Keros Therapeutics, Inc.

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Keros Therapeutics, Inc. (“Keros” or the “Company”) was incorporated in 2015 as a Delaware corporation. Its principal offices are in Lexington, Massachusetts. The Company is a clinical-stage biopharmaceutical company focused on developing and commercializing novel therapeutics to treat a wide range of patients with disorders that are linked to dysfunctional signaling of the transforming growth factor-beta (“TGF-ß”) family of proteins.

The Company's lead product candidate, KER-065, is being developed for the treatment of neuromuscular diseases. The Company’s most advanced product candidate, elritercept (KER-050), is being developed for the treatment of low blood cell counts (“cytopenias”), including anemia and thrombocytopenia, in patients with myelodysplastic syndromes (“MDS”) and in patients with myelofibrosis.

Since its inception in 2015, the Company has devoted the majority of its resources to business planning, research and development of its product candidates, including conducting clinical trials and preclinical studies, raising capital and recruiting management and technical staff to support these operations. To date, the Company has not generated any revenue from product sales as none of its product candidates have been approved for commercialization.

Liquidity and Capital Resources

The Company’s condensed consolidated financial statements have been prepared on the basis of the Company continuing as a going concern for the next 12 months. Management believes that the Company’s existing cash and cash equivalents as of June 30, 2025, less $375.0 million of excess capital that the Company's board of directors (the "Board") has determined to return to its stockholders, will allow the Company to continue its operations for at least the next 12 months. In the absence of a significant source of recurring revenue, the continued viability of the Company is dependent on its ability to continue to raise additional capital to finance its operations. If the Company is unable to obtain additional funding, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

The accompanying unaudited interim condensed consolidated financial statements as of June 30, 2025 and for the three and six months ended June 30, 2025 and 2024 have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2024 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 26, 2025 (the “Annual Report”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

The significant accounting policies and estimates used in preparation of the unaudited interim condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2024, and the notes thereto, which are included in the Annual Report. Except as detailed below, there have been no changes to the Company’s significant accounting policies during the six months ended June 30, 2025.

Stock-Based Compensation

The Company accounts for all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value. The Company’s stock-based awards include stock options, restricted stock unit ("RSU") awards and performance-based stock options. The measurement date for employee and non-employee awards is the date of grant. For stock-based awards that vest based on service conditions, stock-based compensation costs are recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. For stock options with performance conditions, stock-based compensation costs are recognized as expense using the accelerated attribution method when it is probable that the performance condition will be achieved. Stock-based compensation expense is classified in the accompanying consolidated statement of operations based on the function to which the related services are provided. Forfeitures are recorded as they occur.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies weighted with its own volatility for the period in which its stock has been publicly traded. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Recently Issued Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU No. 2023-09”). ASU No. 2023-09 requires a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in ASU No. 2023-09 prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU No. 2023-09 disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all period presented. The Company is currently evaluating the impact of ASU No. 2023-09 on its consolidated financial statements and related disclosures.

In November 2024, the Financial Accounting Standards Board issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU No. 2024-03”), which intends to improve financial reporting by requiring disclosure of additional information about specific expense categories. This guidance is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and the guidance is to be applied prospectively and may be applied retrospectively. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

Risks and Uncertainties

There have been significant disruptions to global financial markets that have contributed to a general global economic slowdown. While recent trends towards rising inflation have eased, prices continue to rise, which may materially affect the Company’s business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of materials and supplies relating to the Company’s preclinical studies and clinical trials, interest rates and overhead costs may adversely affect its operating results. Rising interest rates and implementation of tariffs present a recent challenge impacting the U.S. economy and could make it more difficult for the Company to obtain traditional financing on acceptable terms, if at all, in the future. Although the Company does not believe that inflation, higher interest rates or tariffs have had a material impact on its financial position or results of operations to date, the Company may experience increases in the near future (especially if inflation rates rise more quickly) on its operating costs, including its labor costs and research and development costs, due to supply chain constraints, consequences associated with public health crises and global geopolitical tensions, such as the ongoing war between Russia and Ukraine and the war in the Middle East, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on the Company’s working capital resources. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biopharmaceutical industry with research and development operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing its intellectual property rights; the challenges of complying with applicable regulatory requirements; and identifying, acquiring or in-licensing additional products or product candidates.

3. FAIR VALUE MEASUREMENTS

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):

There have been no transfers between fair value levels during the six months ended June 30, 2025. The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following (in thousands):

5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in thousands):

Accrued compensation and benefits consisted primarily of accrued payroll, accrued severance and accrued vacation.

6. STOCKHOLDERS' EQUITY

As of June 30, 2025, the Company’s amended and restated certificate of incorporation authorized the Company to issue 200,000,000 shares of common stock at a par value of $0.0001 per share.

On January 8, 2024, the Company closed an underwritten public offering in which 4,025,000 shares of common stock were issued and sold, which included 525,000 shares of common stock issued and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $40.00 per share. The aggregate net proceeds to the Company from the public offering were approximately $151.1 million, after deducting underwriting discount, commissions and offering expenses.

Stockholder Rights Plan

On April 9, 2025, the Board declared a dividend ofone right (“Right”) to purchase one-thousandth of one share of the Company’s newly designated Series A Junior Participating Preferred Stock, par value $0.0001 per share (each, a “Preferred Share” and collectively, the “Preferred Shares”), for each outstanding share of common stock to the stockholders of record as of the close of business on April 24, 2025. The Company also adopted a limited duration stockholder rights plan (the “Rights Plan”), effective immediately, as set forth in the Rights Agreement, dated as of April 9, 2025 (the “Rights Agreement”), by and between the Company and Computershare Trust Company, N.A., as Rights Agent. The Rights Agent currently serves as the Company’s transfer agent with respect to the common stock and also has been appointed transfer agent with respect to the Preferred Shares, if any, that may be issued pursuant to the exercise of rights under the Rights Agreement. The Rights will expire on April 9, 2026, unless the rights are earlier redeemed or exchanged by the Company. The Company does not have any obligation under the Rights Agreement to seek stockholder approval for the Rights Plan.

In general terms, the Rights Plan is designed to impose a penalty upon any person or group that acquires beneficial ownership of 10% (15% in the case of a passive institutional investor) or more of the outstanding shares of Common Stock without the approval of the Board. The Board adopted the Rights Plan in response to significant and rapid accumulations of the common stock by a number of investors who have indicated a desire to influence the control of the Company. The Rights Plan is intended to protect the investment of the Company's stockholders during a period in which it believes shares of the Company do not reflect the Company’s intrinsic value. The Rights Plan will reduce the likelihood that any entity, person or group gains control of the Company through open-market accumulation without paying all stockholders an appropriate control premium.

7. STOCK-BASED COMPENSATION

2017 Stock Incentive Plan

The Board adopted the 2017 Stock Incentive Plan (the "2017 Plan") in February 2017, and the stockholders approved the 2017 Plan in March 2017. The 2017 Plan was most recently amended in March 2020.

As of June 30, 2025, there was an aggregate of 417,043 shares of common stock issuable upon the exercise of outstanding options under the 2017 Plan. Any options or awards outstanding under the 2017 Plan remain outstanding and effective.

2020 Equity Incentive Plan

In April 2020, the 2020 Equity Incentive Plan (the "2020 Plan") became effective, and, as a result, no further awards will be made under the 2017 Plan. The 2020 Plan provides for the grant of stock options qualifying as incentive stock options, to employees and for the grant of nonstatutory stock options, restricted stock awards, RSU awards, stock appreciation rights, performance stock awards and other forms of stock compensation to employees, consultants and directors. The 2020 Plan also provides for the grant of performance cash awards to employees, consultants and directors. Any previously granted awards under the 2017 Plan will remain outstanding in accordance with their respective terms.

Under the 2020 Plan, there is an annual increase on January 1 of each year from January 1, 2021 continuing through January 1, 2030, by 4.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board. On January 1, 2025, the Company increased the number of shares available for future grant under the 2020 Plan by 1,622,188 shares. The awards granted under the 2020 Plan typically vest over atwo- tofour-year period and have a 10-year contractual term.

As of June 30, 2025, there was an aggregate of 4,833,217 shares of common stock issuable upon the exercise of outstanding options and 867,775 shares of common stock issuable upon the vesting of the outstanding RSU awards under the 2020 Plan. Additionally, there were an aggregate of 1,689,821 shares reserved for future issuance under the 2020 Plan, including shares forfeited from the 2017 Plan.

Restricted Stock Units

A summary of RSU award activity during the six months ended June 30, 2025 is as follows (in thousands except share and per share data):

As of June 30, 2025, there was approximately $8.3 million of unrecognized stock-based compensation expense related to RSU awards that is expected to vest. These costs are expected to be recognized over a weighted-average remaining vesting period of approximately 1.64 years.

Stock Options

A summary of option activity during the six months ended June 30, 2025 is as follows (in thousands except share and per share data):

The summary of option activity includes performance-based stock options granted during 2024. As of June 30, 2025, there has been no expense recognized for the performance-based stock options. The weighted-average grant date fair value price per share of options granted during the six months ended June 30, 2025 and 2024 was $10.36 and $40.62, respectively. As of June 30, 2025, there was $61.2 million of unrecognized stock-based compensation expense related to unvested stock options, including $4.9 million of unrecognized stock-based compensation expense related to unvested performance-based stock options. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 2.03 years.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of the stock options outstanding and stock options exercisable was $5.4 million and $5.4 million as of June 30, 2025, respectively. The aggregate intrinsic value of stock options exercised was $0.6 million and $7.3 million during the six months ended June 30, 2025 and 2024, respectively.

2020 Employee Stock Purchase Plan

In March 2020, the Board adopted and the Company's stockholders approved the 2020 Employee Stock Purchase Plan ("ESPP"). The ESPP became effective on April 7, 2020. Under the ESPP, eligible employees can purchase shares of the Company's common stock, based on a percentage of their compensation, subject to certain limits. The purchase price per share is equal to the lower of 85% of the fair market value of the Company's common stock on the first trading day of thetwenty-four month offering period, or on the applicable purchase date. Each offering under the ESPP consists oftwo twelve-month purchase periods.

Under the ESPP, there is an annual increase on January 1 of each year from January 1, 2021 continuing through January 1, 2030, by the lesser of (i)1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (ii)455,852 shares or (iii) or a lesser number of shares as may be determined by the Board. On January 1, 2025, the Company increased the number of shares available for future grant under the ESPP by 405,547 shares. If purchase rights granted under the ESPP terminate without having been exercised, the shares of our common stock not purchased under such purchase rights will again become available for issuance under the ESPP.

As of June 30, 2025, no shares of common stock were purchased under the ESPP. As of June 30, 2025, there was an aggregate of 1,653,408 shares reserved for future issuance under the ESPP.

Stock-Based Compensation Expense

Total stock-based compensation expense recorded for employees, directors and non-employees during the three and six months ended June 30, 2025 and 2024 was as follows (in thousands):

8. INCOME (LOSS) PER SHARE

Basic and diluted income (loss) per share of common stock are calculated as follows (in thousands, except share and per share data):

The Company excluded the following from the computation of diluted net income (loss) per share attributable to common stockholders as of June 30, 2025 and 2024 because including them would have had an anti-dilutive effect:

9. INCOME TAXES

The Company calculates income taxes at each interim reporting period based on the estimated annual effective tax rate for the full year, adjusted for any discrete events which are recorded in the period they occur. Cumulative adjustments to the income tax provision are recorded in the interim reporting period in which a change in the estimated annual effective tax rate is determined. The Company’s income tax (provision) benefit and effective tax rate are presented below (income tax (provision) benefit in thousands):

The increase in the income tax (provision) benefit and the effective tax rate for the three and six months ended June 30, 2025 is primarily due to taxable income during the period resulting from the Takeda Agreement, partially offset by available net operating loss and tax credit carryforwards. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products that would generate revenue from product sales and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance is maintained against the net deferred tax assets.

1 In periods where there is a net loss, zero incremental shares are included as the effect would be antidilutive.

10. COMMITMENTS AND CONTINGENCIES

Purchase Commitments

The Company enters into agreements in the normal course of business with contract manufacturing organizations for process development, raw material purchases and manufacturing services. These contracts typically do not contain minimum purchase commitments and are generally cancellable by the Company upon written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including noncancellable obligations of the Company’s service providers, up to the date of cancellation and, in the case of certain arrangements with contract manufacturing organizations, may include noncancellable fees. Under such agreements, the exact amounts owed by the Company in the event of termination will be based on the timing of the termination and the exact terms of the agreement. As of June 30, 2025, the Company has committed up to approximately $23.1 million under these agreements which are expected to be paid through 2029.

Return of Capital

In June 2025, the Company announced a plan to return $375.0 million in excess capital to stockholders. The terms and structure of this capital return remain under consideration by the Board and are expected to be announced at a future date.

11. REVENUE FROM CONTRACTS WITH CUSTOMERS

Hansoh License Agreement

On December 12, 2021, the Company entered into a license agreement (the “Hansoh Agreement”) with Hansoh (Shanghai) Healthtech Co., Ltd. (“Hansoh”). Under the Hansoh Agreement, the Company granted to Hansoh the exclusive right to develop, manufacture and commercialize elritercept and licensed products containing elritercept within the territories of mainland China, Hong Kong and Macau (the “Hansoh Territory”).

In connection with the Hansoh Agreement, Hansoh will purchase clinical trial supply of elritercept from the Company, and the parties will also negotiate in good faith to enter into an agreement for commercial supply prior to any anticipated commercialization in the Hansoh Territory. In addition, Hansoh will use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize licensed products in any region in the Hansoh Territory.

Pursuant to the Hansoh Agreement, the Company received a one-time, net $18.0 million upfront license payment in January 2022. In addition to the upfront payment and development milestones achieved to date, the Company also be eligible to receive up to an aggregate of (i) $23.5 million upon the achievement of specified development milestones and (ii) $144.0 million upon the achievement of specified net sales thresholds for all licensed products in the Hansoh Territory. If a licensed product is approved for marketing in the Hansoh Territory, the Company will be entitled to receive royalty payments based on a tiered percentage of annual net sales in each region within the Hansoh Territory, with such percentage ranging from the low double digit to high teens, subject to specified potential royalty reductions.

Hansoh’s obligation to pay royalties for a given licensed product in a given region in the Hansoh Territory will begin on the date of the first commercial sale for such licensed product in such region and continue until the latest of (i)10 years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents or joint patents, and (iii) expiration of regulatory exclusivity in such region. During the royalty term, neither party will directly nor indirectly commercialize a competing product in the Hansoh Territory.

The Hansoh Agreement will continue in force on a region-by-region basis until the expiration of the royalty term. Hansoh may terminate the Hansoh Agreement in its entirety for convenience, with notice. The Company may terminate the Hansoh Agreement in its entirety for a patent challenge brought by Hansoh or its affiliates or their sublicensees. Either party may terminate the Hansoh Agreement in its entirety (i) if the other party materially breaches the Hansoh Agreement and fails to cure such breach or (ii) upon the bankruptcy of the other party.

The Company evaluated the Hansoh Agreement and concluded that it was subject to ASC 606, as the Company viewed the Hansoh Agreement as a contract with a customer. As such, the Company assessed the terms of the Hansoh Agreement and identified a single performance obligation for the Company to provide Hansoh an exclusive license to develop, manufacture and commercialize elritercept and licensed products containing elritercept in the Hansoh Territory, including the underlying know-how related to such licenses. All other promised goods/services were deemed immaterial in the context of the Hansoh Agreement. Under the Hansoh Agreement, the Company recognized a one-time, upfront license fee of $20.0 million as revenue and $2.0 million in withholding tax expense during the year ended December 31, 2021. The Company received the net payment of $18.0 million during the three months ended March 31, 2022.

The Company will recognize development milestone payments as revenue at the point in time when it is determined that it is probable such milestones will be achieved as all performance obligations will have been satisfied at the point which a milestone might occur (i.e., Hansoh will have assumed all responsibility for the activities under the Hansoh Agreement). The Company will recognize royalty payments and commercial milestone payments as the associated sales of licensed products are recorded by Hansoh, as they predominantly relate to the license granted with the Hansoh Agreement. The Company recognized $3.0 million as revenue and $0.3 million in withholding tax upon the achievement of a development milestone related to the Hansoh Agreement on its consolidated statement of operations for the year ended December 31, 2024, and a receivable, net of withholding tax, on its consolidated balance sheet as of December 31, 2024. Payment was received during the six months ended June 30, 2025. The Company did not recognize any revenue related to milestones for the three and six months ended June 30, 2025 or 2024.

In connection with the Hansoh Agreement, the Company entered into a manufacturing technology transfer agreement (the “Tech Transfer Agreement”) with Hansoh, effective in June 2023. The Tech Transfer Agreement governs the transfer to Hansoh, by the Company of all documents and information required to complete the manufacturing technology transfer. Under the Tech Transfer Agreement, Hansoh is obligated to make certain payments to the Company, at the rates set forth in the Tech Transfer Agreement, as manufacturing technology transfer services are provided over the term of the Tech Transfer Agreement. The Company recognized zero and $3.8 thousand of service revenue during the three months ended June 30, 2025 and 2024, respectively. The Company recognized $0.1 million and $0.1 million of service revenue during the six months ended June 30, 2025 and 2024, respectively.

In connection with the Hansoh Agreement, the Company entered into a clinical product supply agreement (the “Supply Agreement”) with Hansoh, effective February 2024. The Company evaluated the Supply Agreement and concluded that it was subject to ASC 606, as the Company viewed the Supply Agreement as a contract with a customer. As such, the Company assessed the terms of the Supply Agreement and identified a single performance obligation for the Company to supply Hansoh with clinical product supply. The Company will recognize revenue at a point in time when control transfers, which is deemed to be at the shipping point when the clinical product supply is ready for shipment. The Company didnot recognize any revenue during the three and six months ended June 30, 2025 and recognized $32.3 thousand of revenue during the three and six months ended June 30, 2024.

Takeda License Agreement

On December 3, 2024, the Company entered into a license agreement with Takeda Pharmaceuticals U.S.A., Inc. ("Takeda"), which became effective on January 16, 2025. Under the terms of the license agreement with Takeda (the "Takeda Agreement"), the Company granted to Takeda the exclusive right to develop, manufacture and commercialize elritercept and certain derivative compounds globally, excluding the territories of mainland China, Hong Kong and Macau (collectively, the "Takeda Territory"). Concurrent with the Takeda Agreement, the Company entered into a separate Transition Services Agreement with Takeda (“TSA”), pursuant to which the Company will provide certain transitional services to Takeda, including, but not limited to, clinical trial and manufacturing services, during the term of the TSA (the "Transition Services"). The term of the TSA isfifteen months and may be extended up tosix months under certain circumstances. The Company will receive reimbursement of certain costs incurred by the Company in connection with providing the Transition Services.

Pursuant to the terms of the Takeda Agreement, the Company received a $200.0 million upfront payment in February 2025. In addition to the upfront payment, the Company is entitled to receive up to an aggregate of (i) $90.0 million upon the achievement of specified development milestones; (ii) $280.0 million upon the achievement of specified commercial milestones; and (iii) $740.0 million upon the achievement of specified sales milestones. If a licensed product is approved for marketing in the Takeda Territory, the Company will be entitled to receive royalty payments based on tiered increments of annual net sales in the Takeda Territory, with such percentage ranging from the low double-digits to high teens, subject to specified potential royalty reductions.

Takeda’s obligation to pay royalties for a given licensed product in a given country in the Takeda Territory will begin on the date of the first commercial sale for such licensed product in such country and continue until the latest of (i)10 years from the date of the first commercial sale for such licensed product in such region, (ii) the expiration of the last valid claim of certain licensed patents, and (iii) expiration of regulatory exclusivity in such region.

The Takeda Agreement will continue in force until the expiration of the royalty term. Takeda may terminate the Takeda Agreement (i) in its entirety or on a country-by-country basis for convenience, with notice or (ii) if Takeda reasonably determines that the development, manufacture, and commercialization of the licensed compound or licensed product pose a safety or public health risk. The Company may terminate the Takeda Agreement in its entirety in the event that Takeda or its affiliates bring a patent challenge. Either party may terminate the Takeda Agreement in its entirety (i) if the other party materially breaches the Takeda Agreement and fails to cure such breach; or (ii) upon the bankruptcy of the other party.

The Company assessed this arrangement in accordance with ASC 606 and concluded it is a contract with a customer as defined in ASC 606. As the Company entered into the Takeda Agreement and the TSA concurrently, they were evaluated as a single contract under ASC 606. The Company identifiedtwo performance obligations in the Takeda Agreement and TSA including the license to its intellectual property (“License and Know-How”) and the Transition Services. The Company determined that the License and Know-How were distinct from the Transition Services as Takeda is able to derive benefit from the License and Know-How upon delivery and the Transition Services do not modify the License and Know-How.

The transaction price at inception included fixed consideration consisting of the upfront fee of $200.0 million. It also included variable consideration of $51.4 million relating to the estimated reimbursement of Transition Services costs to be incurred that were not constrained. During the three months ending June 30, 2025, the variable consideration decreased by $13.7 million to $37.7 million due to a decrease in the estimated reimbursement of Transition Services costs expected to be incurred through the end of the transition period. The amount of variable consideration was estimated using the expected value method.

The remaining $90.0 million of specified development milestones, $280.0 million of specified commercial milestones and $740.0 million of specified sales milestones were considered constrained at contract inception and excluded from the transaction price since the Company could not conclude it is probable that a significant revenue reversal in the amount recognized will not occur. The sales-based milestone payments and royalties will be recognized upon occurrence based on the sales and usage-based royalty exception. The Company will reevaluate the transaction price at the end of each reporting period and will adjust the estimate of the transaction price as uncertain events are resolved or other changes in circumstances occur. The Company determined that the Takeda Agreement and TSA did not contain a significant financing component. The transaction price has been allocated to the License and Know-How and the Transition Services on a relative standalone selling price basis. The Company allocated $195.4 million of the transaction price to the License and Know-How and $42.3 million to the Transition Services.

Revenue allocated to the License and Know-How was recognized at a point in time, when control of the License and Know-How was transferred to Takeda. Revenue is recognized when, or as, the Company satisfies its performance obligations by transferring the promised services to Takeda. Revenue is recognized over time using the input method for the Transition Services, based on costs incurred to provide the services as the level of costs incurred over-time best reflect the transfer of services.

Accounts receivable were $15.8 million as of June 30, 2025 andzero as of December 31, 2024. Accounts receivable are amounts due from Takeda for the Transition Services.

A contract liability is an obligation to transfer goods or services for which consideration has been received or is due to a customer. The Company's contract liabilities as of June 30, 2025 and December 31, 2024 consisted of unearned revenue, current of $0.9 million andzero, respectively, and were primarily related to the portion of the upfront payment received from Takeda that was allocated to the Transition Services. These amounts are to be recognized over the remaining estimated transition period expected to be complete by the end of 2025.

Revenue recognized from Takeda for the three and six months ended June 30, 2025 and 2024 is as follows (in thousands):

12. SEGMENT REPORTING

The following table presents segment revenue and significant segment expenses (in thousands) for the three and six months ended June 30, 2025 and 2024:

The Company manages its operations as a single reportable segment focused on developing novel therapeutics. Segment revenue above is 100 percent attributed to the Company’s agreements with Takeda and Hansoh and is equal to consolidated total revenue. All revenues are derived in the United States where the agreements originated. The Company manages expenses on a program level. The significant expense categories outlined above align with the segment-level information that is regularly provided to the chief operating decision maker (“CODM”) to allocate resources, assess performance of the reportable segment, and make key operating decisions. On a quarterly basis, the Company's CODM, who is its Chief Executive Officer, reviews financial information, including consolidated net income, clinical expenses by program, other company expenses and a long-range cash flow projection, to make resource decisions for the Company’s programs to achieve the approved corporate goals. No segment asset information is provided above as the CODM is focused on how expenses impact ending cash by period and overall cash runway. Any review of segment assets, which would focus on cash and cash equivalents, would be at the same level as the consolidated balance sheet. All long-lived assets are held in the United States.

13. Corporate Restructuring

In May 2025, the Board formally approved a plan to reduce the overall workforce by approximately 45% (the "2025 Restructuring"). In connection with the 2025 Restructuring, the Company will incur one-time employee termination benefits, including severance, retention and benefits costs. The Company approximates total costs associated with the 2025 Restructuring will be $3.6 million, of which $2.6 million of severance costs, $0.1 million of retention costs, and $0.2 million of benefits costs were recognized as part of total research and development and general and administrative expenses during the six months ended June 30, 2025. All costs have been incurred under the Company’s single reportable segment. The Company expects the 2025 Restructuring will be substantially complete by the fourth quarter of 2025.

The estimates of the charges and expenditures that we expect to incur in connection with the 2025 Restructuring, and the timing thereof, are subject to several assumptions and the actual amounts incurred may differ materially from these estimates.

2 Other segment items include professional fees, facilities and office expenses, marketing and travel expenses, and other income and expenses, primarily consisting of other taxes and fees and unrealized and realized gains and losses on foreign currency.

In addition, we may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the 2025 Restructuring.

Accrued compensation and benefits costs as of June 30, 2025 and December 31, 2024 is as follows (in thousands):

14. SUBSEQUENT EVENTS

Takeda License Agreement

Under the terms of the Takeda Agreement, the Company is eligible to receive development, commercial and sales milestones with the potential to exceed $1.1 billion. In July 2025, a one-time $10.0 million development milestone was achieved upon dosing of the first patient in the Phase 3 RENEW clinical trial of elritercept.

New U.S. Tax Legislation

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA"), which includes a broad range of tax reform provisions, was signed into law in the United States and the Company continues to assess its impact. The Company currently does not expect the OBBBA to have a material impact on its estimated annual effective tax rate in 2025.