What is the hot, new, exciting, and fast-growing therapeutic area many drugmakers are trying to break into? If you guessed weight loss, you are right on the money. Therapies in this field, such as Eli Lilly's Zepbound and Novo Nordisk's Wegovy, are generating mouthwatering sales, so it's no wonder other companies are looking for a piece of the pie. It's not just prominent players in the industry, either: Many smaller drugmakers are also making moves.

Terns Pharmaceuticals (TERN -1.87%) is one of them. The fledgling clinical-stage drugmaker recently reported positive clinical trial results in this area. Let's look deeper into Terns' progress and decide whether it's worth investing in the stock.

Promising results, but it's still early

Terns Pharmaceuticals is a small-cap biotech company that is currently seeking to develop medicines across oncology and obesity care. Oncology has historically been one of the industry's largest, most competitive, and most lucrative therapeutic fields. Still, it isn't unheard-of for a small drugmaker to carve out a niche in this area, and perhaps the drugmaker can succeed there. But for now, Terns' efforts in the realm of obesity are getting investors excited.

One of its candidates, TERN-601, a potential once-daily oral GLP-1 medicine, recently reported positive results in a phase 1 clinical trial. The study divided patients across four groups, one of which was the placebo group, with the other three receiving various doses of TERN-601. The drug led to statistically significant weight loss, especially in the highest dose group, which had a mean placebo-adjusted weight loss of 4.9% (or 5.5% non-adjusted) in just 28 days. Most adverse reactions to the drug were mild, and it was well-tolerated overall. Terns plans to start a phase 2 study next year.

The company's shares soared by more than 15% following these results. That's not too surprising.

A high-risk, high-reward option

There are several things to note -- positive and negative -- about Terns' obesity candidate. On the positive side, it's an oral GLP-1 drug. The current leading medicines in this category are typically injected once weekly. Some people will opt for the oral version, even if they have to take it daily. However, it hasn't even started a phase 2 study yet.

Meanwhile, other companies are also working on oral weight loss medicines, including Novo Nordisk. Earlier this year, the Denmark-based pharmaceutical giant reported positive results for its own oral obesity candidate, amycretin, which led to a mean body weight reduction of 13.1% in a 12-week phase 1 study. We can't say if amycretin is more effective than TERN-601, or vice versa. What we can say is that Novo Nordisk has the funds and the experience to push its candidates through the developmental stages faster than its much smaller counterpart.

What does that mean for Terns Pharmaceuticals? The biotech has no products on the market and none in phase 2 studies; it generates no revenue, and is consistently unprofitable. It ended the second quarter with $225 million in cash and equivalents, which it thinks can fund operations until 2026.

However, after its phase 1 success with TERN-601, it will raise more money by taking advantage of its soaring stock price and conducting a secondary offering -- a classic move that smaller biotechs typically make in these circumstances. It expects to raise about $150 million in gross proceeds.

While that will help extend its cash runway, it won't make it a more attractive stock. As a company, Terns is in the "proof of concept" phase. Yes, it looks somewhat promising, but a lot could still go wrong. And if anything does go wrong, investors will be left holding worthless shares.

In short, it's far too early to invest in Terns Pharmaceuticals. Even for investors with a heightened tolerance for risk, there are far more attractive biotech stocks, including in the weight loss field.