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On Tuesday, BofA Securities adjusted its stance on Keros Therapeutics (NASDAQ:KROS), downgrading the stock from Buy to Neutral and reducing the price target from $32.00 to $18.00. The decision follows Keros Therapeutics’ announcement regarding the end of its strategic review. The company’s board has chosen to proceed with the development of KER-065 for Duchenne muscular dystrophy (DMD) and to return $375 million in excess capital to its shareholders. The stock, currently trading at $14.09, has experienced a significant decline of nearly 79% over the past six months, falling from its 52-week high of $72.37.
In his statement, the BofA Securities analyst noted that the downgrade should not be seen as a negative reflection on Keros Therapeutics’ platform or pipeline, which remains compelling. However, the analyst expressed concern that the near-term potential for stock price appreciation might be limited. This is attributed to several factors, including the anticipated delay in obtaining key insights on KER-065, as the company plans to discuss next steps with the FDA in the third quarter. Additionally, safety concerns continue to be an issue, and investors may require more substantial progress before re-engaging with the stock. According to InvestingPro, the company holds more cash than debt on its balance sheet, with a robust current ratio of 19.29, indicating strong financial stability.[Discover 10+ additional exclusive insights and real-time metrics with InvestingPro]
The analyst highlighted that, despite Keros Therapeutics’ strong cash position offering some downside protection, the stock is expected to remain range-bound in the absence of further progress. This outlook has led to the recommendation for investors to consider other opportunities within the sector. The revised price objective of $18.00 takes into account the updated cash position and an increase in the weighted average cost of capital (WACC) to 16%, which aligns with that of similarly staged developers. InvestingPro analysis suggests the stock is currently undervalued, with a "GREAT" overall financial health score of 3.15, though it trades at a relatively high P/E ratio of 125.28.
In other recent news, Keros Therapeutics has announced plans to return $375 million of excess capital to its shareholders following a strategic review aimed at maximizing stockholder value. The company’s board, after consulting with financial and legal advisors, unanimously decided on this capital distribution, with details to be provided at a later date. Additionally, Keros has halted the development of its drug cibotercept for pulmonary arterial hypertension due to safety concerns identified in the TROPOS trial and plans to reduce its workforce by approximately 45%, resulting in annualized cost savings of about $17 million. The strategic committee is also evaluating potential alternatives, including a possible sale of the company, with updates expected by June 9, 2025.
Meanwhile, there is significant shareholder dissent at Keros, with ADAR1 Capital Management, the largest shareholder, expressing dissatisfaction with the board’s capital allocation strategy and calling for more aggressive cost reductions. ADAR1 has demanded a special dividend of $100 million by the end of Q3 2025 and insists on a mechanism for shareholders to benefit directly from cash flow from the Takeda partnership. In contrast, Glass Lewis (JO:LEWJ) & Co., an independent proxy advisory firm, has recommended Keros stockholders vote in favor of all three director nominees proposed by the company, supporting the board’s decision-making and strategic review process. Keros is focused on advancing its remaining development programs and completing the strategic review process.
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