We do get some questions on KER-050 elritercept . Takeda is taking that program forward, but anything you can share there in terms of development plans, timelines, because again, there's still some downstream economics. There's still milestones associated with it. It could still be a source of upside for the stock. I don't think most investors are paying too much attention to it, but there's still value there, right?
Absolutely. I mean, we said when we did the deal, it's $200 million upfront, $1.1 billion in biobucks, right? And then low double digits to high teens royalties, right? That's a good deal, right? I think anybody who does a deal like that, they did a good deal, right? What Takeda has said is, you know that Renew is moving forward, which is the second line. They're very much interested in moving into frontline as quickly as possible. They indicated that at a research day back in December. I don't have any further guidance on that. They're very much excited about myelofibrosis, and as the data continues to mature, they're also sequencing things, right? We're handing things off to them. They want to take that, and they'll start making decisions. I think those milestones will happen, some of those, right?
Not all are going to happen in the next few years, right? I can't give you any further guidance because they haven't provided.
That's totally fair. Since you do know their biology really well, the myelofibrosis with sotatercept readout kind of not what was expected. You had.
Can you kind of contextualize that? Because again, at least in low-risk MDS, you do have a differentiated profile in terms of efficacy across a broader set of patients, better excretion dependence rates. Could elri perhaps close that gap that perhaps sotatercept couldn't in that patient population?
I do believe the data that we have shared in the past in myelofibrosis shows a potent effect that was not observed with sotatercept. I think it all comes back to the anti-inflammatory properties of the molecules, where when you inhibit activin A, a potent driver of inflammation and fibrosis. In myelofibrosis, bone marrow, it is fibrosis, right? In the conversations that I've been involved with KOLs, they basically tell me, "This is great, right? We want to do additional studies with it because we think we can provide better." They also talk about it earlier on in treatment, right? I think Takeda will look at the data. They will make a decision to go forward. Based upon what I know, it is different.
Yes, it is substantially differentiated from sotatercept .
Got it. Okay. The last question for me, I have to ask, just related on the plans to return the excess capital, when should investors kind of hear about maybe some of the specifics around that? Again, just checking the box here.
Yeah, look, we engage advisors to help us with that, right? There are only two mechanisms for returning capital: a dividend or share buyback. The share buyback can be two flavors, right? A Dutch tender or buying back on the open market, right? At this point in time, the advisors are looking at that by engaging with investors to see what views are. I think it's important to hear that out before you make a decision as to how you're going to return the capital.
Fair enough. Perfect. No, I think we're probably at time. No, this was great. I really appreciate you spending the time with us today.
I enjoyed it, and thank you for the opportunity.
There you go.