Keros Therapeutics, Inc. (KROS) stock intrinsic value fair value estimate & owner earnings analysis

Keros Therapeutics is a clinical-stage drug developer based in Lexington, Massachusetts. It has no approved products and no product sales. Its lead compound, elritercept, is licensed to Takeda for worldwide development outside mainland China, Hong Kong and Macau, and to Hansoh for those three territories. Its own lead candidate, rinvatercept, was expected, according to the annual report, to start a Phase 2 trial in Duchenne muscular dystrophy in the second quarter of 2026, with the design of a Phase 2 trial in ALS to be discussed with regulators in the second half of 2026. How we measured earnings. Owner earnings (operating cash flow, less working-capital swings, less stock compensation, less capital spending) have been negative in every year we could measure except 2025: about -$2.81 per share in 2020, -$2.52 in 2021, -$4.13 in 2022, -$5.20 in 2023 and -$4.97 in 2024. 2025 shows +$2.36 per share, but that came largely from the $200 million upfront payment Takeda made in February 2025 for elritercept plus a $10 million milestone paid in August 2025. That is a one-time sale of rights, not a repeating earnings stream, so we did not use it, or any other year, as a recurring earnings level. Because there is no recurring earnings level, we valued the company on what is actually owned and contracted today. Capital spending is tiny (about $1.6 million in 2025) and was treated as entirely maintenance. What the shares own. At June 30, 2026 the company held $257.6 million of cash, with about 19.8 million shares outstanding, or roughly $13.00 per share. The share count fell sharply in 2025, when the company spent $375 million repurchasing stock at $17.75 per share: $180.6 million for 10,176,595 shares repurchased from the Pontifax group of holders and $194.4 million for 10,950,165 shares in a tender offer completed in November 2025. Its Lexington lease, which runs through 2031, carried a $16.9 million liability at year-end 2025. Operating expenses were $57.2 million in the first half of 2026, and management said in the annual report that cash at year-end 2025 would fund operations into the first half of 2028. Base case, about $12.10 per share. Cash at June 30, 2026 less the year-end 2025 lease liability, divided by shares outstanding. This treats the company's ongoing research spending as roughly earning back its cost, and credits nothing for rinvatercept or for future sales of elritercept, because neither has evidence behind it yet. Takeda's milestone and royalty payments are contracted, but they depend on trial success and approval that have not happened, so they are not counted here. Bear case, about $3.90 per share. Rinvatercept fails in Phase 2 and elritercept does not reach the market (Takeda may terminate its license for convenience or on safety grounds), yet the company keeps spending. At roughly $115 million a year, twice its first-half 2026 operating expenses and before interest income, about $172 million of cash is used up by the end of 2027, leaving about $85 million, or about $3.90 per share after discounting at 6%. Bull case, about $16.50 per share. The base case plus payments Takeda and Hansoh have contracted to pay if specified development events occur: up to $80 million more from Takeda (the Phase 3 RENEW trial of elritercept in myelodysplastic syndromes began in December 2024 and dosed its first patient in July 2025, which triggered a $10 million payment) and up to $23.5 million from Hansoh. We assumed these arrive in about three years and discounted them at 6%, adding roughly $4.40 per share. We left out the up to $1.02 billion of Takeda commercial and sales milestones, the up to $144 million of Hansoh sales milestones and all royalties, because they require an approved and selling product. What could make this wrong. Cash spending could exceed our assumption, or the company could issue new shares to fund trials, which would dilute holders. Trial results could be far better than we credit, which we deliberately do not count. The lease liability used is the year-end 2025 figure, and we could not confirm from the filings whether the company carries any borrowings. Because the value rests on cash that the company is spending each quarter, the margin-of-safety price is set at a large discount to the base case.