An open letter to the Keros board $KROS

TL;DR: We are withholding our votes from two of Keros’s board members at their annual meeting (we’re also voting against the executive compensation proposal). We had communicated these views to the company privately, but in light of the public exchanges between Keros¹ and ADAR1, we felt the need to make our views more broadly known. As we mentioned in our public podcast on Keros, we are not trying to form a group with anyone, but we do believe strongly in shareholder engagement and would encourage any shareholder to share their views on value creation / preservation with the board (and we’d encourage that communication whether those views agree or disagree with ours!).

(Letter begins below)

Keros Board,

We’re writing in response to your May 8 press release, “Keros Reinforces Commitment to Maximizing Stockholder Value.” As you know, we already communicated our intention to vote against both Mary Ann Gray and Alpna Seth in a private email on May 7. Given the increasingly public exchange between you and ADAR1, we felt it was important to make our views more broadly known.

When we first invested in Keros in January, we had no intention of engaging the company publicly. However, following an alarming call with management on April 7, I immediately began preparing a public piece (a podcast, which was released on April 9: “Avoiding the Zombie Biopharm Trap at Keros ($KROS)”). Why the change in approach? Because management made it crystal clear during our call that they were determined to push forward with R&D regardless of risk-adjusted returns or shareholder value. Based on that call, without shareholder intervention it seemed almost certain Keros would burn through its remaining cash and destroy significant amounts of shareholders value.

Our concerns have only intensified since then, especially following the Q1 earnings report. Keros is no longer a company with multiple wholly owned potential blockbusters. Cibotercept failed. What remains is one partnered asset (elritercept), one asset about to enter Phase 2 (KER-065), and a large pile of cash. Instead of adapting to this new reality and cutting costs, Keros somehow increased both R&D and SG&A spending in Q1 2025 compared to Q1 2024.

We understand no company wants to shrink, but the failure of cibotercept changed Keros’s trajectory. A management team and board that were true stewards of shareholder capital would have acknowledged this change and acted swiftly to reduce expenses. Instead, Keros maintained the status quo—costing shareholders roughly $50 million in Q1 cash burn alone (excluding the Takeda payment).

This brings us to the upcoming annual meeting and the ongoing strategic review. While we hope and expect the board is conducting a serious process aimed at maximizing shareholder value, we feel compelled to vote against Mary Ann Gray, Alpna Seth, and the executive compensation plan. Among our reasons—particularly our frustration over the lack of cost discipline—we highlight one critical issue: stock ownership.

Neither Dr. Gray nor Dr. Seth owns a single share of Keros stock. While they hold (well out of the money) stock options, neither has chosen to buy a single share outright, nor have they held on to a single share / option that’s vested. That lack of ownership is deeply disappointing given the length of their tenure (Dr. Gray joined in 2020, Dr. Seth in 2023) and compensation (each has earned well over $1 million from Keros; Dr. Gray has earned nearly $2 million), and it creates a significant misalignment with current shareholders—especially given these directors may soon vote on the outcome of the strategic review. We cannot support directors with no skin in the game who may be incentivized to approve a strategic process that maximizes their own financial outcomes instead of shareholder value.

Voting against these directors is also a broader signal to the board: run a strategic process that delivers real value to shareholders, or the entire board will face consequences at future annual meetings.

If the board would prefer our support for the current slate of directors, there’s a straightforward solution: announce the results of the strategic process before the annual meeting. Management has said preliminary results will be available by mid-June—just days after the meeting. Why not release them sooner? If those results genuinely maximize shareholder value, that would go a long way toward earning our support.

We would be happy to discuss any of the points raised in this letter or broader governance matters with management or the board at your convenience.

Sincerely,
Andrew Walker

P.S. One final point for the board’s consideration: director compensation. Keros is currently a ~$500 million market cap company with over $700 million in cash…. yet it pays its eight non-employee directors nearly $3 million annually, most of it in stock compensation. That level of pay may have been justifiable when Keros was a billion-dollar company with two potential wholly owned blockbusters. It is entirely inappropriate for what is now, functionally, a cash shell. Director compensation must be reduced immediately (executive compensation should come down markedly as well). If any director believes serving on Keros’s board is no longer worth their time at a (substantially) lower rate, we’d view that as a welcome reflection of the new reality—and all the more reason to wind the company down.

1. Obvious disclosure: we are long Keros (KROS)