If you have $1,000 that you don't really need for some immediate expense, or aren't saving it for a big ticket purchase in the near future, putting that amount to work by investing it may be a solid option. With competition in the weight loss drugs market picking up sharply and showing only signs of further acceleration, now's a smart time for investors to position themselves in the most credible contenders for tomorrow's winners.
But here's the kicker: Investing in tomorrow's winners may involve a higher level of risk that investing in proven winners.
On that note, Terns Pharmaceuticals (TERN -1.87%) is a biotech developing weight loss therapies that's worth investing $1,000 in today, provided that you're patient enough to hold it for at least a handful of years so that it can (hopefully) get its first product approved for sale. Here's why it's a compelling biotech stock pick.
These results point to a bright future
On Sept. 9, Terns reported the results of a phase 1 clinical trial investigating whether its orally delivered GLP-1 candidate for weight loss, TERN-601, is safe to use with its intended dosing schedule of once per day.
Per the results of that trial, the odds are in its favor. In just 28 days, patients treated with the highest tested dose of the candidate experienced an average weight loss of 4.9% of their mass on average, beyond what was experienced by patients who took a placebo. That's a competitive amount of weight loss compared to the medicines on the market and in development.
But, more importantly, TERN-601 appeared to be fairly tolerable for patients.
There weren't any patients in any of the dose cohorts tested who opted to discontinue their participation in the study or reduce their dose as a result of the side effects they experienced. That creates a stark contrast with other investigations of medicines in the same class, which typically register high rates of patients discontinuing study participation or treatment with the approved medicines due to how uncomfortable they are to take.
In the lowest dose group, 50% of patients reported mild side effects, whereas in the placebo group, 55% of patients reported the same. While the two higher doses tested did appear to cause more mild and also more moderate-strength side effects than placebo, which isn't surprising, the fact that none of those patients dropped out or halted their planned doses is very encouraging.
Though Terns' results are early stage, and so will undergo a more expansive study in phase 2 trials that's set to start in 2025, there are still a couple of takeaways that support the investment thesis for the stock.
First, Terns may have the most tolerable anti-obesity drug candidate right now. It is thus plausible that a low dose of TERN-601 taken daily could make for a highly effective maintenance therapy for patients who have already lost a large amount of weight, or for patients who could stand to lose a few pounds but would otherwise eschew a more intensive therapy with harsher side effects. Both markets are likely to be huge, especially as weight loss drugs proliferate more widely and as prescribing guidelines change in light of the available medicines approved for sale.
The second takeaway is that TERN-601 does not have major safety or efficacy issues stemming from its format as a pill rather than as a shot, like the majority of the other drugs in its class. As Terns isn't investigating an injected formulation of its candidate anyway, that's especially good news because it means that research and development (R&D) resources are not being used inefficiently by testing two different formulations. Plus, it could ultimately mean the therapy could possibly be cheaper than an injection.
Don't discount these risks
As favorable as Terns' latest data appear to be, there are still a few risks that you should be aware of.
As of Q2, Terns has $225 million in cash, cash equivalents, and marketable securities, which management is confident will last it into 2026. Considering that its net loss was only $22.7 million in the same period, that estimate is reasonable. But, it may need to issue new stock or take out debt when its funds start to run low.
There is also the risk that the phase 2 trial of TERN-601, which will be 12 weeks long instead of 28 days, will uncover issues that the phase 1 trial didn't have time to. One particularly devastating problem, aside from unanticipated safety concerns, would be if the candidate's ability to cause weight loss plateaued significantly after the first month of treatment. But there's no reason to expect that right now, so don't let it dissuade you from making an investment.
Given the candidate is still in an early stage of development for its two clinical-stage programs, there are a lot of catalysts ahead, but it will be years before there is any actual revenue, if there ever is. As Terns develops medicines other than TERN-601, it will also be exposed to both downside and upside, which is why an investment of $1,000 is a reasonable size for a starting position. If you're impatient, this might not be the right pick for you, as the biotech will need at least a few years before it has a chance to get anything approved for sale.
